S&P gives Teaching Strategies B-

S&P said it gave B- ratings to Teaching Strategies LLC (Foundational Education Group Inc.) and its expected $370 million first-lien credit facility, consisting of a $50 million revolving credit facility due 2026 and a $320 million first-lien term loan due 2028. The loans’ recovery rating is 3.

The agency also assigned CCC issue-level and 6 recovery ratings to its $115 million second-lien term loan due 2029.

“Our rating on Teaching Strategies reflects its high leverage, small scale, and niche focus in the fragmented ECE market. Offsetting this is its highly regarded curriculum and assessment solutions, a growing subscription base from the recent launch of its digital curriculum product in mid-2020, and high net retention rates expected to be around 110% over the medium term,” S&P said in a press release.

Kohlberg Kravis Roberts & Co. LP agreed to acquire the company. It will use the two term loans and equity.

“We believe the debt being issued, as a percentage of the purchase price, is relatively low compared to typical private equity structures. Therefore, we believe a dividend recapitalization is possible over the next 12-24 months, once the cash-adjusted EBITDA base has sufficiently scaled,” the agency said.

The outlook is stable.

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