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4-Traders Homepage  >  Equities  >  Nyse  >  Moody's Corporation    MCO

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Rating Action: Moody's changes outlook on Nord Anglia Education's B1 ratings to negative

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05/04/2016 | 10:39am CEST

Release date- 04052016 - Moody's Investors Service has changed Nord Anglia Education, Inc's (NAE) rating outlook to negative from stable.

Moody's has also affirmed the company's B1 corporate family rating (CFR), as well as the B1 ratings on its $869 million senior secured term loan B, $125 million senior secured revolving credit facility, and CHF200 million senior secured notes.

All issuances have been issued by Nord Anglia Education Finance LLC and are guaranteed by NAE.

RATINGS RATIONALE

'The change in the outlook to negative reflects Moody's expectations that acquisitions and modest pressure on margins will delay an expected reduction in leverage, with adjusted debt/EBITDA likely to remain near 7.0x for fiscal 2016,' says Joe Morrison, a Moody's Vice President and Senior Credit Officer.

NAE has said that it would continue to pursue acquisitions of schools utilizing the proceeds of its planned sale-and-lease back transactions of $167 million.

Moody's says that continued acquisition activity could constrain NAE's ability to realize lower leverage, even though it will benefit from incremental earnings contributions from acquired schools, as well as increases in enrollments and tuition fees that should result in a decrease in the level of leverage in FY2017.

Projected adjusted debt/EBITDA of 6.5x -- 7.0x over the next 12 months is high for the B1 category.

NAE's results for fiscal second quarter ended 29 February 2016 reflected modest pressure on reported profit margins, arising in turn from the impact of recent acquisitions of lower margin schools; expenses associated with start-up schools (particularly in Chicago), new school openings; and new employment-related taxes in China.

Moody's estimates that on a pro forma basis, which assumes full-year revenue contributions from acquired schools and factors in the recent announced sale-leasebacks of three schools in the US, NAE's adjusted EBITDA margin, EBITDA interest coverage, and debt/EBITDA for the 12 months ended 29 February 2016 were about 30%, about 2.9x, and over 7.0x, respectively.

However, at end-February 2016, NAE had $155 million in cash holdings, excluding bank overdrafts, which was more than sufficient to cover short-term borrowings under its revolving credit facility of $74 million. Moody's notes that the second quarter of the fiscal year is typically the seasonal low for the company's cash holdings.

NAE's stable and predictable cash flows, which stem from demand for its premium educational services, support the ratings. Moody's expects that NAE will be disciplined in executing its acquisition strategy, acquiring individual schools in existing markets that are accretive to earnings and cash flow.

Upward rating pressure is unlikely over the next 12-18 months, given the negative outlook. However, the outlook would likely return to stable, if the company establishes a track record of pursuing acquisitions in a more conservative manner and reduces leverage, such that debt/EBITDA trends toward 6.0-6.5x on a sustainable basis.

Negative pressure on the ratings could arise if business conditions deteriorate and/or the company undertakes large-scale acquisitions, such that leverage-as measured by adjusted debt to EBITDA-stays above 6.0-6.5x over the next 12-18 months.

Furthermore, a material deterioration in the company's liquidity position would heighten downward pressure on the ratings.

The principal methodology used in these ratings was Business and Consumer Service Industry published in December 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Nord Anglia Education, Inc. is headquartered in Hong Kong and operates 42 international premium schools in Asia, Europe, the Middle East, and North America, with more than 35,300 students ranging in level from pre-school through to secondary school. NAE also provides outsourced education and training contracts with governments and curriculum products through its Learning Services division. For the 12 months ended February 2016, NAE generated revenues of about $749 million.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Joe Morrison

VP - Senior Credit Officer

Corporate Finance Group

Moody's Investors Service Hong Kong Ltd.

24/F One Pacific Place

88 Queensway

Hong Kong

China (Hong Kong S.A.R.)

JOURNALISTS: (852) 3758 -1350

SUBSCRIBERS: (852) 3551-3077

Gary Lau

MD - Corporate Finance

Corporate Finance Group

JOURNALISTS: (852) 3758 -1350

SUBSCRIBERS: (852) 3551-3077

Releasing Office:

Moody's Investors Service Hong Kong Ltd.

24/F One Pacific Place

88 Queensway

Hong Kong

China (Hong Kong S.A.R.)

JOURNALISTS: (852) 3758 -1350

SUBSCRIBERS: (852) 3551-3077

(c) 2016 Electronic News Publishing -, source ENP Newswire

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