March 14, 2012 / 9:18 PM / 5 years ago

TEXT-S&P rates Education Management term loan 'BB'

March 14 - Standard & Poor's Ratings Services said today that it
assigned Pittsburgh-based Education Management LLC's new $350 million term loan
due 2018 its 'BB' issue-level rating (one notch higher than the 'BB-' corporate
credit rating on the company). The recovery rating on this debt is '2',
indicating our expectation of substantial (70% to 90%) recovery for lenders in
the event of a payment default.	
	
The 'BB-' corporate credit rating on the company, along with the negative 	
rating outlook, remains unchanged. 	
	
The 'BB-' rating reflects Education Management's dependence on federal student 	
loan programs and the limitations set by the Department of Education's (DoE) 	
regulations on gainful employment and federal student loan eligibility. We 	
expect the company's revenue and EBITDA trends to remain under pressure in 	
2012 and potentially beyond, as the company implements further initiatives to 	
reduce student loan default rates and revises its business practices to comply 	
with new regulations.	
	
We view Education Management's business risk profile as "weak" (based on our 	
criteria) because the regulatory risk outweighs its good market position and 	
business fundamentals. We continue to assess the company's financial risk 	
profile as "aggressive" (based on our criteria) as a result of the high debt 	
balances it incurred in its 2006 LBO. For 2012, under our base-case scenario, 	
we expect leverage to be in the mid-4x area, broadly in line with the 	
financial risk indicative ratio range of 4x-5x that we associate with an 	
aggressive profile under our criteria.	
	
Education Management is one of the leading for-profit post-secondary education 	
providers, offering both traditional and online programs in career-oriented 	
disciplines. The company directly or indirectly derived 90.3% of its fiscal 	
2011 net revenue from federal government-sponsored financial aid (compared 	
with 88.5% in fiscal 2010) that its students receive. We consider this high 	
exposure to federal student lending as a long-term risk for the company, 	
because any legislative or regulatory action that results in a substantial 	
reduction in funding would significantly hurt its profits.	
	

RELATED CRITERIA AND RESEARCH	
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011	
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009	
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009	
     -- Standard & Poor's Revises Its Approach To Rating Speculative-Grade 	
Credits, May 13, 2008	
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008	
	
RATINGS LIST	
	
Education Management LLC	
 Corporate Credit Rating            BB-/Negative/--	
	
New Ratings	
	
Education Management LLC	
	
 $350 mil term loan due 2018        BB	
   Recovery Rating                  2	
	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.

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