Laureate’s Credit Rating Drops Because of Growing Debt

Moody’s Investors Service announced on Friday that it had downgraded the ratings outlook of Laureate Education Inc., to negative from stable. The credit-rating agency affirmed the for-profit education company’s B2 Corporate Family Rating but lowered its senior secured bank-credit facilities to B2 from B1.

Laureate has become increasingly leveraged because of debt-financed acquisitions, and Moody’s said it was concerned that returns on those investments would be insufficient to support a B2 rating over the near term. The rating affects about $3.6-billion worth of debt.

In the fiscal year that ended on December 31, Laureate invested $700-million in acquisitions and capital expenditures, which Moody’s termed “well above recent historical averages.” Counting a pending $500-million debt-financed purchase of the Brazilian education chain FMU, Moody’s said, Laureate’s debt is about $6-billion, an 80-percent increase over five years.

Moody’s called Laureate’s liquidity “adequate,” with $427-million on hand as of March 31. The credit-rating agency said Laureate’s B2 rating was supported by a number of factors, including the company’s “prominent market position in the international for-profit, postsecondary education space” and positive enrollment trends based on the expectation of positive economic growth in most of the countries in which it operates.

“In addition, because the company operates primarily outside of the United States, it does not face the same regulatory pressures relating to Title IV funding that negatively affects many U.S.-based for-profit education providers,” Moody’s said.

Laureate’s ratings could be lowered if enrollments weaken, Moody’s said, but they could be raised if the company’s earnings substantially reduce debt and improve in liquidity.

Laureate, based in Baltimore, provides academic programs to some 850,000 students in 29 countries both online and on traditional campuses.

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