Moody's keeps Educate on downgrade review

Moody's Investors Service said it continued its review for possible downgrade of Educate, Inc. following the company's announcement that it has entered into a definitive agreement to be acquired by a group of investors that includes Sterling Capital Partners, Citigroup Private Equity and members of management. The transaction values the company at about $535 million, or about 13 times Moody's estimates of 2006 EBITDA, to be paid as a combination of debt and equity.

The ratings under review include Educate's B1 corporate family rating and Educate Operating Co., LLC's Ba3 (LGD2, 24%) $30 million senior secured revolving credit facility due 2009 and $159 million senior secured term loan B due 2012.

The primary basis for Moody's rating review is the company's declining cash flow and earnings, operational concerns with respect to the company's corporate-owned learning centers and the potential loss of operational focus as the company considers the proposed buyout, the agency said.

Moody's expects the transaction to close in the second quarter of 2007. If the existing debt is repaid as part of the transaction, the agency said it will confirm and then withdraw the existing ratings. If the existing debt is assumed, Moody's will assess the effects on the existing debt caused by changes in the company's capital structure.

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