S&P lifts Educate loan

Standard & Poor's said it affirmed its B- corporate credit rating on Educate Inc., revised the recovery rating on its second-lien term loan to 4 from 6 and raised the issue-level rating on this debt to B- from CCC.

The B+ issue-level rating and 1 recovery rating on the company's first-lien credit facilities were withdrawn following the repayment of the first-lien term loan and termination of the revolving credit facility.

The outlook is stable.

The agency said that despite Educate's minimal headroom on its second-lien leverage covenant, S&P expects the company will be able to maintain positive discretionary cash flow, even if a potential amendment of its credit agreement causes its interest expense to rise. For the 12 months ended March 31, the lease-adjusted debt-to-EBITDA ratio was 3.7 times.

The B- rating reflects Educate's weak operating performance, declining same-store sales trends and thin margin of compliance with its second-lien bank covenant, the agency said.

Minimal positive factors are its good market position in the highly fragmented after-school tutoring business and its modest discretionary cash flow, S&P said.

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