S&P lifts Education Management

Standard & Poor's said it raised Education Management LLC's corporate credit rating to B+ from B and the issue-level ratings on its debt by one notch while leaving the recovery ratings unchanged.

Following the upgrade, the company's $1.19 billion bank loan due 2013 is rated BB- with a recovery rating of 2, and its $375 million 8¾% notes due 2014 are rated B- with a recovery rating of 6.

The ratings were removed from CreditWatch, where they were placed with positive implications on Sept. 23. The outlook is positive.

The agency said the upgrade reflects Education Management's reduced debt leverage following the repayment of about $316 million of its 10¼% senior subordinated notes with proceeds from its recent initial public offering. Pro forma for the debt repayment, the company's lease-adjusted leverage as of June 30 improved to 4.6 times from 5.2 times.

The B+ rating reflects the company's still relatively high debt leverage, limited discretionary cash flow and dependence on federal student loan programs, the agency said.

In S&P's view, the company's good business position and geographic diversity in the highly fragmented and competitive post-secondary education market are modest positives that do not offset these risks.

The positive outlook reflects S&P's expectation that Education Management could reduce its leverage further over the coming year through continued EBITDA growth.

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