Moody's cuts Meritas view

Moody's Investors Service said it affirmed Meritas Schools Holdings, LLC's B2 corporate family and probability of default ratings.

Moody's also affirmed the Ba3 rating on the first-lien senior secured credit facilities and the B3 rating on the second-lien term loan.

The outlook was revised to negative from stable.

Moody's said the outlook revision reflects discretionary capital spending that is materially higher than Moody's expected at the time of the initial rating in July 2011. This level of spending has contributed to weak coverage of interest expense (on an EBITDA less capex basis) and negative free cash flow.

In Moody's opinion, this higher level of capital spending reduces the company's financial flexibility and increases vulnerability to weakening economic conditions. The cash balance, albeit still large, is declining at a faster rate than Moody's said it had anticipated due to high capital spending.

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