Moody’s cuts Renaissance Learning debt, rates loan B2

Moody's Investors Service said it affirmed Renaissance Learning, Inc.'s B3 corporate family rating, B3-PD probability of default rating and Caa2 second-lien term loan rating following the upsizing of the first-lien term loan to pay a dividend.

Concurrently, the agency downgraded the existing first-lien debt rating to B2 from B1 and assigned a B2 rating to the new $95 million first-lien term loan add-on.

The greater portion of first-lien debt results in higher expected loss and only a one notch lift from the corporate family rating as compared to two notches under the existing capital structure.

The outlook is stable.

Renaissance is upsizing its first-lien term loan by $95 million and using about $68 million in cash to fund a $160 million dividend and the related fees. Pro-forma for the transaction, the first-lien term loan balance will be about $558 million.

"The increase in debt will result in very high leverage with Moody's adjusted debt to EBITDA at around 8 times and Moody's adjusted debt to cash EBITDA (including change in deferred revenue less change in deferred costs) at about 7 times pro forma for the 12 months ended Sept. 30, 2016," Moody's analyst Todd Robinson said in a news release.

"However, solid earnings growth and the use of excess cash flow to repay debt should allow the company to rapidly delever to a level appropriate for the B3 rating."

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