Moody's cuts Riverdeep loans to B1

Moody's Investors Service said it assigned a B1 (LGD2, 29%) rating to Riverdeep Interactive Learning USA, Inc.'s $500 million add-on first-lien senior secured term loan due 2013, affirmed its corporate family and probability-of-default ratings at B3 and downgraded its $250 million first-lien senior secured revolving credit facility due 2012 and $1.62 billion first-lien senior secured term loan due 2013 to B1 (LGD2, 29%) from Ba3 (LGD 2, 22%).

The outlook remains negative.

Proceeds from the proposed add-on term loan will be used to refinance $481 million of the company's unrated $1.07 billion subordinated bridge facility.

The agency said the ratings reflect the heavy debt burden, high leverage and integration risks the company incurred in connection with its acquisition of Houghton Mifflin Co. in December; the high degree of competition encountered from larger and higher-rated rivals in the U.S. basal publishing market; and uncertainties concerning Riverdeep's ability to increase publishing and software sales and effect synergies.

The ratings are supported by the merged company's ability to cross-sell a broader range of print and digital basal and supplemental educational products and to capitalize upon a relatively strong 2007-2010 state adoption calendar, Moody's said.

The negative outlook reflects the agency's concerns about the company's reported 2006 EBITDA, which fell short of expectations; its ability to deliver the level of synergies currently expected during 2007; and the possibility that management may engage in further acquisition activity.

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