Moody's assigns Teaching Strategies B2

Moody's Investors Service said it assigned first time ratings to Foundational Education Group, Inc. (Teaching Strategies), including a B3 corporate family rating, a B3-PD probability of default rating, B2 ratings for its first-lien revolver and term loan and a Caa2 rating for the second-lien term loan.

“Teaching Strategies' B3 CFR broadly reflects its very small scale as measured by revenue and competition in the fragmented market it serves. The rating also reflects Teaching Strategies' very high leverage with Moody's adjusted debt to EBITDA of about 12x after deducting software and product development cash outlays for the trailing 12 months ended March 31, 2021, and pro forma for the LBO. Barring additional borrowings, Moody's expects debt-to-EBITDA leverage will decline to below 10x by end of FY22 with earnings growth.

“The very high leverage and small scale weakly positions the company within the B3 category. Additionally, the rating reflects the company's private equity ownership and the expected aggressive financial policy that will likely include debt funded acquisitions given its growth strategy,” the agency said in a press release.

Proceeds from the term loans and a substantial amount of common equity from private equity firm KKR will be used to finance the acquisition of Teaching Strategies in a leveraged buyout.

The outlook is stable.

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