Spring Education Challenged by High Leverage, Negative Cash Flow

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On November 9, 2020, Moody's Investors Service downgraded its corporate family rating on Spring Education Group, Inc. to Caa1 from B3, its probability of default rating to Caa1-PD from B3-PD, its Senior Secured First Lien Bank Credit Facilities (revolver and term loan) rating to B3 form B2 and its Senior Secured Second Lien Term Loan to Caa3 from Caa2.

Spring Education's rating reflects its very high leverage with Moody's lease adjusted debt-to-EBITDA expected to rise to about 10.0x in 2021 due to an earnings decline primarily from its early childhood segment as a result of contracting enrollment related to the ongoing coronavirus pandemic. The ratings agency also expects free cash flow generation to continue to be negative over the next year. The rating is constrained by the aggressive financial policies as evidenced by three primarily debt funded acquisitions since the LBO in 2018, modest scale and operation in the competitive primary school market. The rating further reflects enrollment exposure to economic conditions due to the cyclical nature of the for-profit education industry, especially in the early childhood education segment, according to Moody’s.

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