Ascend Learning LLC Downgraded To 'B-' On Debt-Financed Dividend, Outlook Stable; New Debt Rated

  • U.S.-based Ascend Learning LLC plans to pay a $400 million dividend to its financial sponsors, Blackstone Group L.P. and Canada Pension Plan Investment Board, using proceeds from a new $300 million unsecured notes offering due 2025 and about $100 million of cash on hand.
  • The proposed debt issuance will weaken credit metrics, with pro forma adjusted free operating cash flow (FOCF) to debt below 6% and adjusted debt to EBITDA of more than 8x. We believe the company's more aggressive financial policy will result in sustained weak metrics over the longer term.
  • On Feb. 11, 2019, S&P Global Ratings lowered its issuer credit rating on Ascend to 'B-' from 'B', issue-level ratings on the first-lien debt to 'B-' from 'B' and on the senior unsecured notes to 'CCC' from 'CCC+'.
  • We assigned our 'CCC' issue-level rating and '6' recovery rating to the proposed senior unsecured notes.
  • The stable outlook reflects our expectations that credit metrics will remain weak given the company's aggressive financial policy, but we expect Ascend will continue to report good operating trends and generate positive FOCF of about $50 million over the next 12 months.
NEW YORK (S&P Global Ratings) Feb. 11, 2019--S&P Global Ratings today took the 
rating actions listed above. The downgrade reflects the company's aggressive 
financial policy and weakened credit metrics. Pro forma for the debt increase 
as of Dec. 31, 2018, adjusted debt to EBITDA is around 8.3x and adjusted FOCF 
to debt is about 6% (excluding non-recurring one-time charges, including a 
negative impact from purchase accounting related to its 2017 leveraged 
buyout). We expect these credit metrics will modestly improve on EBITDA growth 
but remain weak over the next 12 to 18 months. Notwithstanding the company's 
good operating trends, including our expectations for mid- to 
high-single-digit percentage revenue and EBITDA growth, Ascend has substantial 
debt (roughly $1.3 billion) relative to its size. We recognize the company's 
potential to deleverage to under 7.5x, however we believe Ascend will continue 
to opportunistically reward its private equity sponsors with dividends or 
pursue debt-funded acquisitions.

Ascend, a technology based training provider, has a concentrated niche focus 
in the health care and related end markets, which are inherently fragmented 
and competitive. The company generates about 50% of total revenue from its 
clinical health care segment. It competes against larger and 
better-capitalized peers like Kaplan Education, and with the exception of its 
U.K. Premier Global business (under the Fitness & Wellness segment), Ascend 
has limited geographic diversity outside the U.S. 

In our view, there are relatively low barriers to entry with minimal switching 
costs that would afford market share protection for Ascend, particularly in 
the Fitness & Wellness and Professional Certification & Licensure business 
segments.  Still, the company's leading market position in test preparation 
for nursing licensing exams, track record of good student outcomes, 
long-standing client relationships, and market-leading position (particularly 
in the clinical health care segment) offset some of these risks. 

The stable rating outlook on Ascend reflects our expectation that the company 
will continue exhibiting good revenue and EBITDA growth over the next 12 to 18 
months. However, we expect credit metrics will remain weak because of its high 
debt burden and aggressive financial policy. 

We could lower our issuer credit rating if Ascend pursues additional 
debt-financed dividends or faces operating challenges such as pricing pressure 
or lost customer relationships because of increased competition or inability 
to integrate significant acquisitions. This would cause revenue growth 
challenges and margin pressure resulting in cash flow concerns and 
fixed-charge coverage below 1.5x. 

An upgrade is unlikely over the near term based on our forecast for the next 
12 to 18 months. We could raise the rating if the company meaningfully grows 
its EBITDA base and maintains adjusted debt leverage below 7.5x and adjusted 
FOCF above 5% on a sustained basis.
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