Bright Horizons Family Solutions LLC Outlook Revised To Negative From Positive Amid COVID-19; 'BB-' Rating Affirmed

  • Bright Horizons Family Solutions LLC has closed more than half of its U.S.-based centers through April because of the COVID-19 pandemic. We believe the company could increase the number of closed centers and extend closures as the virus spreads. Furthermore, S&P Global Ratings economists believe a recession in the U.S. and Europe is likely in 2020, which could dampen a rebound in earnings given the significant rise in U.S. unemployment.
  • We expect Bright Horizons' operating performance will be significantly weaker than our previous expectations, with leverage increasing to the high-3x to low-4x range over the next 12 months, with the potential for a further increase dependent on the extent and severity of the impact of the COVID pandemic on the company's performance.
  • We have revised our outlook to negative from positive and affirmed our ratings on Bright Horizons, including our 'BB-' issuer credit rating.
  • The negative outlook reflects the possibility of a downgrade if the effects of the COVID-19 pandemic and a broader economic recession result in leverage in the high 4x area.
NEW YORK (S&P Global Ratings) March 27, 2020—S&P Global Ratings today took the rating actions listed above.
The COVID-19 pandemic and a broader economic downturn are expected to significantly affect Bright Horizons' operations through the second half of this year or longer.   Given the high uncertainty about the rate of spread and peak of the coronavirus pandemic, we assume it will peak between June and August, which could hinder the company's ability to reopen centers.
The negative outlook reflects the heightened uncertainty regarding the impact of the coronavirus pandemic and impending recession on Bright Horizon's credit metrics. This could result in leverage rising to the mid- to high-4x area on a sustained basis.
We could lower the ratings if Bright Horizons' credit metrics weaken such that adjusted debt to EBITDA rises to the mid- to high-4x area on a sustained basis. This could occur if the impact of the pandemic and subsequent recessionary macroeconomic environment are more severe and prolonged than we expect, delaying center reopenings and operating performance improvements to later this year and beyond.
We could revise the outlook to stable if the impact from the pandemic and weak economy is less severe than we anticipate, and revenues and earnings significantly rebound later this year and into 2021. Under this scenario, we would anticipate sustained leverage of 3.5x or below.
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