Investors Push Back Learning Care
June 11, 2008
Investors last week pushed back on a Barclays-led $175 million term loan B for child-care services provider Learning Care Group. The term loan was launched last week at Libor plus 450 bps, with an OID of 96 and a 3.5% Libor floor. The proceeds from the term loan, combined with a $40 million revolver, will be used to fund a 60% interest in the company by Morgan Stanley’s private equity division. A.B.C. Learning Centers previously owned Learning Care, and will retain a 40% interest in the company.
“This is a turnaround situation. I looked at [Learning Care’s] profile, and the majority of their [child care] centers are underperforming. I’d rather not invest in a company with operational problems,” said a New York-based investor.
Standard & Poor's recently assigned a B+ rating to the debt to reflect the high debt leverage and weak cash flow that would result from Learning Care’s pending acquisition. The rating also considers management's challenge to effectively manage the company's integration of acquisitions. The transaction is valued at $737 million or 10.5x Ebitda.
“We looked at that one, but decided not to be part of it,” said a CLO manager. “This deal is not going to be a blowout.”
Moody’s Investors Service recently assigned a Ba3 rating to the debt, also because of Learning Care’s high financial leverage and weak cash flow. However, the agency further pointed out that a significant number of centers under the Learning Care umbrella have a relatively short operating history.
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