Moody's downgrades Edmentum loan

Moody's Investors Service said it affirmed Edmentum Inc.'s corporate family rating at Caa1 and first-lien senior secured revolving credit facility due 2017 and term loan due 2018 at B2 (LGD3) and downgraded its probability of default rating to Ca-PD from Caa1-PD and its second-lien senior secured term loan due 2019 to Ca (LGD5) from Caa3 (LGD5). The outlook is negative.

On April 20, Edmentum announced it reached an agreement with its lenders to recapitalize its balance sheet and reduce debt. The proposed transaction calls for a paydown of a portion of the company's $231 million first-lien debt, a substantial reduction in the company's $140 million of second-lien debt and $35 million of new capital from the company's second-lien lenders. The second-lien lenders will own substantially all of the equity in the reorganized company. Moody's said it will consider this debt-for-equity exchange as a distressed exchange.

The restructuring of the balance sheet will improve the company’s liquidity profile and is expected to reduce debt levels, the agency said, but the first-lien credit facilities could be downgraded due to the loss of junior debt cushion upon recapitalization.

The negative outlook reflects the planned restructuring of the balance sheet and debt-for-equity exchange.

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