S&P rates Meritas loan CCC+

Standard & Poor’s said it assigned a CCC+ rating to Meritas Schools Holdings LLC’s proposed $80 million senior secured second-lien term loan with a recovery rating of 5, indicating 10% to 30% expected default recovery.

The proposed loan and simultaneous amendment of the company’s existing first-lien senior secured credit agreement, which allows for the addition of the proposed second-lien term loan, will not affect the existing corporate credit or issue-level rating on the company.

Meritas announced that it will use funds from the proposed second-lien term loan, along with cash on hand, to repay about $33 million of the existing first-lien term loan, fund a distribution to shareholders, pre-fund capital expenditures and fund Leman Manhattan Preparatory School, the agency said.

Leman Manhattan is still being operated at a loss but is transitioning to being a cash flow contributor, S&P said.

Although the proposed term loan will increase pro forma lease-adjusted leveraged to roughly 8.4x from about 7.5x, the agency said it expects the company to generate modest discretionary cash flow in fiscal 2015.

Liquidity also is expected to remain adequate and the cushion of covenant compliance will remain at more than 15% over the intermediate term, S&P said.

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