TEXT-S&P may raise Bright Horizons Capital Corp. 'B' rating

Fri Nov 16, 2012 6:00pm EST

Related Topics

Nov 16 - Overview
     -- U.S.-based childcare center operator Bright Horizons Family Solutions 
Inc. has filed a registration statement with the SEC for a proposed
IPO. The company plans to utilize the proceeds to repay its parent, Bright
Horizons Capital Corp.'s $191.6 million 13% pay-in-kind (PIK) notes.
     -- We expect the planned debt reduction will result in improved credit 
measures and liquidity.
     -- We are placing our ratings on Bright Horizons, including our 'B' 
corporate credit rating, on CreditWatch with positive implications.
     -- If the transaction is completed as contemplated, we see a possibility 
of a one-notch upgrade. 
 
Rating Action
On Nov. 16, 2012, Standard & Poor's Ratings Services placed all ratings on 
Watertown, Mass.-based childcare center operator Bright Horizons Capital 
Corp., including the 'B' corporate credit rating, on CreditWatch with positive 
implications, following the company's announcement of its plan to repay debt 
with proceeds from its proposed IPO filing.

Rationale
The CreditWatch placement follows the company's recent announcement that it 
plans to repay its 13% $191.6 million PIK notes with proceeds from its 
recently proposed IPO filing. If the transaction is successful, we expect pro 
forma lease-adjusted leverage will decline to roughly 5x from about 6x as of 
Sept. 30, 2012. The transaction will also further improve its adequate 
liquidity position as these notes require cash interest payments in June 2013. 
The company was required to make a make a $98 million principal redemption 
based on the accretion of the notes since their issuance four years ago.

We view Bright Horizons' business risk profile as "fair" because of its good 
position in employer-sponsored centers, some sensitivity of capacity 
utilization rates to high unemployment, and highly competitive conditions in 
the fragmented child care business. In the third quarter, revenue and EBITDA 
outperformed our expectations, growing 10% and 29%, respectively. The EBITDA 
margin was relatively high at 15.4% for the 12 months ended Sept. 30, 2012. 
Margins have risen over 200 basis points over the past three years due to the 
growth of higher-margin back-up care services, steady 3% to 4% tuition rate 
increases, and improving critical mass of international operations.

CreditWatch
We will resolve the CreditWatch listing upon completion of the planned IPO and 
our review of the company's business and financial strategies and its 
operating outlook. We believe the rating upside is limited to one notch based 
on the company's aggressive financial policies, including its desire to 
continue modest acquisitions and invest in new centers.

Related Criteria And Research
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- Criteria Guidelines For Recovery Ratings, Aug. 10, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
     -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
 
Ratings List
Ratings Affirmed; CreditWatch Placement
                                        To                 From
Bright Horizons Capital Corp.
 Corporate Credit Rating                B/Watch Pos/--     B/Stable/--

Bright Horizons Family Solutions Inc.
 Senior Secured                         BB-/Watch Pos      BB-
   Recovery Rating                      1                  1

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 
column.
FILED UNDER:
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