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.
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.
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.
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 Affirmed; CreditWatch Placement
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