Adtalem Global Education Inc. — Moody’s affirms Adtalem’s B1 CFR; outlook changed to positive

Rating Action: Moody’s affirms Adtalem’s B1 CFR; outlook changed to positiveGlobal Credit Research – 10 Mar 2022New York, March 10, 2022 — Moody’s Investors Service (“Moody’s”) affirmed Adtalem Global Education Inc.’s (“Adtalem”) B1 corporate family rating (“CFR”) and its B1-PD probability of default rating (“PDR”). The company’s senior secured first lien credit facility, which includes an $850 million term loan facility due 2028 and a $400 million revolving credit facility expiring in 2026, was also affirmed at B1, and its $800 million senior secured notes due 2028 was also affirmed at B1. The speculative grade liquidity rating was maintained at SGL-1. The outlook was changed to positive from stable.Today’s rating action is driven by Adtalem’s announcement it intends to repay approximately $770 million of debt from the expected $820 million in net proceeds from the pending divestiture of the financial services segment, which is expected to close by March 31, 2022. Debt is expected to be paid down approximately 30 days after transaction close.Governance considerations are a driver for this rating action due to the meaningful amount of debt paydown expected from the financial services segment divestiture. Adtalem’s credit metrics will considerably improve from the debt paydown. Leverage as of December 31, 2021 was 4.3x, and pro-forma for the financial services divestiture, unrealized synergies from the Walden University (“Walden”) acquisition and the expected debt paydown, Moody’s estimates leverage improves to about 2.5x. Excluding unrealized synergies, leverage increases to about 2.8x. Adtalem should also realize approximately $40 million of annualized interest expense savings which strengthens its liquidity profile and improves its interest coverage and cash flow metrics. Moody’s expects student enrollment declines to persist through at least Adtalem’s fiscal year 2022 largely driven by headwinds related to the coronavirus pandemic, which will increase leverage. While Adtalem is strongly positioned to capture high employment demand over the next several years in the nursing, medical and veterinary fields, there is uncertainty as to when Adtalem will return to sustained enrollment growth.All financial metrics cited reflect Moody’s standard adjustments unless otherwise noted.Affirmations:..Issuer: Adtalem Global Education Inc….. Probability of Default Rating, Affirmed B1-PD…. Corporate Family Rating, Affirmed B1….Senior Secured 1st Lien Term Loan B, Affirmed B1 (LGD3)….Senior Secured 1st Lien Revolving Credit Facility, Affirmed B1 (LGD3)….Senior Secured Regular Bond/Debenture, Affirmed B1 (LGD3)Outlook Actions:..Issuer: Adtalem Global Education Inc…..Outlook, Changed To Positive From StableRATINGS RATIONALEAdtalem’s B1 CFR reflects Adtalem’s track record of good financial performance at its for-profit medical, veterinary, and nursing programs while operating in a challenging higher education regulatory environment, good free cash flow generation, and very good liquidity profile. The rating is constrained by Adtalem’s substantial regulatory requirements for operating for-profit higher education businesses, integration and execution risks associated with the Walden acquisition, and Moody’s expectation that Adtalem will prioritize using free cash flow to repurchase shares over the next three years over voluntary debt repayment, limiting leverage from meaningfully decreasing. The rating is also constrained by enrollment declines that have occurred since its September 2021 quarter which Moody’s expects to continue at least through fiscal year 2022.The SGL-1 rating reflects Moody’s expectation that liquidity will be very good over the next 12 to 18 months supported by pro-forma cash balances of about $325 million as of December 31, 2021 and strong free cash flow generation. Amortization payments on the term loan are expected to be fully satisfied due to the anticipated sizable repayment of the term loan. The company’s $400 million revolving credit facility expires in 2026. With the exception of an $84 million letter of credit assumed by Adtalem which allows Walden to participate in Title IV programs, Moody’s does not expect Adtalem to draw on the revolver. Within its most recent 10-K, Adtalem noted that it expected its composite score to fall below 1.5 for its fiscal year 2022 financial responsibility test, which may result in additional letters of credit to continue participating in Title IV programs. The revolver contains a maximum total net leverage ratio covenant that cannot exceed 4x until December 31, 2023 and steps down to 3.25x thereafter. Moody’s expects the company to maintain ample cushion under its financial covenant. Alternate liquidity is limited as the company’s credit facilities are secured by a first-priority lien on substantially all tangible and intangible assets.Debt capital is comprised of the company’s senior secured first lien credit facility, which includes an $850 million term loan facility due 2028 and a $400 million revolving credit facility expiring in 2026, and $800 million senior secured notes due 2028. The B1 credit facility and senior secured notes ratings, the same as the B1 CFR, reflect the preponderance of debt represented by the credit facility and notes. The senior secured notes and first lien credit facilities have a first lien priority on substantially all assets of the combined company. While the mix of the expected $770 million debt paydown between the term loan and the senior secured notes is not yet known, it will have no impact on the individual instrument ratings given that the credit facility and senior secured notes are ranked pari passu.The positive outlook reflects Moody’s expectation that Adtalem will return to student enrollment growth in fiscal year 2023, generate free cash flow to debt at least in the high single digit percentage range, and successfully integrate Walden into its operations.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if Adtalem returns to and maintains strong student enrollment growth and if leverage decreases and is sustained below 2.75x while the company maintains balanced financial policies and a very good liquidity profile.Adtalem’s ratings could be downgraded if leverage is sustained above 4x, if enrollments meaningfully decline, its liquidity position meaningfully deteriorates, or if the company encounters any substantial challenges in integrating Walden with its operations. A downgrade may also be warranted if unanticipated regulatory challenges result in sizeable litigation expenses, ineligibility for Title IV funding or the removal of accreditation to one of the company’s learning institutions.Headquartered in Chicago, Illinois, Adtalem Global Education Inc. is a global provider of educational services with a focus on Medical and Healthcare. The company operates five educational institutions across the US and Caribbean. Pro-forma for the financial services segment divestiture, revenue totaled approximately $1.1 billion for the last twelve months ended December 31, 2021.The principal methodology used in these ratings was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. 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Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Sean Cray Analyst Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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