Apollo, K-12 Management Back Sylvan Acquisition

  • 27 Apr 2003
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Buyout firm Apollo Management and the K-12 management of Sylvan Learning Systems will use $130 million in bank debt to help fund the acquisition of the K-12 core Sylvan businesses, in a transaction worth $275-300 million. Sylvan will focus on its international and online university business, while a new company, Educate Operating Co. is being formed by Apollo and the K-12 management to provide education for students ranging from kindergarten through high school. The bank facilities for Educate will consist of a five-year, $20 million revolver and a five-and-a-half year, $110 million term loan, rated B1 by Moody's Investors Service.

"The key is really the economy. Dual income families have increased and parents want their children to do well, particularly as the competitive challenges of getting into quality colleges increases," explained Paul Aran, v.p. and senior analyst with Moody's. "If the economy improves families' disposable income should increase," he added. The number of dual income families increases both the need and the affordability of Sylvan's services as parents have less time to help their children with their homework.

Educate will have high leverage levels, according to Moody's. At 4.4 times debt to EBITDA for 2002, this is higher than Knowledge Learning Corp. which garnered a Ba3 rating (LMW, 3/23). The debt-to-EBITDA is expected to be 3.5 times for 2003. In addition to the high leverage, the term loan will be repayable in quarterly installments with year one amortization of only $2.5 million, but with significant step-ups. For example, year two amortization is scheduled at $12.5 million while year three is $15 million. "Though there are significant step-ups, Moody's believes the company has a strong brand name and is very competitive in the child tutoring services. As the step-ups increase, the company will be challenged, but should be able to meet the payments," Aran noted.

The rating also reflects the low levels of tangible assets due to the large concentration of franchised centers versus company owned centers. Fees paid by franchise holders are paid as a percent of sales thereby causing any weakness on sales to be more strongly felt in the company's margins. While this mix allows for lower capital expenditures it also reduces the level of tangible collateral. Calls to Sean Creamer, Sylvan's cfo, were not returned.


Other Newly Rated Deals*
BorrowerLoan SizeRatingAgency
CMS Energy Corp.$925 millionBBS&P
Jafra$100 millionB1Moody's
* Thurs, Apr. 17 through Wed, Apr. 23
  • 27 Apr 2003

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Citi 3,691 11 20.70
2 Morgan Stanley 2,420 6 13.57
3 Goldman Sachs 2,096 5 11.75
4 BNP Paribas 1,686 6 9.45
5 Barclays 1,565 4 8.78

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 40,734.72 129 11.29%
2 JPMorgan 32,938.92 93 9.13%
3 Wells Fargo Securities 30,907.51 87 8.57%
4 Bank of America Merrill Lynch 27,917.30 88 7.74%
5 Credit Suisse 22,890.32 71 6.35%