Milken's Knowledge Learning Increases Debt

Knowledge Learning Corp. (KLC) is adding on a seven-year, $38 million "B" piece to an existing $197 million "B" loan. Proceeds from the add-on and $15 million of cash will be used to repay $35 million of senior subordinated notes and partially repay $16.3 million of a $40 million seller note held by the holding company, Knowledge Schools . KLC is a subsidiary of Michael Milken and Larry Ellison 's Knowledge Universe .

Moody's Investors Service has assigned a Ba3 rating to the add-on and confirmed the Ba3 rating on the existing "B" loan and $25 million revolver. The ratings reflect the company's high leverage, heavy reliance on leases and flat occupancy rate. BNP Paribas leads the existing "B" loan and revolver.

The ratings benefit from the synergies and scale expected to be achieved through KLC's acquisition of Aramark Corp. 's Educational Resources (AER) division in May, diversified customer base and stable business model. Since the AER acquisition, "The company's performance has been in line with our expectations," said Paul Aran , v.p. and senior analyst with Moody's. "That's one of the reasons why we felt comfortable confirming the ratings." KLC used funds from a $260 million bank credit facility to fund the $265 million acquisition (LMW, 3/24). "Management has had an interesting task of merging two companies together. It's always tough to know how things are going to play out and management's ability to successfully consolidate two companies while managing the business," Aran added. "We feel they have been delivering."

The ratings outlook is stable, reflecting the company's diversified customer base and consistent customer demand. Upon completion of the add-on, 2004 debt-to-EBITDA is expected to be around 2.7 times. Including the remaining $23.7 million seller note, total adjusted debt-to-EBITDA is expected to be around three times. Including leases, debt-to-EBITDAR for 2004 is expected to be around five times. Calls to KLC officials were not returned.