The ongoing earnings pressure from the Kaplan education division have prompted Moody’s Investors Service to downgrade The Washington Post Company, which has about $400 million of debt rated by Moody’s. The rating outlook is negative, the ratings agency noted.
Moody’s downgraded The Washington Post Company’s (WPO) senior unsecured rating to A3 from A2 and its commercial paper rating to Prime-2 from Prime-1. That concluded the credit rating review that Moody’s began in September. The A3 rating is still an investment-grade credit rating.
“The ongoing earnings pressure within Kaplan Higher Education (KHE, which is WPO’s largest operating division) is a key contributor to the rating downgrade. KHE’s enrollment levels declined significantly over the last year due to its efforts to lower the risk of student loan defaults, increase student selectivity, overhaul recruiter compensation programs, and adapt to new regulations including the Department of Education’s (DOE) new “Gainful Employment” standards passed in June 2011,” Moody’s said in explaining its ratings action.
“Moody’s expects that cost reductions and a gradual return to modest enrollment growth based on the important niche of the higher education market served by for-profit schools will lead to a recovery by Kaplan over the intermediate- to long-term and this is an important consideration in the A3 rating. However, the performance of WPO’s other primary businesses (cable television systems, local television stations and newspapers) has not been sufficient to offset the drag from the deterioration at Kaplan,” Moody’s said. “In Moody’s opinion, this suggests the effectiveness of WPO’s multiple business lines in limiting earnings volatility is not as favorable as previously viewed,” it added.
Moody’s believes WPO will continue to maintain a conservative balance sheet and liquidity position. This provides the company financial flexibility to manage through the near-term pressures on Kaplan with a focus on enhancing the long-term health of the business, it noted.
Downgrades:
..Issuer: Washington Post Company (The)
….Senior Unsecured Regular Bond/Debenture, Downgraded to A3 from A2
…. Commercial Paper, Downgraded to P-2 from P-1
Outlook Actions:
..Issuer: Washington Post Company (The)
….Outlook, Changed To Negative From Rating Under Review
