Bright Horizons Family Solutions LLC

The stable ratings outlook reflects S&P Global Ratings' expectation that U.S.-based childcare center operator Bright Horizons Family Solutions LLC's revenue and EBITDA will grow at a high-single digit and low-double digit percentage rate, respectively, over the next 12 months, with shareholder rewards holding adjusted debt to EBITDA in the 4x to high 3x area. We could lower the rating on Bright Horizons if adjusted debt to EBITDA increased and were sustained in the high 4x area. Under this scenario, credit metrics could deteriorate because of operating performance declines from a prolonged weak economy and adverse foreign exchange movements, or a sizable debt-financed acquisition or share repurchases. A positive rating action is unlikely over the next two years based on our

...EBITDA margin is higher than peers, and we expect margin expansion even with rising labor costs. We expect modest margin expansion in fiscals 2018 and 2019, reflecting fixed-cost leverage through enrollment growth, tuition increases, and an increased contribution from higher margin lease consortium centers and back-up care and education advisory services. A prolonged economic downturn in the U.S. and lower corporate spending for employee benefits could affect operating performance. Bright Horizons has significant revenue and profit concentration in the U.S. and operating performance is susceptible to a recession. During the last recession, revenue growth slowed to the low-single-digit percentage area (from low double-digit) from lower enrollment. Still, the company has some flexibility in its cost structure, as it was able to maintain margins. Structural headwind from declining birth rates in the U.S. Along with the health of the economy and unemployment rates, another factor that drives...

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