Spring Education Group Inc.

Nevertheless, over the past 12 months, these investments have been a significant drag on EBITDA, about $20 million, and we expect they will roll off over the next 12 to 18 months. Spring expects to incur additional expenses integrating BASIS and hopes to realize delayed rent savings by renegotiating its leased facilities. In our view, the company's limited history of achieving cost efficiencies is a key risk. The negative rating outlook reflects our view that Spring's debt leverage will decline by the end of its fiscal year in June, yet remain above 7x, and free operating cash flow will be negative until fiscal year-end 2020, after which we expect credit metrics will start to improve steadily beyond fiscal 2021. We

...We expect leverage will remain high, and free operating cash flow will remain negative over the next 12 months.This is due to Spring Education Group Inc.'s expenses from integrating acquisitions, losses associated with school closures, new school losses, and delayed synergies from the 2019 BASIS Independent Schools acquisition. Good enrollment growth, manageable new school opening expenses, and adequate liquidity only partially offset these risks. We expect EBITDA and cash flow will improve in fiscal 2021 (ended June 30) due to benefits from lower one-time investments and synergies, and a higher enrollment base at recently opened schools. Over the past 12 months, Spring has been integrating Nobel Learning Communities, Leport Montessori, and BASIS by establishing standards of operations, adding staff, and oversite capabilities. We expect these investments will improve enrollment, internal operations, and financial performance at all the brands over the long term. Nevertheless, over the past...

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