Milken’s Knowledge Universe’s Loan to Refinance Junk Bond Pulled

Knowledge Universe Education LLC, the early childhood education and care center operator founded by junk bond pioneer Michael Milken, pulled a $342 million high-yield loan it was seeking to raise, according to Standard & Poor’s.

The debt, which consisted of a $267 million term portion and a $75 million credit facility, would have repaid the company’s $260 million of 7.75 percent notes due in February 2015 and a $75 million credit line expiring next year, according to S&P. The notes traded today at 97.25 cents on the dollar to yield 9.825 percent, according to prices compiled by Bloomberg.

“The high-yield market moved against them,” Hal Diamond, a credit analyst at S&P said in a telephone interview. “The interest rate they would have had to pay to get the deal done was more than they must have originally anticipated.”

Knowledge Universe has a window of 18 months before the bonds come due and should be able to refinance the debt, according to Diamond, who said the Portland, Oregon-based company may have canceled the proposed transaction a couple of weeks ago.

“We pulled our refinancing deal by choice because our bonds don’t mature until February 2015,” Colleen Moran, a spokeswoman for Knowledge Universe said in a telephone interview. “We will wait for better market conditions.”

CCC Rating

S&P has a CCC rating on the company’s debt with a negative outlook, while Moody’s Investors Service has an equivalent Caa1 rating on its 2015 subordinated notes.

A debt rated CCC is vulnerable to nonpayment and is dependent on favorable business, financial, and economic conditions for the borrower to meet its financial commitments, according to a ratings definition provided by S&P.

The company, which was previously known as Knowledge Learning Corp., was spun off into a separate entity controlled by the same owners in 2011.

Michael Milken, the former head of junk-bond trading at Drexel Burnham Lambert Inc. in the 1980s, is also chairman of Knowledge Universe. Milken served 22 months in prison after pleading guilty to securities fraud in 1990 and was permanently barred from serving as a broker or investment adviser. In 1998, Milken agreed to pay $47 million to settle SEC claims he had violated the ban; he didn’t admit or deny wrongdoing.

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net

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