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Apax-Backed Nelson Seen Defaulting Within Six Months, S&P Says

Nelson Education Ltd., the textbook publisher backed by Omers Private Equity Inc. and Apax Partners LLP, had its ratings cut one level to CCC- by Standard & Poor’s on the likelihood it will default on a $285 million loan used to fund its 2007 buyout.

“Given the deterioration in the company’s operating performance, very high leverage, and weak liquidity, we believe Nelson will likely default within the next six months,” S&P said in a statement today.

The Toronto-based company faces refinancing risk in July 2014, when a first-lien term loan arranged by RBC Capital Markets comes due. Nelson may exceed the maximum leverage permitted under loan terms of seven times debt as a ratio of cash flow as soon as the quarter ending in March, S&P said.

Nelson was formed in 2007 when the private-equity unit of Ontario Municipal Employees Retirement System and Apax bought the Canadian division of educational publisher Thomson Learning Inc. from Thomson Reuters Corp. The purchase was financed with bank debt and equity, according to S&P. The sponsors’ contribution was in the form of common equity and a “deeply” subordinated shareholder loan, the ratings firm said.

Sales have been hurt by “soft” spending by the Canadian government on educational books for schools, and increasing preference for used books by students pursuing higher education, S&P said.

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