Riverdeep's credit rating confirmed

Moody's Investors Service, the international credit rating agency, has confirmed its B3 credit rating for interactive learning company Riverdeep.

The agency had initiated a review of the company's credit status on February 22nd following the announcement that the group's auditors had resigned.

Ernst & Young resigned over "incorrect representations" about contracts with the firm that sells Riverdeep's educational software to the US retail market.

The firm, Encore, guaranteed revenues of $10 million (€7.39 million) for the first two years of the contract, 2004 and 2005, but revenues for the nine-month period in 2006 were treated as if they were subject to the same guarantee.

The resulting correction reduced Riverdeep's earnings to $84.6 million from $86.2 million in the 12 months to September 2006.

Ernst & Young's resignation came only weeks after group chief Barry O'Callaghan raised $4.15 billion (€3.16 billion) from banks and private investors to finance the reverse takeover of Boston publisher Houghton Mifflin. Mr O'Callaghan maintained at the time that the amounts involved were immaterial.

Yesterday Moody's said it was confirming the rating after a "review of audited financial statements for Riverdeep Holdings Ltd [ Riverdeep's parent] and Houghton Mifflin Holding Company, Inc for the fiscal period ended December 21st, 2006".

However, it said the rating outlook remained negative, saying it reflected "Moody's concerns regarding the company's reported 2006 Ebitda [ earnings before interest tax depreciation and amortisation], which fell short of expectations, its ability to deliver the level of synergies currently expected during 2007, as well as the possibility that management may engage in further acquisition activity".

Moody's also confirmed the group's probability of default rating at B3, but upgraded its senior secured rating, which covers a €250 million senior secured revolving credit facility and a $1.62 billion first lien senior secured term loan.

It said the upgrade of the senior secured ratings "is the result of the company's announcement that it has postponed a proposed $250 million add-on senior secured facility until completion of the 2006 audited financial statements. The rating of the proposed add-on facility was withdrawn on February 22nd, 2007."

Dublin-based Riverdeep is one of the largest US educational publishers with revenues of approximately $1.4 billion for the period ended December 21st, 2006.