Pearson's ratings placed on review for downgrade by Moody's

Ratings agency Moody’s has placed Pearson's Baa1 long-term issuer rating as well as its Baa1 guaranteed senior unsecured ratings on review for downgrade.

The action follows the education company’s announcement last week that its 2015 operating profits are likely to be at the low end of guidance issued in October, and that further profit deterioration in 2016 is likely to be significant on the back of substantive restructuring charges and continuing difficult market conditions in US higher education market and other lines of business.

Moody’s said the review is expected to be completed in the near term and any downgrade of Pearson's ratings is not expected to be more than one notch.

Gunjan Dixit, lead analyst for Pearson at Moody’s, said, "Our decision to review Pearson's ratings for downgrade reflects the prolonged weakness in its operating performance as a result of challenging conditions in several of its key education markets."

However, Dixit added that Pearson has generated significant proceeds from asset sales, which have helped to support the company's credit profile. “Yet with ongoing weak operating performance, Pearson will likely rely on a portion of these disposal proceeds to fund the restructuring and the dividends, which could increase the company's net debt position in 2016."