Skift Take

Travelports' woes demonstrate the challenges ahead for its GDS peers Sabre and Apollo. One day -- and that day will be soon -- a new generation of online travel agencies and smarter airline websites will render their current services obsolete.

Travelport Ltd., the unprofitable travel-reservation system controlled by Blackstone Group LP, is heading for a showdown with lenders that refused to give up the right to accelerate a $1.5 billion payment.

The loan holders balked at removing a so-called springing maturity from their debt due August 2015, meaning it will need to be repaid along with $747 million of bonds in 2014 unless Travelport retires all the notes by May of that year. While lenders allowed the company to raise $470 million of debt to retire some of the bonds, CreditSights Inc. says Travelport won’t earn enough money to pay for the rest.

Blackstone, which acquired Travelport in a $4.3 billion buyout in 2006, faces the prospect of ceding more ownership to loan holders as a restructuring is “inevitable,” according to KDP Investment Advisors Inc. The lenders are poised to get paid before any other creditors and first in line on claims against Travelport’s assets in a bankruptcy, after debt holders gained a share of equity in the company’s indirect parent under a swap of so-called pay-in-kind loans, a March filing showed.

“There’s been a whole bunch of financial engineering that’s been going on here,” Roger King, an analyst at New York- based CreditSights, said in a telephone interview. “But the company hasn’t grown.”

Falling Revenue

Jill Brenner, a spokeswoman for Travelport, didn’t return telephone calls seeking comment on the company’s finances. Peter Rose, a spokesman for Blackstone, the New York-based private- equity firm run by Stephen Schwarzman, declined to comment.

Travelport, which traces its roots back to the computerized reservation system introduced by United Airlines in 1971, is used by travel agents to book flights, hotels and rental cars for consumers globally. It has its principal office in Atlanta.

In the third quarter, revenue fell 3.9 percent to $489 million, from $509 million a year earlier, according to a Nov. 7 regulatory filing. Travelport generated sales $2.01 billion in the 12 months ended September, a 28 percent decline from a peak of $2.78 billion in the year ended March 2008, according to data compiled by Bloomberg.

Operating income dropped 47 percent in the latest quarter to $27 million, the filing shows. The company was unprofitable on a net basis in four of the last five years and in each of the first three 2012 quarters, Bloomberg data show.

Credit Ratings

The growth outlook at Travelport, even without its current debt burden, is “negative,” according to King.

He said the company competes with Sabre Holdings Corp. for market share in the U.S., while Madrid-based Amadeus IT Holding SA has the largest share of Europe with stronger finances and more cash to invest in its business.

Travelport has the lowest credit rating of the three with junk-category grades of Caa1 at Moody’s Investors Service and B- by Standard & Poor’s.

Sabre is ranked B2 by Moody’s and B at S&P, while Amadeus holds Baa3 and BBB-, the lowest investment-grade levels.

Travelport had about $3.4 billion of debt at the end of September, or 7.2 times its $469 million of earnings before interest taxes, depreciation and amortization in the past 12 months, according to Montpelier, Vermont-based KDP.

Amadeus had debt equal to just 1.74 times its trailing 12- month Ebitda, data compiled by Bloomberg show.

Travelport has “insufficient Ebitda to handle the 2014 maturity,” said King.

Credit Amendment

Adjusted Ebitda fell 10 percent in the third quarter to $106 million, Travelport said in an earnings statement.

KDP estimates that Travelport’s Ebitda will fall to $423 million in 2013, from a projected $458 million this year.

The company had net interest expense of $215 million in the first nine months of 2012, according to the Nov. 7 filing. About 60 percent of its Ebitda next year will go toward paying interest on its debt, according to KDP.

The credit amendment that Travelport obtained on Dec. 11 consists of two stages, which allows it to raise as much as $470 million of junior-lien debt by the second phase, CreditSights said in a Dec. 12 research note.

Lenders received a fee of 25 basis points, or 0.25 percentage point, for consenting to the amendment and increased the interest rate margin they’re paid on the first-lien loans by 25 basis points to 4.75 percentage points more than the London interbank offered rate, according to Devin Nomellini, an analyst at AllianceBernstein LP.

Diluted Stake

They will get an additional 50 basis points of spread for the second stage, bringing the margin to 5.25 percentage points more than Libor, he said. Libor, the rate at which banks say they can borrow from each other, was 0.31 percent on Dec. 14.

“This series of amendments sets the stage for a more global debt restructuring,” Barbara Cappaert, an analyst at KDP, wrote in report dated Dec. 4.

KDP said equity may be distributed as part of any debt exchange, diluting Blackstone’s ownership.

Last year, Travelport had to restructure PIK term loans, which allow borrowers to pay interest with extra debt, at Travelport Holdings Ltd., parent of Travelport Ltd. The lenders received a pro-rata share of 40 percent of the equity of Travelport Worldwide, an indirect parent, under the deal, according to a March 22 regulatory filing.

After the December amendment, the company’s $247 million of 11.875 percent senior subordinated notes due in September 2016 jumped 3.75 cents to 46.25 cents on the dollar to yield 41 percent on Dec. 13, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

‘First Step’

The $424 million of 9.875 percent senior unsecured notes maturing in September 2014 gained one-half cent to 87 cents to yield 19.1 percent on Dec. 13, the highest price since August 2011, Bloomberg data show.

The amendment gives the company some flexibility to use junior-lien debt to pay down the unsecured notes, AllianceBernstein’s Nomellini said. “It’s the first step in a global refinancing for the company.”

Travelport also owns 47 percent of Orbitz Worldwide Inc., the global online travel company that it spun off in an initial public offering in 2007, the regulatory filing of its third- quarter earnings shows.

Travelport scrapped its own IPO in London in 2010, citing market conditions at the time. The company planned to use the proceeds primarily to reduce debt, according to a statement.

The company’s approximately $1.5 billion of term loans maturing in August 2015 will become due as early as May 2014 under certain circumstances, according to the Nov. 7 filing.

Taking Control

The company also has $429 million of senior unsecured fixed-rate notes and $318 million of floating-rate debt due in September 2014, according to CreditSights.

The springing maturity means Travelport will have to address the notes before May 2014, AllianceBernstein’s Nomellini said. First-lien debt is repaid first in a bankruptcy or liquidation and other secured borrowings are next.

“The debt holders want to keep the springing maturity as a weapon for future negotiation,” said CreditSights’s King. “If the bonds can’t get paid off they want to have control.”

Editors: Mitchell Martin, Faris Khan. To contact the reporter on this story: Christine Idzelis in New York at [email protected]. To contact the editor responsible for this story: Faris Khan at [email protected].

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Tags: blackstone, gds, hotels, sabre

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