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Rating Action:

Moody's affirms Expedia's Ba1 rating; stable outlook

Global Credit Research - 21 Jan 2014

New York, January 21, 2014 -- Moody's Investors Service affirmed Expedia, Inc.'s corporate family rating (CFR) and senior unsecured notes rating of Ba1 and the probability-of-default rating (PDR) of Ba1-PD. The rating outlook remains stable.

RATINGS RATIONALE

Moody's expects Expedia to have solid top-line performance (e.g., double digit revenue growth) over the next several years with an online travel market that should exceed the growth rates of the travel industry. (Moody's forecasts U.S. lodging industry EBIT will grow 6%-8% over the next 12-18 months based on a 5%-6% rise in revenue per available room.) Moody's also anticipates that management will sustain its disciplined financial policies with projected adjusted debt to EBITDA of less than 3 times and free cash flow to debt in the mid 20% range.

Event risk is inherent with an ownership structure consisting of the concentrated voting control of Barry Diller (about 56% of the stock) and an intensifying competitive landscape. Nonetheless, Moody's believes that improving profits and cash flow going forward, which have been tempered by technology platform investments and marketing expenses, will lead to enhanced liquidity over the next several years. This will likely enable Expedia to absorb some level of heightened share buybacks or acquisition activity. Moody's will continue to evaluate management's financial policies in light of the possibility of buying back Liberty's ownership stake of about 17% and the potential for increased acquisition activity within a rapidly evolving online travel industry.

Expedia has a leading domestic position in the consumer online travel agency market. Moody's believes that Expedia enjoys certain barriers to entry including brand awareness, a global network of hotel supplier relationships, and a heavily invested technology infrastructure. Expedia's distribution network continues to benefit from increasing online penetration of travel expenditures, especially in international markets.

The stable outlook reflects Moody's expectation of full year 2014 results of double digit annual revenue growth, operating margins above 15%, and free cash flow greater than $600 million. Moody's anticipates higher levels of free cash flow in 2015 (more than $800 million), as Expedia demonstrates increased operating leverage from technology and selling and marketing investments incurred over the past few years. Moody's expects that moderate acquisition and share buyback activity will be funded primarily through the company's free cash flow generation and that cash will remain robust through 2015.

The ratings could be upgraded if Expedia maintains its leading market share among third party, hotelier, and airline online travel websites, continues to generate profitable organic revenue growth with steady operating margins in excess of 20%, and adheres to conservative financial policies, including Moody's adjusted leverage of about 2 times on a sustained basis. The ratings could be lowered if Expedia's competitive position weakens materially (e.g., revenue declines of 5% and operating margins below 10%), or financial leverage as measured by debt to EBITDA adjusted for leases increases over 3.5x for an extended period of time.

Ratings affirmed:

Corporate family rating at Ba1;

Probability-of-default rating at Ba1-PD;

Senior unsecured notes at Ba1 (LGD 4, 50%)

Speculative Grade Liquidity Rating of SGL-1

The principal methodology used in this rating was the Global Business & Consumer Service Industry Rating Methodology published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Expedia, Inc., with projected annual revenues nearing $5 billion, is an online travel agency (OTA) with properties which include Expedia.com, Hotwire.com, and Hotels.com, maintains a leading market position among OTAs.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Stephen Sohn
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert P Jankowitz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Expedia's Ba1 rating; stable outlook
No Related Data.

 

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