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Rating Action:

Moody's affirms Expedia's Baa3 rating; assigns Baa3 to new senior unsecured notes

07 Jul 2020

New York, July 07, 2020 -- Moody's Investors Service, ("Moody's") affirmed the Baa3 senior unsecured rating of Expedia Group, Inc. ("Expedia Group") and assigned a Baa3 rating to its proposed offering of new senior unsecured notes. Net proceeds from the debt issuance will be used for general corporate purposes which are expected to include the redemption of the $1.2 billion of the Series A preferred shares in May 2021 when the redemption premium steps down. The outlook remains negative.

RATINGS RATIONALE

The proposed issuance of senior unsecured notes is opportunistic, as Expedia Group is looking to refinance Series A preferred shares carrying a 9.5% dividend with a lower coupon on the new notes. Moody's treats the preferred shares as debt, so the refinancing is leverage neutral. Moody's continues to expect 2020 year end unrestricted cash balances and short-term investments will exceed $6 billion (excludes amounts at non-wholly-owned subsidiaries), which supports the company's ability to navigate through the significant challenges of the coronavirus outbreak (COVID-19). Prior to the anticipated redemption of the preferred shares in May 2021, Moody's expects net proceeds from the notes will be applied to reduce advances under the revolver facility.

The following is a summary of today's rating actions:

Affirmations:

..Issuer: Expedia Group, Inc.

....Senior Unsecured Regular Bond/Debenture (domestic), Affirmed Baa3

....Senior Unsecured Regular Bond/Debenture (foreign), Affirmed Baa3

....Senior Unsecured Exchange Notes, Affirmed Baa3

Assignments:

..Issuer: Expedia Group, Inc.

....New Senior Unsecured Notes, Assigned Baa3

Outlook Actions:

..Issuer: Expedia Group, Inc.

....Outlook, Remains Negative

Expedia Group's Baa3 rating is forward looking given adjusted debt to EBITDA will be elevated well over 4x until June 2021 when the sharp decline in revenue reflecting global travel bans in 2Q20 is replaced with more normalized revenue in 2Q21 due to expectations for an eventual rebound in travel demand. Management's commitment to consistently reduce debt balances and return credit metrics to their prior investment grade levels is critical to the Baa3 rating.

Expedia Group's credit profile is significantly pressured by the sharp decline in global airline and hotel bookings and Moody's expectation that travel bookings will continue to decline monthly, albeit at reduced percentages, through the end of 2020. There are further downside risks in the event travel demand remains depressed beyond 2020 in a scenario in which COVID-19 is not contained.

The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. Today's rating actions reflect the impact on Expedia Group from the deterioration in overall credit quality triggered by COVID-19, given Expedia Group's exposure to global economies, which has left it vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.

Expedia disclosed that booking trends have improved over the past two months as travel restrictions are lifted, and its vacation rentals business, Vrbo, has performed solidly reflecting consumers' current preference to rent an entire home or apartment as a COVID-19 precaution. In addition, growth in deferred merchant bookings in the first-half of June represents an inflection point compared to cash outflows when deferred merchant bookings were in decline since March 2020. As cash balances rebuild, Moody's estimates adjusted net debt to EBITDA will be roughly 1.0x next year which supports Expedia Group's ability to repay debt maturities as they come due. Ratings incorporate Moody's continued belief that the company will be able to navigate through current challenges and maintain conservative financial policies. The suspension of share repurchases (annual average of $793 million in 2018 and 2019) preserves liquidity while the restrictions on dividends will eliminate another roughly $200 million cash outflow in the first full year. Moody's considers Expedia Group's business model as being sound and benefitting from its position as a leading global online travel agency which should return to historical levels of cash flow generation and profitability when travel demand rebounds.

The July 2019 acquisition of Liberty Expedia Group improved corporate governance by eliminating the overhang associated with John Malone's prior ability to take a controlling interest in Expedia Group and by reducing Barry Diller's effective voting control to 28% from roughly 53%. Currently seven of thirteen board members are independent (includes recent addition of two board seats to investors in the new preferred shares). After preferred shares are redeemed, there will no long be two board members representing preferred stock investors. Under the governance agreement executed in July 2019 and amended in April 2020, Barry Diller has the right to increase his holdings in Class B common shares (which come with super voting rights, subject to certain restrictions) up to 49% in terms of Barry Diller's voting control prior to future share buybacks. The deadline to exercise these rights expires 45 days after completion of the investigation into certain stockholders litigation. Despite the dual class structure and the extended deadline, Moody's continues to expect the majority of the Board of Directors will remain independent and Expedia Group will continue to adhere to disciplined financial policies. Excluding exercised options, Barry Diller has not increased his holdings in Expedia Group since the acquisition in July 2019 and share buybacks have been suspended.

Expedia remains on track to grow cash and short-term investments above $6 billion by the end of 2020 which should be more than sufficient to fund working capital outflows. Moody's believes Expedia Group will be prudent and adjust capital spending and fixed costs, if needed, to preserve liquidity. Moody's also expects the company will remain in compliance with amended financial covenants under its credit facilities. The Baa3 rating on the new senior notes incorporates their position behind the $1.145 billion secured portion of the revolving facility. The remaining $855 million portion of the revolver is unsecured. It is not typical for investment grade companies to have a secured revolver facility; however, Expedia Group will need to refinance both revolvers prior to their May 2023 expirations at which time the collateral package can be renegotiated. Senior notes rank ahead of the preferred shares which Moody's views as debt. The preferred shares have no redemption rights (perpetual) and come with coupon step ups after year 5.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The negative outlook for Expedia Group is driven by significant uncertainty regarding the depth and duration of the current decline in global consumer and business demand for travel related services. This lack of visibility is exacerbated by travel restrictions on travel across global regions and within country borders. Moody's recognizes Expedia Group's strong liquidity to manage unexpected outflows and ability to reduce variable expenses, if needed. To the extent timing of a rebound is in line with Moody's base case scenario, then Expedia Group should remain solidly positioned in its Baa3 rating. Moody's expects that Expedia Group will continue to demonstrate a conservative financial strategy and remain committed to an independent governance structure.

Ratings could be upgraded if Expedia Group maintains its leading market share among third party, hotelier, and airline online travel websites, returns to consistent profitable organic revenue growth with operating margins in excess of 20%, and Moody's expects the company to adhere to conservative financial policies, including adjusted leverage being sustained around the 2.5x range. Ratings could be downgraded if Expedia Group's competitive position weakens materially, financial policies become more aggressive, or the impact of COVID-19 results in adjusted debt to EBITDA rising above 3.25x for an extended period. There would be downward pressure on ratings to the extent Expedia Group funds share buybacks prior to adjusted leverage returning to less than 3.25x or Moody's being assured of a long term rebound in travel demand or leverage.

Expedia Group, Inc., based in Seattle, WA, is a leading online travel agency (OTA) with properties including Expedia.com, Hotels.com, trivago, Vrbo, Egencia, Orbitz Worldwide, Inc., Travelocity, and Hotwire.com.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Carl Salas
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Stephen Sohn
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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