London, 28 September 2020 -- Moody's Investors Service ("Moody's") has today affirmed Toro Private
Holdings II, Limited's ("Travelport" or "the company") Caa2 corporate
family rating (CFR) and its Caa2-PD/LD (/LD appended) probability
of default rating (PDR). Concurrently, Moody's has downgraded
Travelport Finance (Luxembourg) S.a.r.l.'s
first lien senior secured term loan due May 2026 to Caa3 from Caa2 and
assigned a B3 rating to the new $1,630 million priority first
lien senior secured term loan due February 2025. The outlook remains
negative.
On 17 September 2020, Travelport announced it had reached an agreement
with lenders on the terms of a debt-exchange offer and issuance
of priority debt. The transaction included, amongst other
factors: (i) the offering of $500m of new money with a cash/PIK
toggle feature to all first lien term loan and revolving credit facility
(RCF) lenders on a pro rata basis with proceeds used to repay Travelport
Technologies LLC (Travelport Tech) financing and maintain cash on balance
sheet; (ii) the conversion and extension of funded outstanding RCF
to first lien term loans with a maturity in May 2026 from May 2024;
and (iii) the re-designation as restricted subsidiaries of Travelport
Tech and its direct parent. The transaction was successfully completed
on 25 September 2020.
"The limited default designation appended to Travelport's
PDR reflects the loss for lenders because of the company's debt
restructuring and the clear default avoidance, as evidenced in the
net leverage covenant amendment and the potential use of PIK interest
in the future to alleviate liquidity shortfalls. We view these
elements as a distressed exchange which constitutes an event of default
under Moody's definitions" says Luigi Bucci, Moody's lead
analyst for Travelport.
"The transaction enhances liquidity in the short term and reduces
structural complexity after re-designating Travelport Tech as a
restricted subsidiary. However, we continue to perceive Travelport's
capital structure as unsustainable due to the continued operating performance
weakness and the overall uncertainties around the extent of recovery"
adds Mr Bucci.
A full list of affected ratings is provided towards the end of this press
release.
RATINGS RATIONALE
The weaknesses in Travelport's credit profile, including its high
leverage and weak interest cover, have left it vulnerable to shifts
in market dynamics as a consequence of the coronavirus outbreak.
As a result, the company remains exposed to the effects of a potential
extended pandemic and the uncertainties around speed of recovery.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety.
Moody's analysis now assumes a reduction in Travelport's revenue of over
70% in 2020 with recovery over 2021 and 2022 to be slower than
previously expected at around 60%-70% and 70%-80%
of 2019 levels, respectively. The rating agency is also modelling
significantly deeper downside cases including sustained stress in operating
performance through 2021. Moody's currently expects that recovery
over 2021 will continue to be subject to: (1) the potential for
additional travel restrictions; (2) consumer concerns over travelling;
(3) health screening and social distancing; (4) weak economic environment;
and, (5) more generally, threats of a prolonged coronavirus
pandemic. Moody's also continues to believe that a rebound
in corporate travel after a period in which companies have invested heavily
in remote working solutions and have actively attempted to reduce their
cost base appears at risk.
Moody's anticipates Travelport will continue to address revenue pressures
through tight management of its cost and capex base. Despite a
large portion of Travelport's cost base being variable the company will
not, however, in Moody's view record break-even
or positive EBITDA levels before the first part of 2021, at best.
The rating agency notes that ongoing cost initiatives, on top of
the $100 million of synergies planned in the take-private
transaction of the company, will likely support a recovery in EBITDA
over 2021. In terms of capex, the company is expected to
maintain investments muted over 2020 before moving to a moderately more
normalized level over 2021.
The rating agency expects under its base case, absent additional
actions to further address the capital structure constraints, that
Moody's-adjusted leverage will peak in 2020 at unprecedented levels
before reducing towards 10x by 2022. Moody's also anticipates Moody's-adjusted
EBITA/Interest Expense of below 1x over the same time frame. Whilst
the transaction provides additional liquidity to Travelport and reduces
the risk of potential shortfalls in the future through the PIK toggle
feature embedded in the new priority term loan, it does not,
however, in Moody's view reduce the likelihood of an additional
distressed exchange at some point in the future.
Moody's current estimates continue to factor-in the successful
completion of the sale of Travelport majority owned subsidiary eNett to
WEX Inc. (Ba2 negative). However, execution of the
transaction is at present highly uncertain and subject to an ongoing legal
litigation after the buyer publicly announced in May 2020 that deal terms
were no longer applicable because eNett's business has had a material
adverse change (MAC) due to the pandemic.
ENVORONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Moody's perceives the coronavirus outbreak as a social risk given the
substantial implications for public health and safety. In terms
of governance, after the take private transaction in May 2019,
Siris Capital Group, LLC and Evergreen Coast Capital Corp.
are the main shareholders in the company. After the start of the
coronavirus pandemic, financial sponsors' focus has shifted to protect
their investment while supporting the viability of Travelport.
This was evidenced by the transfer of IP-assets outside of the
restricted group in May 2020, unwound as part of the debt restructuring
plan. The rating agency sees the successful completion of the debt
restructuring plan as a positive credit development under a governance
perspective given it will release all parties involved (ie. Travelport,
financial sponsors and lenders) from pending litigations or claims against
each other.
LIQUIDITY
Moody's views Travelport's liquidity as weak, largely based on the
company's expected negative FCF generation over 2020-2021.
Pro forma for the proposed transaction, the company is expected
to have approximately $340 million (approximately $270 million
excluding eNett) of cash on balance sheet. Cash balance will be
however materially lower at the end of the third quarter after having
paid transaction expenses and accrued interest.
Support to liquidity from the sale of majority owned subsidiary eNett
is expected to be only limited. Even when assuming a successful
completion of the deal, the delay in closing from the previously
anticipated mid-2020 will entail that most of the cash proceeds
will be subject to a mandatory debt prepayment of the new priority term
loan.
STRUCTURAL CONSIDERATIONS
The senior secured priority first lien term loan is rated B3, two
notches above the CFR, reflecting its contractual seniority ahead
of the senior secured first lien term loan, which is rated Caa3.
Moody's notes that the security package of the rated debt is now
stronger than in the previous structure (ie. post IP-assets
transfer outside of the restricted group in May 2020) thanks to re-designation
as restricted subsidiary of Travelport Tech.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook is driven by the uncertain time and trajectory of
the recovery and the impact of the outbreak on Travelport's credit metrics
and liquidity. Significant uncertainty remains regarding the depth
and duration of the current decline in global consumer and business demand
for travel related services.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Although ratings are unlikely to be upgraded in the short term,
positive rating pressure would not arise until the coronavirus outbreak
is brought under control and passenger volumes return to a more normalized
level. At that stage Moody's would evaluate the capital structure
sustainability and the liquidity strength of the company. Positive
rating pressure would then require evidence that the company is capable
of recovering materially its financial metrics from its 2020 lows and
restoring liquidity headroom over the following 12-24 months.
Moody's could downgrade Travelport's ratings if pressures on the travel
market were to extend for a prolonged period of time leading to a material
slowdown in the company's expected recovery in credit metrics and liquidity.
Particularly, downward pressure would arise if the risk of an additional
distressed exchange increased and/or if expected recovery rates for current
lenders were to reduce.
LIST OF AFFECTED RATINGS
..Issuer: Travelport Finance (Luxembourg) S.a.r.l.
Assignments:
....BACKED Senior Secured Bank Credit Facility,
Assigned B3
Downgrades:
....BACKED Senior Secured Bank Credit Facility,
Downgraded to Caa3 from Caa2
Outlook Actions:
....Outlook, Remains Negative
..Issuer: Toro Private Holdings II, Limited
Affirmations:
.... LT Corporate Family Rating, Affirmed
Caa2
.... Probability of Default Rating,
Affirmed Caa2-PD /LD (/LD appended)
Outlook Actions:
....Outlook, Remains Negative
PRINCIPAL METHODOLOGY
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.
COMPANY PROFILE
Headquartered in Langley, United Kingdom, Travelport is a
leading travel commerce platform providing distribution, technology,
payment and other solutions for the global travel and tourism industry.
In 2019, the group reported net revenue and company-adjusted
EBITDA of $2,494 million and $568 million, respectively.
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.
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.
Luigi Bucci
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Richard Etheridge
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
