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Rating Action:

Moody's assigns A3 to Booking Holdings new senior unsecured Euro notes

03 Mar 2021

New York, March 03, 2021 -- Moody's Investors Service ("Moody's") assigned an A3 rating to Booking Holdings, Inc.'s (Booking) proposed offering of senior unsecured Euro notes. Net proceeds from the debt issuances, plus a portion of excess cash, will be used to repay $750 million of 4.5% notes due 2027. Moody's also assigned a (P)A3 rating to the company's senior unsecured shelf rating.

RATINGS RATIONALE

The proposed note issuances are opportunistic as Booking is looking to refinance the 4.5% notes due 2027 (2027 Notes) with lower coupon Euro notes with maturities ranging from four years to seven years. The proposed offering is largely debt neutral given proceeds from the proposed $750 million of Euro notes will be used to repay $750 million of the 2027 Notes.

Moody's expects cumulative cash interest savings will more than cover the prepayment penalty. To the extent, the proposed issuance is increased, Moody's expects use of incremental proceeds will be used to repay other outstanding debt instruments. All other ratings and the negative outlook are unchanged.

Ratings Actions:

..Issuer: Booking Holdings, Inc.

..Senior unsecured Euro notes (foreign currency) rating, Assigned A3

..Senior unsecured shelf (foreign and local currency) rating, Assigned (P)A3

Booking's A3 senior unsecured rating remains pressured by the decline in hotel bookings and Moody's expectation that global travel will remain depressed over the next year. Booking's operating performance through December 2020 reflects gradual improvement since the trough in 2Q20 when travel was severely restricted as a result of the coronavirus outbreak. At the time, revenues for 2Q20 fell (84%) compared to 2Q19, but since then topline trends have improved with revenues in the second half of 2020 down (54%) compared to the prior period in 2019 reflecting an inflection from the bottom in global travel demand primarily for leisure. Although down significantly from 2019 levels, EBITDA (Moody's adjusted) remained positive at more than $850 million in 2020. "In Moody's base case, Booking has the ability to repay maturing debt through the end of 2022, which returns funded debt balances to just above pre-pandemic levels. Booking's commitment to suspend share buybacks, reduce debt balances, and return credit metrics to pre-pandemic levels is critical to its A3 rating," stated Carl Salas, Moody's Senior Credit Officer.

Booking's A3 rating is supported by the company's significant cash balances which can absorb unexpected borrowing needs. Excluding long term investments, cash balances and short term investments totaled $11 billion as of December 2020 which almost fully covers total funded debt of $11.2 billion. Moody's base case includes a gradual increase in revenue and cash flow over the next year as the impact of COVID-19 abates and travel demand recovers. Moody's expects revenues and adjusted EBITDA will approach, but remaining below, 2019 levels through the end of 2022 with corporate travel being one of the last segments to recover and international travel being dependent on the lifting of government restrictions.

Booking benefits from its asset-lite business model with over 50% of operating costs, including performance marketing and sales expense, being variable and tied to revenue and transaction volume. As demand for travel declined in 2020, Booking incurred reduced search costs (per click) and lower spending on interchange fees and outsourced customer service. Also in 2020, Booking reduced head count by roughly 23% which is expected to yield an estimated $370 million in personnel expense savings over the next year. Given depressed travel demand, management also has the option to reduce spending on brand marketing as well as defer research costs to develop new offerings (e.g. the connected trip, payments).

The credit profilie is also supported by Booking's conservative financial policies, exceptional scale, and high adjusted EBITDA margins (typically 40% of revenues prior to the pandemic). As a leading global online travel agency, Bookings is well positioned to return to historical margins and free cash flow generation when travel demand rebounds. Although debt to EBITDA (Moody's adjusted) is currently well above 5x, quarterly adjusted EBITDA has improved since hitting a trough in the first half of 2020, and Moody's expects leverage will decline consistently going forward supported by a gradual recovery in travel as well as Booking's success in reducing fixed costs.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Moody's analysis has considered the effect on the performance of corporate assets from the current weak global economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

Booking has a track record for good governance, and Moody's expects the company will continue to suspend share buybacks to preserve liquidity. Governance risk is relatively low given that Booking is publicly traded with the largest shareholders, Vanguard, Blackrock and T. Rowe Price, each owning roughly 5% to 8% of common shares followed by other investment management companies holding less than 5%. Ten of the company's 12 board seats are held by independent directors.

Booking's liquidity is robust with $11 billion of unrestricted cash and short-term investments, $3.8 billion of long-term investments as of December 2020, and an undrawn $2 billion revolver expiring 2024. Haircutting long term investments by 50%, Moody's expects remaining liquidity is more than sufficient to fund seasonal working capital needs, reduced bookings, and capital spending over the next couple of years. Booking's topline is tied largely to commissions from agency revenues (historically 67% of total revenues) and is less exposed to merchant revenues (25%) for which canceled trips need to be reimbursed. Moody's believes the company will be prudent and adjust capital spending if needed to preserve liquidity. Moody's also expects Booking will remain in compliance with financial covenants under its credit facilities, which were amended to temporarily replace the 4.0x maximum leverage test with a minimum liquidity test of $4.5 billion (cash and short-term investments plus revolver availability) through March 2022. The maximum leverage test was also relaxed through March 2023, before returning to 4.0x.

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

The negative outlook reflects Moody's expectation that Booking will continue to report depressed operating results for at least the next couple of quarters, although improved compared to results for 2020. Moody's recognizes Booking's excellent liquidity to manage through the global pandemic and ability to keep variable operating expenses, including performance marketing and branding, at significantly reduced levels. Moody's also believes that Booking will continue to demonstrate a conservative financial strategy; however, the current economic recovery and gradual improvement in travel demand will be closely tied to containment of the virus.

Ratings could be upgraded if Booking maintains its leading market share among online travel websites, returns to double-digit percentage organic revenue growth with adjusted operating margins in the high 30% range while generating free cash flow greater than 30% of revenues and adhering to conservative financial policies with adjusted leverage being sustained at roughly 1x. Ratings could be downgraded if Booking's competitive position weakens materially or the impact of COVID-19 or more aggressive financial policies (e.g. share buybacks prior to Moody's being assured of a long term rebound in travel demand) results in adjusted debt to EBITDA increasing to over 2.5x on a sustained basis.

Booking Holdings, Inc., based in Norwalk, CT, is a leading online travel company that focuses primarily on accommodation reservations through its Booking.com, priceline.com and Agoda.com brands. Other major brands include rentalcars.com, OpenTable, and KAYAK.

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_1243406.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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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