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Rating Action:

Moody's assigns B2 CFR to Carlson Travel Holdings, Inc; outlook stable

02 Sep 2014

London, 02 September 2014 -- Moody's Investors Service (Moody's) has today assigned a B2 corporate family rating (CFR) and B2-PD probability of default rating (PDR) to Carlson Travel Holdings, Inc., the parent entity of Carlson Wagonlit B.V. (CWT). In addition, Moody's has downgraded the USD100 million revolving credit facility (RCF) -- made available to Carlson Wagonlit UK Limited, CWT Beheermaatschappij B.V., and Carlson Wagonlit Travel, Inc. -- to Ba2 from Ba1. Concurrently, Moody's has also withdrawn Carlson Wagonlit B.V.'s B1 CFR and B1-PD PDR.

Moody's has also assigned a definitive Caa1 rating to the USD360 million PIK toggle notes due 2019 issued by Carlson Travel Holdings, Inc. (CTH) and affirmed the existing B1-ratings on CWT's senior secured notes due 2019.

The rating action follows the completion of the PIK notes offering and the completion of Carlson's (unrated) acquisition of the 45% stake in CWT it did not already own. The action concludes the review which was initiated on June 23, 2014.

RATINGS RATIONALE

On August 19, CWT announced Carlson had completed the acquisition of the 45% equity stake in CWT it did not already own. CWT has also successfully completed a USD50 million tender offering for its outstanding senior secured notes.

Moody's has moved the CFR to CTH to reflect that all of CWT's group debt including the PIK Toggle Notes should be considered in the consolidated metrics. Gross leverage (including the PIK notes) as adjusted by Moody's is expected to be around 5.7x at the transaction closing. As a consequence of the downgrade of the CFR to B2 from B1, Moody's has also downgraded the RCF to Ba2 from Ba1. The PIK Toggle Notes include a "pay if you can" mechanism of cash interest payments, subject to cash availability and the maximum amount of permitted dividends, distributions or restricted payments available for up-streaming.

The affirmation of the B1 senior secured notes reflects Moody's view that negative pressure on ratings linked to the lower CFR under the new structure is offset, in the case of the senior secured notes, by an uplift resulting from the addition of the subordinated PIK Toggle Notes, now included in the LGD model.

The definitive Caa1 rating assigned to the USD360 million PIK notes reflects their structural subordination to all other debt instruments within the capital structure. The notes are not guaranteed by any of CTH's subsidiaries including the existing senior secured bond group.

Liquidity Profile

Moody's anticipates that the company's liquidity profile will remain adequate following the transaction, supported by Moody's expectations of positive free cash flows and access to the USD100 million RCF. However, Moody's expects an ongoing cash leakage out of the restricted bond group in order to serve interest payments on the PIK toggle notes, and this may have an influence on the company's financial policies. Moody's also considers that the PIK notes at some point may add an additional layer of event risk to the structure should the PIK notes remain in place for a longer period of time and there would be a need for refinancing.

RATIONALE FOR THE STABLE OUTLOOK

The stable outlook reflects Moody's expectations that CWT will maintain a stable operating performance with continued growth in EBITDA and positive free cash flows allowing for the company's leverage -- measured as debt/EBITDA -- to be comfortably positioned below 5.5x.

WHAT COULD CHANGE THE RATING UP/DOWN

Positive rating pressure could build if CWT decreases its debt/EBITDA ratio towards 4.5x. Equally, negative rating pressure could arise should CWT continue to operate with leverage above 5.5x for a sustained period of time or if Moody's becomes concerned about the company's liquidity.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was 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.

Headquartered in the Netherlands, Carlson Wagonlit B.V. is a global leader in travel management, serving corporations of all sizes and government institutions. The company reported net revenues of USD1.7 billion and an EBITDA of USD196 million in FY2013.

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.

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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.

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Knut Magne Slatten
Asst Vice President - Analyst
Corporate Finance Group
Moody's France SAS
96 Boulevard Haussmann
Paris 75008
France
JOURNALISTS: 44 20 7772 5456
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Eric de Bodard
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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Moody's assigns B2 CFR to Carlson Travel Holdings, Inc; outlook stable
No Related Data.
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