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Rating Action:

Moody's assigns a (P) B2 CFR to GEO Travel Finance SCA Luxembourg; outlook stable

12 Apr 2011

First time ratings

London, 12 April 2011 -- Moody's Investors Service has today assigned a corporate family rating (CFR) and Probability of Default Rating (PDR) of (P)B2 to GEO Travel Finance SCA Luxembourg ('GEO', or 'the company'). Moody's has also assigned a (P)Caa1 to the proposed 8-year EUR175 million senior unsecured notes. The outlook on the ratings is stable.

RATINGS RATIONALE

This is the first time that Moody's has assigned ratings to GEO. Upon completion of the pending acquisition of Opodo, which awaits EU Commission anti-trust approval, GEO will consist of Opodo, as well as eDreams (acquired by Permira in August 2010), and Go Voyages (acquired by AXA Private Equity in May 2010). As such it is expected to become the largest on-line travel agency (OTA) in Europe in the flight segment, and the third largest in Europe all products included (after Expedia and Priceline). The company expects it will also be the fifth largest OTA worldwide, all products included. GEO's market penetration is expected to be particularly strong in its key markets of France, Spain, Italy, Germany and Scandinavia. The ratings and outlook reflect this strong position in the European on-line travel market, and the expectation that this market will continue to grow at least in line with the overall travel market. GEO's revenue structure is largely fee-based, and hence viewed as less exposed to yields than the airline industry. Nevertheless, the ratings are also constrained by the company's relatively small scale, and barriers to entry to the industry which are deemed moderate. Prior to the completion of the acquisition of Opodo, the proceeds of the notes will be held in a segregated escrow account which will contain an amount equal to the proceeds from the offering of the notes. If the transaction is not completed as anticipated, the issuer is obliged to redeem the bonds plus accrued and unpaid interest. The ratings have been assigned on a provisional basis as they are conditional on the successful conclusion of the acquisition and the completion of the refinancing and capital structure under substantially the same terms as outlined below.

The company's liquidity post refinancing is expected to remain strong, based on the expected adequate cash balance at the close of the transaction, as well as its EUR140 million committed revolving credit facility (RCF), which is expected to be undrawn. Moody's notes nevertheless that c.EUR50 million of the RCF will be committed as collateral for the company's operational guarantees to IATA; and that a degree of the cash balance also reflects the transitory nature of cash received from clients and passed on to suppliers. The company's liquidity is supported by its positive free cash flow generation potential, albeit subject to seasonal working capital swings, in line with the travel industry. The RCF and term loans contain three financial covenants for leverage, fixed charge cover and a debt service cover, for which Moody's expects there will be comfortable headroom at the time of closing.

On a pro forma basis for the transaction, and based on recurring pro forma EBITDA for 2010, Moody's estimates gross adjusted leverage to be c.4.8x. Moody's notes, nevertheless, that the recurring EBITDA is before significant non-recurring items (eg. transaction and other fees), which Moody's would not necessarily adjust for, and we believe these may occur in the current financial year as well, albeit to a lesser degree. The stable outlook factors in the rating agency's expectation that this metric will remain below 5x over the medium term. The ratings also factor in sustained positive free cash flow generation and a strong liquidity profile. Upward pressure on the rating or outlook could occur if the leverage metric were to trend below 4x on a sustainable basis. Conversely, downward pressure on the rating or outlook could occur if leverage were to be sustained above 5x, or if concerns were to develop about liquidity.

The company's debt capital structure will consist principally of the senior secured credit facilities of EUR340 million, and the proposed senior unsecured notes of EUR175 million. After completion of the transaction, the notes will be released to GEO Travel Finance SCA, the parent holding company and the ultimate owner of the operating subsidiaries and also a borrower of the revolving credit facility. The RCF and term loans will be secured on substantially all assets of the operating subsidiaries, and guaranteed by subsidiaries representing at least 85% of group sales and EBITDA. Under the terms of an intercreditor agreement, this security will rank ahead of the security for the proposed high yield notes. On the basis of this structural subordination, the notes are rated (P)Caa1 (LGD6), two notches below the CFR.

Moody's issues provisional instrument ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the notes. A definitive rating may differ from a provisional rating.

The principal methodology used in rating GEO was "Business and Consumer Service Industry Rating Methodology ", published in October 2010 and available on www.moodys.com. Other methodologies and factors that may have been considered in the process of rating this issuer, including Loss Given Default for Speculative Grade Issuers in the US, Canada and EMEA, published June 2009, can also be found on Moody's website.

GEO Travel Finance SCA Luxembourg was registered in Luxembourg on 15 February 2011. It will become an operating company upon completion of the pending acquisition of Opodo, to be merged with Go Voyages and eDreams. On a pro forma basis for this acquisition for 2010, GEO would have generated revenue margin and pro forma recurring EBITDA of EUR303 million and EUR106.3 million, respectively.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

The rating has been disclosed to the rated entity or its designated agents and issued with no amendment resulting from that disclosure.

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Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

London
Richard Morawetz
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Paloma San Valentin
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
One Canada Square
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United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns a (P) B2 CFR to GEO Travel Finance SCA Luxembourg; outlook stable
No Related Data.
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