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I AGREE
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.
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website for further information.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
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independent third-party sources. However, Moody's
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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.
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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
Canary Wharf
London E14 5FA
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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