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Rating Action:

Moody's assigns first-time Ba3 CFR to Tripadvisor and B1 to proposed notes; outlook stable

07 Jul 2020

New York, July 07, 2020 -- Moody's Investors Service (Moody's) assigned a Ba3 Corporate Family Rating and a Ba3-PD Probability of Default Rating to Tripadvisor, Inc. (Tripadvisor). In connection with the proposed debt issuance, Moody's also assigned a B1 instrument rating to the new senior unsecured notes. The outlook is stable.

Net proceeds from the new notes will be used for general corporate purposes including repayment of advances under the secured revolver (unrated), thereby enhancing Tripadvisor's liquidity. Today's rating actions are summarized below:

Assignments

Issuer -- Tripadvisor, Inc.

... Corporate Family Rating (CFR) -- Assigned Ba3

... Probability of Default Rating -- Assigned Ba3-PD

Proposed Gtd senior unsecured notes -- Assigned B1 (LGD5)

.... Speculative Grade Liquidity Rating -- Assigned SGL-2

Outlook actions

Issuer -- Tripadvisor, Inc.

... Outlook -- Assigned Stable

RATINGS RATIONALE

Tripadvisor's credit profile is significantly pressured by the sharp decline in global travel as a result of the impact of COVID-19 which has led to mandated travel restrictions within countries and across country borders. Moody's expects that global travel volume will be depressed over at least the next several months. There are further downside risks in the event travel demand remains weak beyond 2020 in a scenario in which COVID-19 is not contained or travelers continue to maintain some degree of social distancing practices. The rapid spread of the coronavirus outbreak, deteriorating global economic outlook, low oil prices, and high asset price volatility have created an unprecedented credit shock across a range of sectors and regions. Moody's regards the coronavirus outbreak as a social risk under Moody's ESG framework, given the substantial implications for public health and safety. Today's rating actions reflect the impact on Tripadvisor from the deterioration in overall credit quality triggered by COVID-19, given Tripadvisor's exposure to global economies which has left it vulnerable to shifts in market demand and sentiment in these unprecedented operating conditions.

The Ba3 Corporate Family Rating incorporates Tripadvisor's position as a leading online travel company with a large audience of monthly unique visitors. Tripadvisor's global travel platform connects prospective travelers with travel service partners through rich content (859 million reviews covering 8.6 million places), price comparison tools, and online reservations as well as related services for destinations, accommodations, travel activities & experiences, and restaurants. The online travel market is highly competitive, but Moody's believes Tripadvisor will be able to navigate through current challenges and will adhere to prudent financial policies, despite pressure on revenues and profit margins caused by COVID-19 and uncertainties in the global economic outlook. Moody's base case projections reflect revenues declining roughly (60%) in 2020 compared to 2019, as a result of significantly lower consumer and business travel demand and mandated travel bans, followed by gradual recovery towards the end of 2020 with revenues for 2021 approaching historical levels, but remaining below the topline for 2019. Moody's expects EBITDA margins (including Moody's standard adjustments) will return to the upper end of their pre-COVID range of 19% to 23%, as a result of cost cuts implemented in the first half of 2020, with high free cash flow conversion reflecting low levels of projected interest expense and working capital needs.

Rating are forward looking given expectations for adjusted EBITDA to be negative in 2020, but Moody's expects adjusted debt to EBITDA will improve to less than 3x in the second half of 2021 with adjusted free cash flow to debt above 35%. Post-closing, cash balances less deferred merchant payments will cover 50% or more of funded debt for the remainder of 2020, before approaching 100% coverage towards the end of 2021. Revenue and cash balances will grow as travel demand increases around the globe. Moody's expects the majority of travel destinations will initially be closer to home before expanding to more distant locations within country borders, and then eventually reaching across country borders and global regions.

The online travel sector is very competitive with several deep pocketed providers including social media platforms (e.g. Facebook/Instagram, Pinterest) as well as online travel agencies, Booking Holdings and Expedia Group, both of which are also customers of Tripadvisor accounting for a combined 33% of revenues in 2019, down from 43% in 2017. Despite competition from much larger providers and the advantage Google possesses with its proprietary search engines as it expands its own online travel platform, Moody's believes the impact from competitive threats is mitigated in the near term by Tripadvisor's success in growing EBITDA since 2017 and diversifying revenues beyond hotel auctions. EBITDA growth since 2017 provides some cushion for the company in managing the COVID-19 pandemic, combined with the company's ample cash balances and disciplined financial policies. Ratings are supported by Tripadvisor's favorable free cash flow conversion even at reduced revenue levels.

Through the second quarter of 2020, Tripadvisor significantly cut costs in response to revenue declines and Moody's believes the company could further reduce expenses and manage growth investments, if needed, to preserve liquidity. Targeted expense cuts, including layoffs and furloughs, are largely complete and related restructuring costs have already been funded in the first half of 2020. Beyond the near term, Tripadvisor benefits from its large audience and global reach which better positions the company when travel volumes rebound from currently depressed levels. Moody's expects that Tripadvisor will benefit as travel demand recovers given the need for hotels and other lodging providers to fill longstanding vacancies, similar to what occurred for online travel companies after prior recessions.

In addition to social risks from the coronavirus outbreak, governance risk is another key consideration. Tripadvisor is publicly traded with its shareholders, Vanguard, BlackRock, Eagle Capital, owning roughly 7% to 8% of common shares each, followed by other investment management companies holding 4% or less. Although good governance is supported by a board of directors with six of the company's nine board seats being held by independent directors, combined ownership of common (14.6% of common shares) and super voting (100% of Class B common shares) shares held by Liberty Tripadvisor Holdings, Inc. ("LTRIP") represents roughly 58% of total votes. As a result, LTRIP is a related party and controls voting for most matters including election of six of the nine director nominees, mergers, business combinations, divestitures, as well as equity and debt issuances. Tripadvisor relies on NASDAQ controlled company exemptions to avoid certain corporate governance requirements. Accordingly, shareholders of Tripadvisor are not afforded the same protections as shareholders of other NASDAQ-listed companies with respect to corporate governance.

Moody's expects Tripadvisor will maintain good liquidity over the next year notwithstanding the negative impact of COVID-19. Post debt issuance and assuming repayment of $700 million of revolver advances with a portion of excess cash and net proceeds from new notes, Tripadvisor will have roughly $320 million of cash (subtracting deferred merchant payables) in 3Q2020 before building up consistently at each quarter end in 2021. In addition, Tripadvisor will have nearly full availability under the secured $1 billion revolver due May 2022. Tripadvisor has historically maintained large cash balances, most of which represents excess liquidity given Moody's estimates that roughly $150 million is needed to support global operations. Suspending share buybacks and dividends allows the company to rebuild cash balances to historical levels. For each of the four years ending 2019, Tripadvisor funded $60 million to $250 million of annual share repurchases (represents $515 million in aggregate) in addition to funding a $488 million special dividend at the end of 2019. The new senior unsecured notes are rated B1, one notch below the CFR, reflecting their position behind the $1.0 billion senior secured revolver (unrated).

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

Despite significant uncertainty regarding the depth and duration of the current decline in global consumer demand for travel related services, the stable outlook reflects the company's position as a leader in global travel with a large audience, good liquidity, and ability to generate free cash flow even at reduced revenue levels. Nevertheless, the online travel market is very competitive, and Tripadvisor will need to balance investing to maintain its market share while growing profitability, particularly for the Experiences & Dining segment. Moody's recognizes Tripadvisor's intent to maintain good liquidity with cash balances approaching outstanding debt amounts as well as the company's efforts to manage cash outflows including suspending share buybacks and dividends. In addition, Moody's expects the company to remain proactive in cutting costs and managing capital spending and other growth investments, if needed.

Ratings could be upgraded if Tripadvisor demonstrates consistent topline growth with improving adjusted EBITDA margins. Debt to EBITDA (Moody's adjusted) would need to be maintained in the low 2x range with growing free cash flow. Moody's would also need assurances that Tripadvisor would adhere to conservative financial policies. Moody's could downgrade Tripadvisor's ratings if revenue or adjusted EBITDA margins decline after 2020 reflecting underperformance, weak demand for new offerings, or competitive pressures. Ratings could also be downgraded if the impact of COVID-19 or debt financed transactions cause adjusted debt to EBITDA to exceed 3.0x beyond next year on a sustained basis or if adjusted free cash flow to debt deteriorates. Ratings could come under pressure if cash balances or revolver availability fall below expected levels, reflecting more aggressive financial policies.

Tripadvisor, Inc., founded in 2000 and based in Needham, MA, is a leading online travel company that provides a global travel platform connecting a large audience of prospective travelers with travel partners through rich content, price comparison tools, and online reservation as well as related services for destinations, accommodations, travel activities & experiences, and restaurants.

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_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

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.

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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