Moody’s Investors Service has cut the rating outlook for Sabre Holdings Corp. from stable to negative. Sabre is a Southlake, Texas-based online travel reservations company taken private last year by Silver Lake Partners and TPG Capital for approximately $5 billion.
Moody’s Investors Service revised the rating outlook of Sabre Holdings Corporation (Sabre) to negative from stable while affirming the corporate family rating at B2. The outlook revision is based on the reduced demand for travel, the expected negative impact on free cash flow during 2008, and our expectation of double-digit declines in global distribution system (GDS) segments into 2009 as consumers and corporations scale back travel spending. The global economic slowdown, resulting weakness in the travel sector, and airline capacity reductions are expected to negatively impact Sabre’s financial results. While the company has achieved significant cost savings on an annual run-rate basis since its LBO in March 2007, Moody’s believes that any prolonged downturn in the global travel market during 2009 could slow the company’s ability to generate free cash flow and delay its ability to de-lever from its current level of over 6.5x (Moody’s adjusted debt to EBITDA, including the annual run rate effect of cost savings achieved to date). The ratings could experience downward pressure if bookings deteriorate more than 15% on a year-on-year basis over the next several quarters or if travel demand does not stabilize by 2010.
Sabre’s B2 corporate family rating reflects the company’s high financial leverage, low asset returns, modest interest coverage, concentrated business profile (as measured by its client, product, and geographic diversity), and the potential for secular declines in the GDS business as travel bookings continue to shift away from travel agencies to supplier direct distribution. The rating is supported by Sabre’s leading position as one of the top three global GDS providers, importance of GDS in the global travel industry, its efficient and lean cost structure, and the stability of pricing from long-term contracts with major U.S. airlines. While there are no significant debt maturities in the intermediate term, the company’s financial flexibility is limited to its $500 million revolver in the absence of new financing.
Corporate Family Rating – B2
Probability of Default Rating – B2
$3.015 billion Sabre Inc. Senior Secured Term Loan facility due 2014 – B1, LGD 3 (38%)
$500 million Sabre Inc. Senior Secured Revolving Credit Facility due 2013 – B1, LGD 3 (38%)
$400 million Sabre Holdings Senior Unsecured Notes due August 2011 – Caa1, LGD 6 (90%)
$400 million Sabre Holdings Senior Unsecured Notes due March 2016 – Caa1, LGD 6 (90%)
The last rating action was on April 6, 2007, when Moody’s assigned a first-time corporate family rating of B2 and a stable rating outlook in connection with the company’s acquisition by Silver Lake Partners and Texas Pacific Group.
Headquartered in Southlake, Texas, Sabre, is a leading global distribution system (GDS) and consumer online travel services provider.