TEXT-S&P rates Travelport proposed loan 'CCC'
May 4 - Standard & Poor's Ratings Services said today that it assigned its 'CCC' issue rating to the proposed $175 million junior priority lien secured term loan due 2015 (the proposed loan), to be borrowed by Travelport LLC (Travelport; B-/Stable/--). Travelport is the indirect subsidiary of U.S.-based travel services provider Travelport Holdings Ltd. (Travelport Holdings; B-/Stable/--). The issue rating on the proposed loan is two notches below the corporate credit rating on Travelport. We also assigned a recovery rating of '6' to the proposed loan, indicating our expectation of negligible (0%-10%) recovery prospects in the event of a payment default. The issue and recovery ratings on the proposed loan are subject to our satisfactory review of the final documentation. At the same time, we placed our 'B' issue rating on Travelport's first-lien senior secured debt facilities on CreditWatch with positive implications, pending the completion of the refinancing. Our recovery rating on these instruments is unchanged at '2', reflecting our expectation of substantial (70%-90%) recovery for debtholders in the event of a payment default. We expect to raise the issue rating on these facilities to 'B+' from 'B' and revise the recovery rating to '1' from '2' once the refinancing has closed. In addition, we affirmed our 'CCC+' issue rating on Travelport's existing senior unsecured notes. The '5' recovery rating on these instruments remains unchanged, reflecting our expectation of modest (10%-30%) recovery for debtholders in the event of a payment default. Finally, we affirmed our 'CCC' issue rating on Travelport's existing second-lien facility, subordinated notes, and payment-in-kind (PIK) loan. The '6' recovery rating on these instruments remains unchanged, reflecting our expectation of negligible (0%-10%) recovery for debtholders in the event of a payment default. We understand that Travelport will use the proceeds of the proposed loan to refinance the first-lien senior secured debt maturing in 2013. The CreditWatch positive on the first-lien senior secured issue ratings reflects our view of the positive effects of the refinancing on the recovery prospects for this class of debt. On completion of the proposed transaction, we expect to revise the recovery rating to '1' from '2' to reflect our view that recovery prospects on the first-lien debt will increase above 90% as the amount of first-lien debt will fall. RECOVERY ANALYSIS The proposed loan would benefit from the same security package as that granted to the existing first-lien and second-lien creditors. However, its claims on the security would rank junior to those of the first-lien debt and senior to those of the second-lien debt, according to two new intercreditor agreements that we understand the first-lien, second-lien, and junior priority lien creditors will enter into. In the event that the proposed loan cannot be repaid from the collateral, any deficiency would rank on a subordinated basis--that is, junior to the senior unsecured notes. The ranking of any deficiency claim is identical for the proposed loan and second-lien debt. We understand that, as part of last year's refinancing, additional collateral has or will be granted in favor of the first-lien facilities, including a pledge on 100% of the shares of Travelport (Bermuda) Ltd., which holds the majority of the company's non-U.S. assets. As a result of the additional collateral, we believe the proportion of the company's EBITDA covered by the collateral and guarantee package may increase above the current level of about 60%, even if we view share pledges from holding companies as a relatively weak form of security. We reflect this in our valuation by increasing the proportion of our stressed enterprise value derived from the guarantor group to 70% from 60%. We note, however, that the improvement in collateral and coverage for first-lien creditors is at the expense of recoveries for the unsecured creditors. Nevertheless, we still calculate the recovery prospects for the unsecured creditors in the 10%-30% range, as indicated by our recovery rating of '5'. Assuming completion of the refinancing, our simulated default scenario contemplates a payment default in 2014 owing to weaker trading than we forecast under our base-case scenario and an inability to meet debt maturities that year. We estimate EBITDA at default at about $395 million. We believe that Travelport Holdings would reorganize in the event of default. From our gross enterprise value of $2.4 billion, we deduct enforcement costs and finance leases totaling about $280.0 million. This leaves a net enterprise value of $2.1 billion available for creditors. We now assume that the guarantor group accounts for about 70% of this amount, over which the claims of first-lien senior secured lenders (assuming completion of the refinancing) totaling about $1,620 million would have priority. We assume that the remaining 30%--comprising the value of the non-U.S. businesses--would then be available to meet the deficiency claims of the first-lien senior secured lenders and senior unsecured obligations on a pari passu basis. We estimate that total claims on this proportion of the enterprise value would be about $1.2 billion, which includes about $150 million of senior secured claims not covered by the collateral. RELATED CRITERIA AND RESEARCH All articles listed below are available on RatingsDirect on the Global Credit Portal, unless otherwise stated. -- Travelport LLC, Dec. 21, 2011 -- Travelport Recovery Rating Profile, Nov. 16, 2011 -- Criteria Guidelines For Recovery Ratings On Global Industrials Issuers' Speculative-Grade Debt, Aug. 10, 2009 RATINGS LIST New Ratings Travelport LLC Senior Secured CCC Recovery Rating 6 Ratings Affirmed; CreditWatch/Outlook Action To From Travelport LLC Senior Secured B/Watch Pos B Recovery Rating 2 2 Senior Unsecured CCC+ CCC+ Recovery Rating 5 5 Subordinated CCC CCC Recovery Rating 6 6 Travelport Holdings Ltd. Subordinated CCC CCC Recovery Rating 6 6 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.
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