TEXT - S&P revises Sabre Holdings Corp outlook to stable

Thu Dec 6, 2012 10:32am EST

Overview
     -- AMR Corp., the parent company of American Airlines Inc., and U.S. 
travel technology company Sabre Holdings Corp. has settled their dispute and 
renewed their current distribution agreement for multiple years. As part of 
the settlement, Sabre will make a monetary payment to AMR. 
     -- We are affirming all ratings on the company, including our 'B' 
corporate credit rating. We are also revising our rating outlook to stable 
from positive based on our view that the time frame for a potential upgrade is 
further out than we originally anticipated.
     -- Our stable outlook reflects our expectation that Sabre's credit 
measures will gradually improve in 2013, notwithstanding costs related to the 
pending AMR settlement. 
 
Rating Action
On Dec. 6, 2012, Standard & Poor's Ratings Services affirmed all ratings on 
Southlake, Texas-based travel technology company Sabre Holdings Corp., 
including the 'B' corporate credit rating.

At the same time, we revised the rating outlook to stable from positive. 

Rationale
The outlook revision to stable is based on our expectation of a longer time 
frame to an upgrade. While the settlement and the multiyear distribution 
agreement with AMR is a longer-term positive for Sabre, the monetary payment 
to AMR does represent a short-term negative for Sabre. The terms of the 
settlement were not disclosed. 

The 'B' corporate credit rating incorporates our assumption of fairly stable 
operating performance, despite an ongoing dispute with one of its airline 
customers and competitive pressure at Travelocity, its online travel agency 
(OTA). We believe that Travelocity could continue to lose market share to 
Expedia Inc. and Priceline.com Inc. over the intermediate term. 

We assess the company's business risk profile as "fair," reflecting its 
market-leading position in travel distribution in the U.S. and growing demand 
for travel-related services. We view Sabre's financial risk profile as "highly 
leveraged," as debt leverage remains high at close to 6x as of Sept. 30, 2012. 
Sabre has been very active in refinancing and reducing the size of its 2014 
maturities. At the beginning of 2012, its 2014 maturities were close to $3 
billion. As of Sept. 30, 2012, its 2014 maturities were less than $250 
million. We assess Sabre's management and governance score as "fair." 

Sabre's business includes global distribution systems (GDS) that travel agents 
and corporations use, software for travel providers, and the Travelocity OTA. 
Sabre is a major provider of marketing and distribution services to the travel 
industry.

The company owns one of the largest GDSs, which are intermediaries between 
travel suppliers (airlines, hotels, car renters, cruises, etc.) and travel 
agencies, OTAs, and corporations. As such, a GDS gathers inventory (seats, 
rooms, etc.) from those suppliers. The company generates revenues from booking 
fees paid by travel suppliers and fees charged for hardware and software used 
by agencies. As the global travel market rebounds from a low point in 2009, 
the GDS business has been registering very healthy increases in transaction 
volume. Even though the GDS market is fairly well consolidated with three 
major players, the market is highly competitive and some of its customers 
(commercial airlines) have begun to exert pressure on fees and to push for 
alternative distribution platforms.

Sabre's software business also has been growing at a healthy rate, as airlines 
seek to cut costs and increase productivity. Software is the fastest-growing 
business unit within Sabre. Travelocity has been experiencing competitive 
pressure from Expedia Inc. and Priceline.com Inc.

The settlement and the distribution agreement with AMR could reduce the threat 
of airlines bypassing GDSs in an effort to lower their distribution costs, at 
least over the short term. Longer term, we expect that airlines will continue 
seek to cut their distribution costs either through directly connecting with 
OTAs (without going through GDSs) or other means. Historically, airlines' 
effort to bypass GDSs has not been successful. Sabre's business dispute with 
US Airways Group Inc. is ongoing. We believe the settlement with AMR is a 
longer term positive. The settlement will remove some uncertainty surrounding 
Sabre's existing business and may enable the company to pursue capital market 
transactions that it may not have been able to otherwise. This longer-term 
positive is tempered by a short-term negative, which is the financial cost of 
the settlement. 

For 2013, we are anticipating low- to mid-single-digit percentage revenues and 
mid-single-digit percentage EBITDA growth driven by the company's software 
business, with the EBITDA margin increasing slightly. Since its acquisition by 
Silver Lake Partners and Texas Pacific Group in 2007, Sabre has not publicly 
disclosed its financial results, with the exception of its 2008 results. In 
the third quarter of 2012, revenue grew modestly, fueled by increased 
transaction volume and passengers boarded, while EBITDA declined due to 
settlement-related expenses and charges. For the 12 months ended Sept. 30, 
2012, Sabre's debt leverage was about 6x, down from close to 9x at the end of 
2008. Over the same period, EBITDA coverage of interest increased to the 
mid-2x area, up from 1.7x. We expect credit ratios to improve modestly in 
2013, resulting from EBITDA growth.

Sabre generates good discretionary cash flow, which it has used to reduce debt 
and fund acquisitions. Working capital typically represents a moderate use of 
cash flow. Capital expenditures are a more significant use of cash, especially 
with the growth of its software business. We expect that discretionary cash 
flow will be down from current levels in 2013 due to higher interest costs, 
higher capital expenditures, settlement expense, and the absence of one-time 
benefit in 2012.

Liquidity
Sabre has "adequate" liquidity to cover its needs over the next 12 months. Our 
view of the company's liquidity profile incorporates the following 
expectations: 
     -- We expect the company's sources of liquidity over the next 12 to 18 
months to exceed its uses by more than 1.2x.
     -- We also expect that cash sources would remain positive, even with a 
15% to 20% EBITDA decline.
     -- In addition, we expect that the company would be able to maintain 
covenant compliance, even with a 10% decline in EBITDA. We currently believe 
that, if the margin of compliance narrows to less than 10%, the company would 
be able to obtain necessary waivers and amendments from its bank group.
     -- We expect that the company has the ability to absorb, with limited 
need for refinancing, high-impact, low-probability events.
 
Liquidity sources include cash, substantial availability under both Sabre's 
$216 million revolving credit facility due March 2013, and its $284 million 
extended revolving credit facility due September 2016, and our expectation of 
discretionary cash flow in excess of $100 million in 2012 and $70 million in 
2013.

Sabre is subject to a net secured debt leverage covenant. The company has a 
sufficient margin of compliance with the leverage covenant, which does not 
step down further from current levels.

Outlook
The rating outlook is stable. Standard & Poor's expects that Sabre's credit 
measures will gradually improve in 2013, notwithstanding costs related to the 
pending AMR settlement. If Sabre can continue to perform and recover from the 
use of cash flow for the settlement as well as resolve its dispute with US 
Airways, we could raise the rating. An upgrade also would likely entail our 
becoming convinced that pressures from airlines on GDS's are abating. On the 
other hand, if airlines gain the ability to dis-intermediate GDSs, resulting 
in lower profitability, and shrinking discretionary cash flow, we could lower 
the rating. 

Related Criteria And Research
     -- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012
     -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
     -- Use Of CreditWatch And Outlooks, Sept. 14, 2009
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
     -- 2008 Corporate Criteria: Rating Each Issue, April 15, 2008
     -- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008
 
Ratings List
Ratings Affirmed; Outlook Revision
                                        To                 From
Sabre Holdings Corp.
Sabre Inc.
 Corporate Credit Rating                B/Stable/--        B/Positive/--

Ratings Affirmed

Sabre Holdings Corp.
 Senior Secured                         B                  
   Recovery Rating                      3                  
 Senior Unsecured                       CCC+               
   Recovery Rating                      6                  

Sabre Inc.
 Senior Secured                         B                  
   Recovery Rating                      3
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.