Sept 22 (Reuters) - (The following was released by the rating agency)
— Standard & Poor’s Ratings Services has placed its ratings on Orbitz Worldwide Inc. on CreditWatch with negative implications, based on possible negative pressure from financial distress at Orbitz’s Travelport Holdings Ltd. affiliate.
— Affiliates of Travelport and The Blackstone Group LP (which owns Travelport) together own 55% of Orbitz. — Standard & Poor’s recently lowered its corporate credit rating on Travelport to ‘CC’ with a negative outlook, based on Travelport’s plan to seek a capital restructuring, which qualifies as a distressed transaction under our criteria.
— Travelport has weak liquidity and high debt leverage.
CHICAGO (Standard & Poor’s) Sept. 21, 2011—Standard & Poor’s Ratings Services said today it placed its ratings on Chicago, Ill.-based Orbitz Worldwide Inc., including the ‘B’ corporate credit rating, on CreditWatch with negative implications. This follows our rating action earlier in the day, when we lowered our ‘CCC’ rating on Travelport Holdings Ltd. to ‘CC’. Affiliates of Travelport and The Blackstone Group (which owns Travelport) collectively own 55% of Orbitz.
“The CreditWatch placement is based on risks and uncertainty regarding the possible operational and financial effects on Orbitz of financial distress at its largest shareholder and business partner, Travelport,” said Standard & Poor’s credit analyst Andy Liu. Travelport is seeking a capital restructuring to relieve its high debt leverage, weak liquidity, and upcoming pay-in-kind (PIK) note maturity in March 2012.
As part of the restructuring, Travelport announced a proposed maturity extension of the forthcoming PIK notes in two tranches, to September 2012 and December 2016; a new issue of second-lien bank debt; and various transfers to partially repay the outstanding PIK issue. “According to our criteria, we view the proposed distressed exchange as tantamount to default,” said Mr. Liu.
Travelport is the global distribution system (GDS) provider to Orbitz and issues letters of credit on Orbitz’s behalf. When Orbitz lost its ticketing authority for American Airlines, Travelport increased its incentive payment to Orbitz under their GDS agreement. The higher incentive payment expired in June 2011 when Orbitz regained its ticketing authority for American Airlines.
In addition, Travelport had the capacity to issue letters of credit on behalf of Orbitz in an amount of up to $75 million (U.S. dollar denominated) to support commercial agreements, leases, and regulatory agreements. As of June 30, 2011, there were $73 million in letters of credit issued by Travelport for Orbitz were outstanding.
In the event that Travelport is unable to continue to service its debt and seeks a restructuring above and beyond its current proposal, Orbitz might need to upsize its own revolver or issue additional debt. The credit agreement currently provides for additional first-lien secured debt of up to $150 million as long as the pro forma senior secured leverage ratio is not more than 4.25x.
Standard & Poor’s will resolve Orbitz’s CreditWatch listing after Travelport addresses its capital restructuring. We could lower our rating on Orbitz if Travelport seeks to extract financial resources from Orbitz that could in turn pressure its liquidity and financial covenant compliance.
We currently don’t view this as being likely. We could affirm Orbitz’s existing rating if Travelport can address its financial distress without negatively affecting Orbitz. We will closely monitor Travelport’s steps.