Expedia Credit RatingThe Expedia Credit Check
Ratings outlook is solid.
Expedia concluded an acquisition of Wotif. com Holding Ltd in July 2014 for the consideration of $658 million. We are a premier on-line tourist agency (OTA) operating in Australia and the APAC area. As a result of the deal, Expedia will gain access to markets and stock, while Wotif will benefit from Expedia's technology capabilities.
Revenue from the new bonds is likely to be used for general business activities, as well as the financing of the Wotif takeover. As of June 30, 2014, however, we calculate an unmatched gearing ratio of 1.3x and a non adjusted invoice for the new bonds from high 1.0x to low 2.0x. We expect the gearing ratio for our total earnings before interest and tax (EBITDA) to decrease.
Currently, at the rating there is room for a 2.0x leveraging due to strategically made acquisition as long as Fast considers the deal to be favourable and convenient to reduce the leveraging within 12-18 months. Fortunately, Fitch's leveraging forecast is around 2. While competition and technology landscapes continue to evolve, incumbent travellers will seek to expand their overall reach and retain their relevancy to other travellers leaving the shopping hopper (i.e. TripAdvisor's immediate book).
Expedia is expected to grow further through organic and acquisitions and possibly operate nearer the 2nd 0x leveraging area than in recent years. RATING DRIVERS Expedia's credit scores mirror its sound credit profiles and relatively strong asset base, which are balanced by eventstrisk considerations. Because of its effect on tourism needs, the business is heavily dependent on cyclical business cycles, which are counteracted by sharp secular expansion tendencies as an increased mixture of OTA based holiday bookings is made.
Expedia's leadership in the OTA credit markets is a significant credit quality, reinforced by sound geographical and client diversity. Concern about the risks of events is significant and reflects Liberty Interactive's (Liberty) majority ownership of the business (although its stock is coordinated by Expedia Chairman Barry Diller). If Expedia were to seek a leveraged buyback of the remainder of Liberty's interest, it would be challenging for the firm to maintain its investment-grade rating and/or stable outlook, as the scope in today's rating is constrained.
Over the next one to two years, Mr Michael anticipates that the firm will receive a dealver that will create extra scope and enhance its capacity to maintain its rating and outlook in the case of a credit-financed buyback of Liberty stock. However, according to Mr Michael continued to believe that Expedia's credit history was lower following the spin-off of TripAdvisor in 2011, which resulted in a significant distribution of Expedia's revenues and could potentially become a more directly competing airline for hospitality booking.
Expedia is subject to implementation risks as TripAdvisor's operations evolve in view of its importance as Expedia's biggest marketer. The takeover of it by Expedia in 2013 and the ensuing expansion will, however, help to significantly compensate for the lost distribution of sales due to the TripAdvisor spinning off. During the LTM term, which ended in June 2014, advertising and media income increased to $415 million; pre-trip advisor sales were $476 million (LTM end of June 2011).
Expedia is expected to continue to be a moderate debt loan, while the competition and evolving technological trend of the OTA markets remains volatile. In this new role, Expedia and Priceline have not teamed up with TripAdvisor; however, according to research by Research, this is due to the risks of commoditizing the OTA functionality as a pure back-end transactions processing engine in consumers' heads.
Google's intention in the tourism industry and the hotel's capability and readiness to competing for instant reservations are both significant long-term security risks. As one of the biggest global outsourcers with a significant legacy of security and significant funding agility, Expedia, Fitch sees Expedia as capable of meeting these potentially challenging issues in the near time.
Expedia's strategy of allowing customers to make advance payments for accommodation under a commercial scheme or to make payments under an advertising scheme at the moment of a visit has had little impact on operational efficiencies, as Expedia has retained a managed introduction of this new function. It is expected that it will enhance Expedia's pull on both consumer and new hospitality purchases with a predictable cost-to-cash stream during a likely multi-year switch.
By June 2014, more than 59,000 of Expedia's more than 325,000 hotels have decided to offer customers this choice as part of the Expedia Traveler Preference (ETP) programme. The latest results from Expedia show the support of the OTA world. In the second quater of 2014 (2nd quater 14; end of June 2014) sales rose by 24% year-on-year.
Turnover grew faster due to heavy signing by hotels on the ETP platforms. Even more importantly, second quarter 14 second quarter EBITDA spreads were boosted by significant revenues gains and the use of overheads. It is Expedia's intention to invest more in distribution and distribution and marketing as well as Force Channel to accelerate the speed of 2H'14 hotels purchases. For the LTM timeframe up to June 2014, the LTM segment's LTM segment achieved an 18% margin on the year.
Further negative effects on profit are the switch from Expedia to an ETP based ETP system for hospitals; the agencies offer a lower profit rate. Expedia's hotwire franchise continued to perform below average due to both competitive pressures (e.g. Priceline's Express Deals) and scarce stocks of properties. Indeed, close inventory levels usually depress spreads on all Expedia plattforms.
According to him, these challenging times mirror the implementation risk associated with the company as technologies and customer preferences change the OTA environment. In 2011, Expedia outsourced the TripAdvisor, which according to Michael Heck could become a major competitor risk at some point. Expedia purchased Trivago in early 2013 as a separate company for its meta-search functions in hotels, which it sees as a reaction to kayak competitors.
While Expedia continues to be one of the biggest players in the OTA arena, as the sector moves through a new technological development cycle, these exposures will make the results more volatile and could eventually change their position in the arena. So far, senior managers have positioned the business for the longer term with appropriate proactivity while retaining sound credit ratios.
The credit strength includes: Expedia is the biggest economies of scale outsourced overseas tour operator that has helped the firm gain a significant stake in the global tour operator industry in recent years; -- Wide client and geographical diversity has a positive effect on the resilience of end-market demands for tour operator tour operators, which are intrinsically strongly related to the macroeconomic milieu; -- Expedia is the biggest player in the global tour operator industry, with a significant proportion of the total volume of OTA's tour operators being sold to the US;
Expedia is benefiting from the anticipated continued trend towards a more secular focus on the use of outsourced TEs, which should help sales grow beyond general tourism and GDP gains; -- A relatively highly volatile pricing framework mitigates the potentially adverse impact on earnings in times of economic downturn, although much of the variability is specifically for market ing/marketing costs, which, if mitigated, could negatively impact the company's competitiveness.
Rating issues include: Increased rivalry from other online tour operators such as Google and the ability of non-OTAs such as TripAdvisor to become significant rivals in the marketplace -- Expedia faces a potentially significant contingency obligation due to claims related to hospitality utilization rates. Liberty Interactive may also be subject to adverse pressures on earnings if local government taxation regulations are changed to specifically address the Expedia calculated retailer income charge; -- Continued price pressures in the OTA markets in conjunction with increased channel competitive pressures could adversely impact anticipated revenues and earnings performance; -- Incorrect macro-economic factors in terms of implied tourism services request variability and the ability to generate significant fluctuations due to supply shock potentials; -- Liberty Interactive owns approximately 56% of the company's stock; -- Liberty Interactive owns approximately 56% of the company's stock.
As Liberty has given power of attorney to Expedia CEO Barry Diller to cast his votes, the rating of Fitch Liberty's historic history of shareholder-friendly action takes into consideration Liberty's historic success rates; -- In a slowing economy of economic expansion or earnings, the working cap budget shortfall of $3.8 billion in June 2014 is likely to be seen as an outflow of funds; -- Expedia is competing directly with its suppliers' on-line footprint in the motion service sector, which could disrupt the company's ongoing operating mode.
However, according to Mr Finch, they are a valuable resource for tour operators in terms of providing information on the tour operator markets and are also a tour operator marketer. As of June 30, 2014, our liquid funds were sound with USD 1.4 billion in the form of liquid funds and an unused USD 1 billion prior-ranking uncovered credit line that will expire in November 2017.
Over the past five years, free cash-flow has been on average nearly $600 million per year, which Fitch anticipates for 2014 and 2015. The Expedia has a working capitals shortfall of $3.8 billion, which peaked in the June sequential and should fall by the end of the year using approximately $600 million to $800 million of the company's current treasury.
The Expedia has $2. 4 billion in overall monetary and short-term investment to partly compensate for the working capitals shortfall. As of June 30, 2014, our indebtedness totaled $1.2 billion, consisting of $500 million in 7. We have 456% and $750 million in 5 and 456% respectively of 456% and $750 million in August 2018 and August 2020 respectively. 95% and 95% of these are highly secured and mature in August 2020.
Ratings Sensitivities Positive: Among the forward-looking trends that may result in individual or collective rating enhancements are those that may result in the issuance of ratings: Fitch considers that there are minimum commercial concerns to assist the firm in obtaining a rating above "BBB-", which should prevent rating actions being taken in the forefront. But a more conservative financials position, combined with a stronger sales split due to the Egencia segment's expansion and advertising and news publishing sales, could have a beneficial impact on the rating.
One of the factors that may result either singly or jointly in adverse rating actions is forward-looking developments: Increased anticipated return on investment due perhaps to greater fluctuation in tourism service demands or a higher overhead element of Expedia's financing structure; -- A lower OTA operating structure, possibly as a result of a change in the competition environment; -- A significant capital lost due to any subsequent completion of the occupation claims faced by the firm; -- A more aggressive fiscal stance, resulting in significant leveraged acquisitions, stock repurchases (including Liberty stock repurchases), or dividend payments, reflecting the Company's ability to meet its obligations under the terms of the agreement.
For Expedia, we have performed the following assessment procedures: IDR confirmed at "BBB-"; -Age Senior uncollateralized credit line confirmed at "BBB-"; --$500 million in 7. the 456% of August 2018 maturity of BBB-' positive $750 million of BBB-' positive 95% of August 2020 maturity of BBB-' positive 95% of maturity of BBB-' positive $750 million of BBB-' positive 95% of maturity of BBB-' positive 95% of maturity of BBB-' positive $750 million of BBB-' positive $750% of maturity of BBB-' positive $750% of maturity of BBB-' positive $750 million of maturity of BBB-' positive $750% of maturity of BBB-' positive $750% of maturity of BBB-' new maturity of BBB-' new maturity of BBB-'.
Rating outlook is stable. Michael Paladino, analyste principal Directeur principal +1-212-908-9113 Fitch Rating, Inc--'Corporate Ratingology : méthodologie de notation : Includes short-term credit rating and parent and subsidiary companies' (May 28, 2014), --'Expedia, Inc.' (August 13, 2014) Applied Criteria and Related Research: Company Rating Technology - Includes short-term rating and parent/subsidiary link here Additional disclosure requirement Status here ALL FITCH CREDIT CRATINGS are Subject to certain restrictions and expressions.
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