Travelport cuts debt by more than $1 billion, leverage to 4.2 times

By Paul Deckelman

New York, Nov. 6 – Travelport Worldwide Ltd. has cut its net debt by more than $1 billion since the start of the year, company executives said Thursday, leading to an improvement of more than 2 turns in its leverage ratio of debt expressed as a multiple of adjusted EBITDA.

“In addition to our operating performance during the quarter, Travelport substantially strengthened its capital structure and balance sheet, which will reflect well on our free cash flow-generating ability going forward,” the Langley, England-based global travel services provider’s president and chief executive officer, Gordon A. Wilson, told analysts on its conference call following the release of its 2014 third-quarter results.

“We completed a series of deleveraging transactions, we’ve refinanced our debt, and we successfully concluded our IPO. What this means going forward is that Travelport has a significantly lower interest expense, advancing our free cash flow-generating capability.”

He said that some of that additional free cash flow will be returned to the company’s shareholders, with its board of directors having declared a 7.5-cent per share dividend for the quarter.

Deals fuel debt reduction

The company’s executive vice president and chief financial officer, Philip Emery, told conference-call participants that “we completed over $1 billion of net debt reductions since the end of last year as a result of debt-to-equity exchanges, the sale of our ownership in Orbitz Worldwide [Inc.] and our recently completed initial public offering.”

Travelport at one time controlled Orbitz, a Chicago-based operator of a popular travel booking website, but sold a sizable chunk of it when Orbitz did an IPO in 2007. As of earlier this year, Travelport still owned just under 40 million shares of Orbitz, or a 36.1% interest; it said in July that it would sell 34 million of those shares for about $280 million, giving underwriters the rights to buy most of the remaining nearly 6 million shares.

Emery said that the net-debt reductions resulted from nearly $1.4 billion of deleveraging transactions since the start of the year. These included the company’s offer to exchange common shares for existing debt, which was completed in July, resulting in the takeout of $163.7 million of several series of notes and $90.9 million of term loan debt that was tendered in exchange for those shares.

The formerly closely held company went public in September, raising gross proceeds of $552 million with the sale of 30 million shares priced at $16 each plus an additional 4.5 million bought at that price by the underwriters. Travelport said it planned to use the proceeds from the IPO to repay debt and certain other liabilities, which it did not specify.

Also in September, Travelport completed a massive refinancing transaction through its Luxembourg subsidiary that saw the company enter into a $2.4 billion senior secured credit facility consisting of $2.3 billion of term loan debt coming due in 2021 plus a $100 million revolving credit line due 2019 as well as a $500 million bridge loan facility. Proceeds from the new facilities were slated to be used to repay existing first- and second-lien term loans and to redeem its Travelport LLC and Travelport Holdings, Inc. senior floating-rate notes due 2016, its 13 7/8% senior notes due 2016, two separate tranches of 11 7/8% senior subordinated notes due 2016 and its 10 7/8% euro-denominated senior subordinated notes due 2016.

As of the end of the third quarter on Sept. 30, long-term debt stood at $2.39 billion, down sequentially from $3.21 billion at the end of the second quarter on June 30 and down as well from $3.53 billion at the end of the 2013 fourth quarter and fiscal year on Dec. 31, 2013.

Leverage, interest costs fall

Emery said on the conference call that the various deleveraging transactions that it had engaged in, together with the refinancing, resulted in a $108 million charge for early extinguishment of debt.

The company had $125 million of cash and equivalents on its balance sheet at the end of the third quarter, versus $93 million at the end of the second quarter and $154 million at the end of 2013, for a net debt figure in the latest quarter of $2.27 billion, down from $3.12 billion at the end of the second quarter and $3.38 billion at the end of 2013.

Emery said that “as a result of these [deleveraging] activities, our net leverage ratio has been reduced from 6.5 to 4.2 times at the end of 2013.

“Additionally, with our comprehensive debt refinancing, we now hold no maturities on our term loan until 2021, while the resulting interest reduction enables significantly enhanced free cash flow generation moving forward.”

Net interest expense in the third quarter fell to $67 million from $87 million in the second quarter and $85 million at the end of 2013. A year ago, its net interest expense was $83 million.

The CFO said that “going forward, I continue to point you to our improved capital structure, which will enable materially higher free cash flow generation next year.”

He said that the company anticipates its interest charge this quarter and going forward will be around $40 million per quarter, $38 million of which would be paid in cash.

“We intend to maintain a strong balance sheet going forward and continuously seek to optimize our allocation of capital to meet the strategic needs of the business,” Emery added.

© 2015 Prospect News.
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