Expedia Group, Inc. today placed new 10-year senior notes alongside new convertible senior notes in a bid to redeem high-coupon 2025 notes issued in the early months of the pandemic for operational liquidity.
The new 2031 notes carry investor protections in the form of coupon step-up provisions of 25 basis points per each notch downgrade below investment-grade, up to a total of 200 bps. Expedia's current cusp-level BBB-/Baa3/BBB- ratings profile reflects negative outlooks on all sides. S&P Global Ratings cut the grade by one notch in April 2020.
The 2.95% coupon rate for today's 2031 issue represents a substantial reduction in its running costs relative to the notes it priced last year. Expedia today issued a conditional notice of redemption (targeted for March 3, 2021) for all its outstanding 7.00% senior notes due 2025, which were issued May 5, 2020, in the aggregate principal amount of $750 million. It also today commenced a cash tender offer for up to $950 million of its 6.25% senior notes due 2025, of which $2 billion is outstanding. The tender offer expires at 11:59 p.m. ET on March 15, 2021, unless extended or earlier terminated. The notes redemption and tender are conditioned on the receipt of commensurate aggregate net proceeds from the proposed senior notes and/or the convertible notes. The initial buyers of the $825 million convertible notes offering will have the option to buy an additional $100 million additional amount of the securities.
The online travel platform operator priced the two 2025 issues targeted today back in April 2020, on the same day as the S&P Global Ratings downgrade, as part of a bid to raise new capital to increase its financial flexibility and strengthen its liquidity position. Asset managers Apollo Global Management and Silver Lake provided an additional equity investment, in exchange for representation on Expedia's board.
The notes offering last April totaled $2.75 billion, across $2 billion of 6.25% five-year senior notes due May 1, 2025, and $750 million of 7% five-year (non-call two) notes due May 1, 2025. In July 2020, Expedia returned to issue $1.25 billion of senior notes to prefund the redemption of preferred stock, pricing $500 million of 3.6% long-dated three-year notes due Dec. 15, 2023, and $750 million of 4.625% seven-year notes due Aug. 1, 2027.
Fitch today said Expedia "continues to maintain an outsized excess liquidity position to withstand the pandemic's shock to global travel, including the large working capital drag from Expedia's merchant model bookings."
"As travel volumes recover under Fitch's base case assumptions, the company will benefit from a reversal of working capital trends which will further boost its liquidity position. Fitch expects this excess liquidity will be allocated toward debt paydown as operating conditions improve and that gross leverage will return to levels consistent with the 'BBB-' IDR through Fitch's forecast horizon," the agency stated.
Terms:
| Issuer |
Expedia Group Inc. |
| Ratings |
BBB-/Baa3/BBB- |
| Amount |
$1 billion |
| Issue |
144A/Reg S senior notes |
| Coupon |
2.950% |
| Price |
99.081 |
| Yield |
3.057% |
| Spread |
T+175 |
| Maturity |
March 15, 2031 |
| Call |
make-whole T+30 until notes are callable at par from three months prior to maturity |
| Trade (date) |
Feb. 16, 2021 |
| Settle |
March 3, 2021 |
| Bookrunners |
BofA/GS/JPM(B&D) |
| Price talk |
guidance T+180 area (+/- 5 bps); IPT T+225 area |
| Notes |
Proceeds of the notes offering and convertible offering to repay 2025 notes; change-of-control put at 101; coupon steps 25 bps per each notch downgrade, up to 200 bps. |
