Expedia Prices $1B Senior Notes, Gets Moody's Ba1 Rating
Zacks Investment Research | Sep 21, 2017 09:32PM ET
Expedia Inc. (NASDAQ:EXPE) recently announced a private offering of senior unsecured notes aggregating $1 billion. These bonds carry a coupon rate of 3.800% and are due to mature in 2028. Additionally, these notes will be issued at a price of 99.747% of their principal amount and guaranteed by certain subsidiaries of Expedia.
The online travel booking company stated that the transaction proceeds will be used for general corporate purposes. These may include repayment, prepayment, redemption or repurchase of Expedia's debt. The fund can also be used for capital expenditures, acquisitions, dividend payouts, stock repurchases or other investment purposes.
The stock has underperformed the industry it belongs to on a year-to-date basis. The company’s shares have gained only 26.3% compared with the industry’s growth of 51.1%.
Expedia’s Cash Position
As of Jun 30, cash and short-term investments totaled $3.8 billion, up from $3.4 billion as of Mar 31. Net debt balance was $346.1 million compared with $667.7 million in the previous quarter.
So far in 2017, Expedia has repurchased nearly 1 million shares for a total of $134 million.
We believe that the company has a strong balance sheet, which will help it to capitalize on investment opportunities and pursue strategic acquisitions, further improving its growth prospects. The senior notes’ offering will bring down the company’s cost of capital, in our view, thus strengthening its balance sheet and supporting growth.
Moody's Rating
Expedia’s debt issue was assigned a Ba1 rating by leading credit rating agency Moody's along with a stable outlook.
The rating has been assigned based on its optimism on Expedia’s sustained strong operating performance in the online travel market in the coming years. The rating agency believes that the company will continue to benefit from increasing travel expenditure online, especially in international markets.Moreover, it expects profitability to improve over the long term, driven by cloud technologies and strong growth in Expedia’s HomeAway business.
Moody’s assigned a stable outlook on the rating based on its belief that Expedia’s continuous efforts to expand internationally will lead to 10% annual organic revenue growth in constant currency over next year. For 2018, it also Expedia’s expects free cash flow generation of more than $1 billion and robust cash balances, allowing share buybacks in the near future.
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