Announcement: Moody’s says Sabre’s proposed $500 million raise of preferred equity and common shares enhances liquidity amidst depressed travel markets
Global Credit Research – 19 Aug 2020
New York, August 19, 2020 — Moody’s Investors Service, (“Moody’s”) said earlier today, Sabre Holdings Corporation (Sabre) announced that its parent holding company, Sabre Corporation, is raising $250 million of mandatory convertible preferred shares (unrated) and $250 million of common shares. The injection of net cash proceeds from the new preferred shares, which we treat as equity, and common shares is credit positive as it provides Sabre with meaningful additional liquidity and partially alleviates pressure on the company’s credit profile from the sharp decline in global air travel, including travel restrictions and flight cancellations.
We expect Sabre to maintain at least adequate liquidity over the next 12 months notwithstanding the negative impact of COVID-19 and the global recession. Pro forma for the proposed issuances of preferred and common shares and adjusting for near term cash outflows including potential refunds and severance payments, Sabre will have roughly $1.7 billion of balance sheet cash compared to $1.3 billion at the end of June 2020. Sabre has historically maintained a large share of cash at its overseas subsidiaries to support its large geographic footprint of operations, and management estimates roughly $150 million is needed globally. The company suspended common dividends which eliminates a $154 million cash outflow over the next 12 months with another $70 million preserved by suspending share buybacks. Sabre indicates that roughly two-thirds of its cost structure is variable, such as incentive expenses which are tied directly to revenues, and the company estimates that, in a scenario with no net bookings, its monthly cash burn rate is roughly $80 million.
Sabre’s Ba3 Corporate Family Rating (CFR) reflects our view that Sabre will be able to navigate through current challenges despite pressure on revenues and profit margins caused by COVID-19 and uncertainties in the global economic outlook. As evidenced by today’s new equity issuances, Sabre remains committed to disciplined financial policies and debt repayment when travel demand eventually rebounds as the impact of COVID-19 and the global recession abates.
Revenues for 2Q20 declined by 92%, and we expect Sabre’s revenues to remain depressed for the remainder of 2020 reflecting mandated travel bans and flight cancellations, followed by quarterly revenues gradually recovering, but remaining below, 2019 levels through 2022. Consistent with Moody’s Macro outlook, we assume flight schedules and travel demand will only partially recover entering 2021 given the time needed for airlines to restore capacity.
Sabre’s credit profile is supported in the near term by Sabre’s significant cost reductions in response to revenue declines and by the company’s ability manage growth investments and IT spend to preserve liquidity. A good portion of Sabre’s costs are variable including incentives paid for reservations and employee compensation (all employees, including executives, took temporary pay cuts). Beyond the near term, Sabre benefits from its good operating scale, high proportion of transaction-based revenues, and market leadership as the second largest provider of Global Distribution System (GDS) services globally which better positions the company when air traffic and travel demand rebound from currently depressed levels. Sabre recently announced multi-year contract renewals with airline partners and has added new niche airlines to its revenue base. To the extent the negative impact of COVID-19 is more severe or extends beyond the third calendar quarter, there could be further degradation to Sabre’s credit profile.
Based in Southlake, TX, Sabre Holdings Corporation is a leading global travel platform organized in three segments: the Travel Network (TN) segment includes revenues from GDS services; the Airline Solutions (AS) segment includes a software-based passenger reservation system as well as commercial and operations offerings to the airline industry; and the Hospitality Solutions (HS) segment includes software revenues from Sabre’s central reservation and property management system offerings.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Carl Salas VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Stephen Sohn Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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