Travelport Ltd., the travel services
conglomerate that was acquired seven months ago by private equity
firm Blackstone Group and other investors, is almost certain to be
in play again soon, sources close to the company's management said
The sources, who
asked not to be identified, said Travelport's announcement last
week of a $1.1 billion loan, to be used to pay a dividend to new
owners Blackstone, Technology Crossing Ventures and One Equity
Partners, is evidence of a pending transaction.
Among the new
owners' options are taking the company public, selling it outright
or spinning off parts of its business.
The loan, known as
a payment-in-kind or PIK loan, was orchestrated by Blackstone
through a number of banks, including Credit Suisse and
The loan is being
financed through subscriptions by a host of institutional
investors, commercial banks, hedge funds and other investors, said
Raffaele Sadun, Travelport's senior vice president of enterprise
planning and corporate development.
Proceeds will go
directly to the new investors, who bought Travelport from Cendant
Corp. in August for $4.3 billion. The loan enables the investors to
recover a quarter of what they spent in the acquisition.
"It is an advance
on an exit proceeding that Blackstone would expect in the next 12
to 18 months," Sadun said.
He said Blackstone
and other stockholders were scheduled to receive the $1.1 billion
in proceeds from the loan this week.
Whether the exit
strategy will be to take Travelport public, sell it or spin off
parts has not yet been decided, according to insider sources, who
said a resolution was expected within 18 months.
Among the 20 global
brands that Travelport owns are Orbitz, CheapTickets, Gullivers
Travel Associates and Galileo. It expects to acquire Worldspan
later this year.
executives late last week declined to elaborate on what strategic
options were being considered.
Earlier this month,
Travelport said it was planning an initial public offering for all
or part of Orbitz Worldwide.
PIK loans were once
relatively rare debt instruments, sometimes controversial and often
seen as a stop-gap measure for companies that needed to raise
capital for a short-term need without an outlay of cash for
But according to
corporate finance experts, the loans have become popular in the
currently red-hot private equity market as a leveraged buyout
The loans can be
risky for investors as well as for borrowers, said a debt and
equity specialist with a London-based merger and acquisition
tracking company, who asked not to be named. While loan holders
receive high interest rates, the loans historically carry a
significant risk of default.
"Those who invest
in those types of loans have an incentive to get high interest
rates, but the trick is getting out at the right time," the source
said. "It's kind of like trying to catch a falling
Sadun said the risk
lays with investors rather than borrowers. But borrowers also take
a risk, analysts said, because accruing interest can create a huge
payment at the time the loan comes to maturity.
PIK loans are made
with no expectation that interest payments will be made until the
loan comes to maturity. Travelport's PIK loan matures in five
Sadun said the loan
was defendable "because Travelport is doing so well
Paying off the loan
and its accrued interest will clearly require Travelport to raise a
large amount of cash or sell itself, either in the public market or
to another acquirer, the sources said.
not be reached for comment.
circumstances, PIK loans are used to raise capital quickly without
encumbering other cash," the debt and equity analyst said. "But in
this case, where proceeds are being used to pay a dividend to the
new investors, it is definitely more unusual."
Sadun and Kevin
Monaco, Travelport's treasurer, acknowledged that the PIK loan
transaction was unusual, but only from the standpoint that
Blackstone and other investors were launching their exit strategy
so soon after the acquisition.
privately owned, has publicly disclosed results of its business
operations since it was sold by Cendant. It reported $2.6 billion
in revenue for 2006.
to say whether stockholders other than the three private equity
firms that acquired the company would receive part of the $1.1
billion loan proceeds.
contact reporter Dan Luzadder, send e-mail to [email protected].