Although Travelport Holdings said a Chapter 11 reorganization wouldn't affect business operations, the possibility of a bankruptcy proceeding generated the kind of publicity no company wants.
If lenders don’t agree to amend the terms of a $715 million payment-in-kind (PIK) loan, Travelport said it would enter Chapter 11. Lenders were scheduled to make their decision Thursday.
Standard & Poor’s lowered its long-term corporate credit ratings on Travelport Holdings and gave it a “negative” outlook.
It also lowered its long-term rating on Travelport’s senior secured and unsecured debt.
S&P cited the company’s announcement of a capital restructuring, “which has become necessary because of the group’s high leverage, weak liquidity” and the PIK loan maturation.
“We view this restructuring as a ‘distressed exchange’ and tantamount to a default,” S&P said.
Henry Harteveldt, a travel industry analyst with Atmosphere Research Group, said that while a bankruptcy would not affect its day-to-day GDS operations, it could mean that Travelport will have less capital to invest in new products and systems development, and thus become less competitive, during a restructuring process.
“Things like this are very, very strategically important for the company’s future survival and prosperity,” Harteveldt said.
“In Chapter 11, your business is not your own to run. You have to get things cleared by creditors and the administrator, and it can be very problematic. It concerns me deeply because obviously it means people’s jobs are at risk, and Travelport may not be able to make the timely progress it would like to develop product improvements, whether for its airline or travel agency customers.”
Throughout it all, Harteveldt said, Travelport needs to make sure it preserves its current base of business.
“Travel management companies and travel agencies may look at this and say, ‘Perhaps we need to either bring in a different GDS,’ if they are solely reliant on Travelport, or postpone long-term commitments to Travelport until they get a better sense of the company’s anticipated time-line for recovery.”
Blackstone Group acquired Travelport from Cendant Corp. for $4.3 billion in 2007.
Travelport launched a $1.8 billion initial public offering last year, and eventually pulled the plug after having to lower its price.
The company has long been saddled with debt, and last March agreed to sell its Gullivers Travel Associates wholesale business to Swiss travel firm Kuoni for $720 million, saying the net proceeds would be used to pay down its bank debt, which as of Sept. 30, 2010, was $2.8 billion.