Worldspan, the travel technology company, was downgraded by Moody's Investors Service after equity investors Citigroup Venture Capital and Teachers Merchant Bank of Toronto announced they are taking out a $320 million dividend through a new bank and bond deal.
Moody's assigned a B2 rating to Worldspan's $440 million senior secured bank credit facility due in 2010. It also assigned a B3 rating to its $350 million second-lien senior secured notes. The senior implied rating was downgraded one notch to B2. J.P. Morgan, UBS and Lehman Brothers are leading the facility which consists of a $400 million "B" loan and a $40 million revolver. Both are priced at LIBOR plus 2 1/2% (LMW 1/31/05).
A source said the ratings cut was totally expected because of the dividend recap. However, the deal is going well, he added.
John Moore, a Moody's assistant v.p. and analyst, said the change in rating was prompted by what he called a "change in the environment and an increase of competition." He said the current offerings slightly increase the cash interest requirements the company has to pay which will have an affect on their free cash flows for the intermediary term.
In 2004, Moore said there was a return to the travel market, but there was also an increase in passenger use of airlines--like Jet Blue and Southwest that do not distribute travel through a global distribution system (GDS). Also, more flyers are heading straight to the Web sites of Tier-1 carriers, such as US Air and Delta, bypassing outside sites. Moore said Worldspan could increase its share within the traditional bookings market by convincing more travel agencies abroad to use Worldspan. This could increase its international bookings and post growth as compared with the other three GDS companies. Worldspan had no comment.