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Expedia Prices $500M Senior Notes, Gets Moody's Ba1 Rating

Zacks Equity Research

Online travel-booking company Expedia Inc. (EXPE) recently announced the pricing of senior unsecured notes aggregating $500 million. These bonds carry a coupon rate of 4.50% and are due to mature in 2024. The offering is expected to close on Aug 18, 2014, subject to customary closing conditions.

Management stated that the net proceeds would be used to fund the potential acquisition of the Australian website, Wotif.com and for other corporate purposes. Last month Expedia had announced its plans to acquire Wotif.com for about $658 million.

Expedia’s debt issue was assigned a Ba1 rating by leading credit rating agency Moody's along with a stable outlook. Investors seemed unaffected by the news as share price movement was muted in the subsequent trading sessions.

The rating agency has assigned the Ba1 rating based on its optimism regarding Expedia’s consistent strong operating performance in the online travel market in the coming years. The rating agency expects Expedia to deliver above market growth rate even in the presence of increasing competition from Orbitz Worldwide (OWW), Ctrip (CTRP) and Priceline (PCLN). It believes that the company will continue to benefit from increasing online penetration of travel expenditures, especially in international markets.

Moody’s assigned a stable outlook on the rating based on persistent revenue growth performance by Expedia. The agency believes that its improved performance will continue in the future too, as the company will continue to leverage from technology and sales and marketing investments made in the past years.

The rating agency is also positive about The Wotif acquisition. The company continues to grow both in the U.S. and internationally, driven by secular growth in the online travel booking industry.

Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence in the stock as well as in maintaining credit worthiness in the market. Moody’s Ba1 rating is an investment grade rating, indicating speculative elements grade obligations with substantial credit risk.

Expedia currently sports a Zacks Rank #1 (Strong Buy).

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