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Moody's says Tripadvisor's proposed convertible notes would be credit neutral if most net proceeds are used to repay existing senior notes due 2025

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Announcement: Moody's says Tripadvisor's proposed convertible notes would be credit neutral if most net proceeds are used to repay existing senior notes due 2025Global Credit Research - 22 Mar 2021New York, March 22, 2021 -- Moody's Investors Service (Moody's) said that Tripadvisor, Inc.'s (Tripadvisor) proposed $300 million senior unsecured convertible notes issuance (unrated) will likely raise over $290 million of cash proceeds, potentially more if the greenshoe is exercised. To the extent most net proceeds are used to repay existing 7% senior notes due 2025 (callable July 2022), the transaction would be credit neutral given there would be less than a 10% increase in outstanding debt and the expected lower coupon on the convertible notes would reduce cash interest expense. To the extent, however, that cash proceeds are used for other general corporate purposes, outstanding debt could increase meaningfully above Moody's base case projections which could lead to a downgrade in ratings.Concurrent with Tripadvisor's offering of convertible notes, Liberty TripAdvisor Holdings, Inc. (Liberty TripAdvisor), the controlling stockholder of Tripadvisor, is offering $300 million of exchangeable senior notes due 2051, or up to $330 million if the over-allotment option is fully exercised. The exchangeable senior notes will be exchangeable into shares of Tripadvisor common stock or cash. Tripadvisor's convertible note offering is not contingent on the success of Liberty TripAdvisor's offering of exchangeable senior notes. Similarly, Liberty TripAdvisor's offering is not contingent on the success of Tripadvisor's offering. As proposed, there is no use of Tripadvisor's balance sheet to support the Liberty TripAdvisor transaction.In March 2020, Liberty TripAdvisor issued $325 million of preferred stock with cash proceeds used to satisfy a margin call on a loan that was secured by Tripadvisor shares. The margin call was satisfied, but the preferred shares came with an 8% dividend and a conversion right based on the value of Tripadvisor's share price. The fully converted value is equal to more than $900 million reflecting the three-fold increase in Tripadvisor's share price to over $55 as of mid-March 2021 compared to last year. Proceeds from Liberty TripAdvisor's proposed offering of exchangeable notes will help reduce a portion, but not all of the more than $900 million value held by the preferred shareholder.Governance risk is a key consideration for the credit profile of Tripadvisor with ownership and control, board oversight and effectiveness, and management being key elements of our assessment of creditworthiness. Tripadvisor is publicly traded, however, it is a controlled company given combined ownership of common (14.9% of common shares) and super voting (100% of Class B common shares) shares held by Liberty TripAdvisor represents roughly 58% of total votes. As a result, Liberty TripAdvisor is a related party and controls voting for most matters including election of six of the nine director nominees, mergers, business combinations, divestitures, as well as equity and debt issuances. Tripadvisor relies on NASDAQ controlled company exemptions to avoid certain corporate governance requirements. Accordingly, shareholders of Tripadvisor are not afforded the same protections as shareholders of other NASDAQ-listed companies with respect to corporate governance. From a credit perspective, concentrated ownership and voting control can have either a positive or negative influence on corporate performance and credit outcomes. With concentrated ownership and control there is increased potential for conflicts of interest and/or related party transactions that are not aligned with creditors. Tripadvisor has demonstrated disciplined financial policies in the years leading up to COVID-19 with low levels of funded debt.Operating results for FY2020 were in line with Moody's base case projections with revenues of $604 million (a 61% decrease from 2019) and negative adjusted EBITDA. We expect revenues and cash flow in the first half of 2021 will fall below our initial expectations reflecting the increase in coronavirus outbreaks in the U.S. and Europe; however, we believe the second half of 2021 will improve given the continued rollout of vaccines in these regions and expectations for a gradual increase in travel demand.We expect Tripadvisor will maintain good liquidity over the next year supported by cash balances of $418 million at year end 2020 (or $382 million less deferred merchant payables) . Although we conservatively expect free cash flow will be moderately negative in the first half of 2021, we expect adjusted free cash flow will improve and be positive in the second half of 2021. In addition, Tripadvisor will have nearly full availability under the secured $500 million revolver due May 2024 (decreased from $1 billion in December 2020). Tripadvisor has historically maintained large cash balances, most of which represents excess liquidity given our estimate that roughly $150 million is needed to support global operations. Suspending share buybacks and special dividends for the foreseeable future allows the company to rebuild cash balances to historical levels. For each of the four years ending 2019, Tripadvisor funded $60 million to $250 million of annual share repurchases (represents roughly $525 million in aggregate) in addition to funding a $488 million special dividend at the end of 2019. A return to share buybacks or other distributions prior to credit metrics, including adjusted debt to EBITDA, approaching pre-pandemic levels could result in a downgrade.Tripadvisor, Inc., founded in 2000 and based in Needham, MA, is a leading online travel company that provides a global travel platform connecting a large audience of prospective travelers with travel partners through rich content, price comparison tools, and online reservation as well as related services for destinations, accommodations, travel activities & experiences, and restaurants.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 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. 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