Sabre GLBL Inc. -- Moody's assigns Ba3 to Sabre's new senior secured term loan B

Rating Action: Moody's assigns Ba3 to Sabre's new senior secured term loan BGlobal Credit Research - 22 Feb 2022New York, February 22, 2022 -- Moody's Investors Service ("Moody's") assigned a Ba3 rating to the proposed senior secured term loan B to be issued by Sabre GLBL Inc., a wholly-owned subsidiary of Sabre Holdings Corporation (Sabre). All other ratings, including Sabre's Ba3 corporate family rating (CFR), and the negative outlook are unchanged.RATINGS RATIONALENet proceeds from the new term loan B will be used to refinance a portion of the company's existing $1.8 billion senior secured term loan B due February 2024. The refinancing is leverage neutral and favorably extends a portion of Sabre's nearest term debt maturities.Assignments:..Issuer: Sabre GLBL Inc..... New Senior Secured Term Loan B, Assigned Ba3 (LGD3)Sabre's Ba3 CFR is supported by the company's asset-lite business model and good operating scale as the #2 provider of Global Distribution System (GDS) services globally with a preponderance of transaction-based revenue. Moody's expects that Sabre will continue to navigate through the remaining challenges of the pandemic despite pressure on revenues and profit margins caused by the still ongoing government travel restrictions globally and limited corporate travel demand compared to historical levels. Sabre's revenues continue to increase over prior year periods supported by the ongoing recovery in travel demand following the near shutdown in global air travel in 2Q20 as a result of the pandemic. Sabre's revenues totaled $501 million in 4Q21 (or 53% of 4Q19 pre-pandemic level) compared to revenues of $314 million in 4Q20 (or 33% of 4Q19's level) driven primarily by a 121% increase in air bookings.Over the next year, Moody's expects growing travel volumes will further increase revenues from bookings, passengers boarded, and central reservation system transactions, but the overall revenue mix for Sabre will remain skewed towards US domestic leisure bookings which generate lower than average unit revenue and profit compared to non-domestic and business travel. Although improved compared to last year, higher margin international and business travel demand will lag in the overall recovery.The US further opened up international air travel for most fully vaccinated visitors in early November 2021 resulting in a doubling of bookings into and out of the US. Moody's expects Sabre's revenues will continue to increase over the next year as additional US and international government restrictions on travel are lifted. Although Sabre's top line will remain below 2019 levels through 2022, significant cost reductions and close management of growth investments and IT spend has helped to preserve liquidity. Sabre has reduced its monthly cash burn rate to an average ($10 million) in 4Q21 from the ($60 million) range at the beginning of 2021, and Moody's estimates that the ongoing recovery in bookings will lead to breakeven adjusted free cash flow in the second half of 2022 followed by adjusted EBITDA margins approaching 2019 levels by 2024.In October 2021, Sabre announced plans to sell AirCentre (the company's airline operations business) to CAE Inc. for $392.5 million in cash (10x -- 11x multiple of estimated EBITDA for 2021). Net proceeds will be used for general corporate purposes including debt repayment. Moody's views this transaction as strategically sound given the sale allows Sabre to increase its focus on core GDS and growing retail businesses in addition to providing significant additional liquidity. The transaction requires regulatory approvals and is expected to close in early 2022. In November 2021, Sabre also disclosed the loss of Expedia's domestic GDS business, as a result of Expedia choosing to consolidate its business with a competing GDS provider, which will eliminate the source of an estimated $55 million to $70 million of bookings in 2020, but only $15 million to $20 million of reported EBITDA given the lower margins tied to US domestic leisure bookings. Recent wins, including certain agencies consolidating business with Sabre in the second half of 2021, will help offset this loss, and Sabre retains the higher margin international business with Expedia.Sabre is committed to disciplined financial policies as evidenced by the pending sale of AirCentre as well as prior debt and equity raises. Moody's expects Sabre will continue to reduce debt balances as travel demand further rebounds and adjusted EBITDA approaches pre-pandemic levels. In May 2021, Moody's revised its outlook on the Global Airlines sector to positive from negative reflecting Moody's expectation of widespread increases in air travel starting in the second half of 2021 and accelerating through 2022. Moody's continues to expect the positive demand trend will continue into 2023 as increasing coronavirus vaccinations around the globe will allow governments to lower barriers to entry for visitors.Prior to the increase in leverage arising from cloud migration and growth investments in 2019, Sabre had demonstrated a track record for maintaining adjusted debt to EBITDA at 4x or better since 2015 with adjusted free cash flow to debt in the mid-single digit percentage range. To preserve liquidity during the pandemic, Sabre has been prudent and suspended quarterly dividends and share repurchases since the beginning of 2020. The company also raised just under $600 million of cash proceeds from the issuances of mandatory convertible preferred stock and common stock in August 2020 to enhance liquidity. Sabre is publicly traded with its four largest shareholders, Blackrock, Vanguard, Fundsmith, and Invesco, each owning roughly 6% - 9% of common shares followed by other investment management companies holding 5% or less. Good governance is supported by a board of directors with 10 of the company's 11 board seats being held by independent directors.Moody's expects Sabre will maintain at least adequate liquidity over the next year given $978 million of unrestricted cash balances as of December 2021 is more than enough to cover reduced cash burn of ($30 million) in 4Q2021 or an average cash burn of ($10 million) per month. Moody's expects Sabre will reach breakeven free cash flow in the second half of 2022, and more than $375 million in net proceeds will be added to cash balances from the sale of AirCentre within the next couple of months. With over $1 billion of unrestricted cash following the sale of AirCentre, Sabre could be in a position to apply a portion of excess cash to debt repayment by the end of 2022. The company has historically maintained a large share of cash at its overseas subsidiaries to support its large geographic footprint of operations, with roughly $150 million needed globally. Sabre suspended common dividends which eliminated a $154 million annual cash outflow with another $70 million preserved by suspending share buybacks.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGThe negative outlook reflects remaining uncertainty regarding the timing for the eventual recovery in global consumer and business demand for air travel related services which will take longer to fully recover than demand for local or regional travel that does not require air travel. Until government mandated travel restrictions on travel across most global regions are lifted, air travel demand will improve gradually but remain constrained particularly for higher margin international bookings.Ratings could be upgraded if Sabre returns to good earnings growth with operating profits becoming more diversified. Debt to EBITDA (Moody's adjusted) would need to be sustained below 4x with high single digit percentage adjusted free cash flow to debt. Moody's could downgrade Sabre's ratings if customer losses, pricing erosion, or a resurgence of coronavirus cases cause Moody's to believe that adjusted debt to EBITDA will exceed 4.75x despite a recovery in travel demand or adjusted free cash flow to debt will deteriorate to the low single digit percentage range on a sustained basis. Ratings could also come under pressure if Moody's expects that liquidity will be strained because of a longer than expected downturn in the travel industry, Sabre funds distributions or acquisitions prior to Moody's being assured of a long term rebound in travel demand, or if outcomes in pre-pandemic legal proceedings have a meaningful financial impact or increase Sabre's business risk.Based in Southlake, TX, Sabre Holdings Corporation's business is organized in two segments: the Travel Solutions segment includes revenues from GDS services (a software-based passenger reservation system) as well as from commercial and operations offerings to the airline industry; and the Hospitality Solutions segment includes distribution, operations, and marketing offerings for the hotel industry.The principal methodology used in this rating was Business and Consumer Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897. 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Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Carl Salas VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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