Amex’s travel unit appeases lenders as coronavirus spreads

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© Reuters. Amex’s travel unit appeases lenders as coronavirus spreads© Reuters. Amex’s travel unit appeases lenders as coronavirus spreads

By Aaron Weinman

NEW YORK (LPC) – American Express’ Global Business Travel (GBT) unit was forced to improve lenders’ protections on US$1.13bn in loans to lure investors into a transaction that teetered as fears of a coronavirus pandemic mounted.

Loan investors in the US grew wary of committing to the deal, slated to reduce borrowing costs and pay a dividend to its stockholders, during its marketing phase due to the company’s exposure to softening demand for travel while fears of the virus keeps potential passengers grounded.

Amex GBT, which provides corporate travel services and facilitates company meetings, faces a stern test as corporations across the globe contemplate grounding their staff and determine alternatives for cross-border business encounters. Companies such as Nestle, Microsoft (NASDAQ:) and Facebook (NASDAQ:) have canceled either conferences or asked its staff to halt international travel for business purposes this week amid the outbreak.

Companies have warned that the virus, which has spread from its original point of Wuhan, China to Europe, Asia and the Middle East, could hurt business operations and put negative pressure on corporate earnings.

In the loan market last week, the uncertainty of the outbreak left at least three Asian borrowers from Indonesia, Vietnam and China with little choice but to scrap travel for planned lender meetings in favor of dial-in teleconferences.

“The timing was off, and it’s a shame for Amex because it’s a business with a durable long-term view, but they had to make (the terms of the loan) sweeter to make it work,” said one investor that looked at the deal.


On Thursday, Amex GBT reduced its loan by US$90m, with the financing now comprising a US$615m funded tranche and a US$515m delayed-draw term loan. While the delayed-draw feature gives the company some flexibility to borrow the money when needed, Amex GBT will pay ticking fees from day one of the loan agreement at 100% of the interest plus Libor, a rate more aggressive than usual.

The ticking fees, typically paid to lenders for their commitment to lend until a loan funds, were initially pitched at the lower rate of 50% of the margin during days 46-90 of the delayed-draw loan, before increasing to 100% from day 91 onwards.

Amex GBT will also cough up an extra 50bp in interest than it initially intended on the seven-year facility, which finalized at an interest rate of 400bp over Libor. Call protection was also extended to 12 months from the originally proposed six, banking sources said.

Proceeds will fund a US$484m shareholder dividend, refinance existing debt and support the acquisition of corporate travel assets, according to a February 11 report from Moody’s Investors Service.

“It’s hard to (accurately) price in the risk of the virus right now, but any travel-related loans are going to face pressure because people are concerned (about the virus) and there is no way around that,” the investor said.

The adjusted debt to Ebitda ratio is roughly 4.5 times as of December 2019, according to Moody’s. Amex GBT is rated B2 by the ratings agency and B+ by peer S&P Global Ratings.

Last December, private equity firm Carlyle Group (NASDAQ:) agreed to buy a stake in Amex GBT. Credit card issuer Amex owned the corporate travel unit until 2014 when it sold half of the company to an investor group led by Certares.

Certares bought the 50% stake in Amex GBT alongside the Qatar Investment Authority, funds managed by BlackRock (NYSE:) and the Teacher Retirement System of Texas.

Carlyle is investing in Amex GBT alongside Singapore’s sovereign wealth fund GIC, the University of California Office of the Chief Investment Officer of the Regents and Kaiser Permanente.

Amex will still retain 50% of the corporate travel business.

Credit Suisse (SIX:) led the loan for Amex GBT.

The bank declined to comment. Amex and Certares were not immediately available for comment.