PE Deals of the Year
Travelport Ltd. was a promising e-commerce wager for Blackstone Group LP. The New York buyout giant, with Technology Crossover Ventures and One Equity Partners, paid $4.3 billion for the travel reservation arm of Cendant Corp. in June 2006. By 2007 the sponsors had recouped almost all the $800 million of equity they put in through a dividend recapitalization that added $1.07 billion in senior pay-in-kind notes at the holding company level. The PIK loan, enabled by robust credit markets, ranked as the largest of its kind at the time.
The Parsippany, N.J., company was among a spate of online travel providers that traded hands during the buyout boom. But its unwieldy capital structure eventually pushed the company to restructure the debt, and forced Blackstone to cede a substantial stake in Travelport. The restructuring was arguably one of the year's most complex efforts by a private equity-backed company to avert a debt default, one that was closely watched by restructuring experts as a possible template for trouble spots.
To be sure Blackstone lent a hand in sharpening the business strategy. Travelport operated more than 20-odd units, including Orbitz Inc., an online plane ticket aggregator; Cheap Tickets.com; and reservations system Galileo. In 2007 Travelport bought rival Worldspan LP for $1.4 billion, a move that dramatically increased its presence in global distribution system airline transactions. It combined Worldspan with its own GDS business, Galileo International, which now accounts for most of Travelport's net $2.035 billion revenue for 2011.
Soon after, Travelport spun out Orbitz through an initial public offering whose proceeds went to pare debt. Orbitz's business of selling tickets directly to consumers went through Galileo and Worldspan technology platforms to book tickets, which made more sense as an independent operation.
Travelport itself was said to be weighing an IPO, though plans didn't crystallize until January 2010, when it filed to raise up to $1.78 billion in London, with hopes of delevering with the proceeds.
Those plans were soon shelved due to market jitters over Greece's debt and a looming euro-zone bailout. By then airline ticket sales were anemic and cash flow was declining. Meanwhile, its balance sheet was laden with $3.7 billion of outstanding debt, a chunk of which stemmed from the leveraged buyout.
Total debt stood close to 8 times Ebitda. As credit markets tightened in 2011, Travelport faced a March 2012 maturity on about $1 billion in PIK notes, with $715 million outstanding.
With little hope of an IPO or refinancing, financial adviser Credit Suisse Group led Travelport through an aggressive debt restructuring. In September, owners of the outstanding $715 million in PIK notes agreed to extend the maturity until 2016 -- for a price.
Travelport agreed to buy out the PIK holders, gifting them with a $40 million cash payment, a 40% ownership stake in Travelport and a senior position in the capital structure. Holders of the company's $1.05 billion bonds who got crammed down claimed the restructuring was illegal but eventually backed off. The refinanced PIK notes shifted to the operating company.
With less leverage Travelport may now revive IPO plans, as CEO Gordon Wilson has intimated. Revenue has rebounded for the first time since 2008.
Though it lost value, Blackstone wasn't out much equity, having recouped most of its original outlay in 2007. The firm should be doubly grateful to lenders for avoiding a disastrous turn.
Up until early 2011, Paul "Chip" Schorr IV had been the chief engineer of Blackstone Group LP's technology investments since 2005. Besides Travelport Ltd., he led the firm's jumbo-sized purchase of semiconductor company Freescale Semiconductor Inc. in a $7.1 billion club deal in which Blackstone sank roughly $1 billion of equity.
Schorr, 44, served as chairman of Travelport's board until last January when he left Blackstone to found his own technology-focused firm, called Augusta Columbia Capital. Schorr remains a director on the board.
Before joining Blackstone in 2005, Schorr was a managing partner at Citigroup Venture Capital, where he made investments in companies such as Fairchild Semiconductor, ChipPac Inc. and Intersil Corp. Schorr started his career at McKinsey & Co. He has an M.B.A. from Harvard Business School. -- D.H.