Business Context and Reporting Period
Expedia Group, Inc. filed this Form 8-K on April 23, 2020, to report the entry into material definitive investment agreements. The filing details a capital raise transaction structured to provide liquidity during the pandemic-induced travel downturn.
Key Financial Metrics and Transaction Details
- Total Equity Investment: $1.176 billion aggregate purchase price ($588 million from Apollo Global Management and $588 million from Silver Lake Group).
- Instrument Structure: Issuance of 600,000 shares of Series A Preferred Stock and warrants to purchase 4.2 million shares of Common Stock to each purchaser.
- Warrant Terms: Exercise price of $72.00 per share; exercisable on a net settlement basis; expire ten years after closing.
- Preferred Stock Dividend Rate: Initial rate of 9.5% per annum, increasing by 100 basis points annually from years 5-7 and 150 basis points annually from years 8-9.
- Transaction Fees: $12 million in aggregate fees payable to affiliates of the purchasers upon consummation.
- Related Debt Offering: The transaction is contingent upon the consummation of a private placement of up to $2 billion in Senior Notes due 2025.
Material Changes and Governance
The transaction introduces significant changes to the company's capital structure and governance:
- Board Representation: Both Apollo and Silver Lake are entitled to designate one representative to the Board of Directors. Additionally, Apollo is entitled to appoint one non-voting observer.
- Voting Rights: Holders of Series A Preferred Stock possess class voting rights, requiring a two-thirds vote to amend charter provisions adversely affecting them, issue senior/pari passu stock, or liquidate the company.
- Redemption Rights: The Company may redeem the Series A Preferred Stock at a premium (ranging from 105% to 101% of the preference amount) depending on the timing relative to the closing date, with full redemption at par available after the fourth anniversary.
Outlook, Risks, and Contingencies
- Closing Conditions: The investment is contingent on the effectiveness of an amendment to the Company's Credit Agreement and the successful closing of the $2 billion Notes Offering.
- Expected Closing: The Company anticipates the purchase of the Series A Preferred Stock and Warrants will occur on or about May 5, 2020.
- Liquidity Strategy: The combined equity and debt financing is designed to strengthen the balance sheet amidst severe industry headwinds.
- Dividend Payment Flexibility: For the first three years, the Company has the option to pay dividends in cash or accrue them, providing cash flow management flexibility.
Investor Verification Checklist
- Confirm the successful closing of the $2 billion Senior Notes due 2025, as the equity investment is contingent upon this.
- Verify the amendment to the Amended and Restated Credit Agreement dated September 5, 2014.
- Monitor the actual closing date to ensure it aligns with the expected May 5, 2020 timeline.
- Review the specific terms of the Credit Agreement amendment for any new covenants or leverage restrictions.
- Assess the impact of the 9.5% dividend rate and potential step-ups on future interest coverage and cash flow.