SABRE debt: 4 billion

 The company estimates that it will take several years for travel demand to return to its 2019 levels. In its Q1 2020 earnings call and thereafter, SABR announced that it had initiated cost-cutting measures that would save at least $325 million in costs in 2020. It has frozen the hiring process, furloughed more than one-third of its global workforce, eliminated pay hikes, suspended dividends and share purchases, and reduced consulting spends.   

SABR also drew down $375 million on its revolver facility and issued senior secured notes worth $1.1 billion due 2025. The pricing of these notes is a concern because a good part of these notes ($775 million) was priced at 9.25%, a very high rate. The company also expected that its leverage ratio covenant would be suspended in 2020 because COVID-19 was an extraordinary event.

SABR estimates a monthly cash burn of $80 million in a zero-bookings situation and has shored up liquidity of $1.5 billion, including the notes issue, to gear up for the fall in bookings. For April and May 2020, the company’s travel bookings were down 90% year on year and gross hotel reservations were down 60% for the same period.

For cross-reference’s sake, on July 6, 2020, United Airlines (UAL) disclosed to the SEC that the number of domestic passengers had dropped 69% year on year, while international passenger numbers dropped 87% in the same period.

As of Q1 2020 on a TTM basis, SABR had approximately $3.18 billion worth of goodwill and intangible assets in its balance sheet. The value of its net property and equipment was just $683 million. As of the same date, the company had $3.625 billion in long-term debt, which did not include the new long-term debt of $1.1 billion.

The company has not impaired its goodwill so far even though it was and is operating in an extremely competitive environment. On May 8, 2020, it disclosed in its quarterly results’ SEC filing that as per “its own assumption” goodwill was not impaired. It also added that its Airline Solutions goodwill of $372 million could be subject to impairment going forward.

The company is operating in a competitive environment at a time when the demand has fallen off a cliff. I’m not a goodwill valuation expert but reckon that SABR should be more aggressive in impairing this intangible asset.