This hasn't been the greatest month for travel-related stocks. Certainly, cruises, airlines, and oil companies have all been mauled by the global COVID-19 pandemic, as people are ordered to stay at home and not travel. In addition, even when quarantines are lifted in the intermediate future, it's unclear how quickly travel volumes can come back to full pre-crisis strength.
Yet even the most capital-light, digitally based travel companies are now feeling the pinch. The largest and arguably strongest travel-related company in the world is the world's leading online travel agent (OTA) Booking Holdings (NASDAQ:BKNG). Yet even Booking, the class of the industry, just released some downbeat forecasts for cash burn through the crisis, and it has quickly moved to raise cash and issue debt.
Bookings seemed strong at first
At the end of December, Booking Holdings had a strong $7.3 billion cash position, though it also had about $8.7 billion in debt. In spite of the net debt position, $7.3 billion in the bank seemed like a fair cash cushion to weather COVID-19. However, Booking also has a $1 billion convertible debt maturity in June and another $1 billion coming due in September 2021. Should the coronavirus pandemic drag on until we have a vaccine 18 months to two years from now, Bookings seems set to continue burning cash, putting those debt payoffs in question.
In fact, on April 7, Booking Holdings disclosed that under current business conditions, and without raising any cash in the meantime, the company has enough cash to last through at least the end of 2021. On the bright side, that doesn't include any money from the company's $2 billion revolver, since that revolver is incumbent upon Booking Holdings already having a certain amount of liquidity. However, on the negative side, Booking said that if conditions continue to worsen, its cash might only last through the fall of 2021.
Booking makes moves to shore up the balance sheet
Like many other companies, Booking has made several big moves to shore up its balance sheet in recent days, extending the timeline for riding out the pandemic. First, Booking began selling down some of its stake in Trip.com (NASDAQ:TCOM). Between March 23 and April 3, Booking sold off 4.5 million shares of Trip.com in the low to mid-$20 range, raising about $100 million. However, Booking still owns another 29.6 million shares of the China giant, so this amounted to only about 15% of its Trip.com stake. Obviously, it seemed like a bit of a desperation move, as Trip.com's share price had already been more than cut in half at the time of the sales.
Still, $100 million versus the billions in debt maturities over the next few years is a relative drop in the bucket. More consequential, Booking went back into the debt markets to raise a substantial amount of cash in the form of senior notes. On April 9, Booking floated $1 billion in 4.1% senior notes due 2025, $750 million in 4.5% senior notes due 2027, and $1.5 billion in 4.625% senior notes due 2030. In conjunction with the offering, Booking is also floating another $750 million of 0.75% convertible notes due 2025, with a conversion strike price of approximately $1,886.44. That seems like a pretty good deal to me, as the conversion option isn't that much lower than Bookings' 52-week high share price of $2,094.
The combined $4 billion in notes is supposed to close today, April 13, giving Booking some breathing room to pay off its $2 billion in maturities and bolster its balance sheet by another $2 billion. That should help extend Booking's cash reserves until early 2022 at least, which would presumably be just after a vaccine is introduced. I happen to think the company is raising all this money at very reasonable prices, unlike some others in the travel-related space, who have had to issue equity and debt much more expensively in recent days.
Soldiering on even with a COVID-19-positive CEO
It should be known that Booking Holdings has been making these moves while its CEO has been battling COVID-19. CEO Glenn Fogel was tested on March 26, and his test came back positive on March 31. Fortunately, Fogel hasn't had any symptoms since March 28 and appears to be solidly recovered, at least going by the company's filings. Fogel has also continued in his duties as CEO this whole time, meaning he orchestrated the aforementioned moves even as he was battling the disease.
While things aren't great for the travel sector right now, Booking Holdings' recent moves give it more firepower to weather the ongoing crisis. However, saddled with more debt and with Bookings' stock down "just" 32% from its recent highs, I'm not sure the stock has fallen enough for it to be a compelling value in the travel space just yet. The travel sector may be the last sector to bounce back, meaning the "travel recession" will be longer for companies like Bookings than for others.