S&P maintains possible downgrade status on Expedia

NEW YORK — Standard & Poor's Ratings Services said Tuesday it is keeping its credit ratings for Expedia Inc. under review for a possible downgrade pending completion of the online travel company's plan to spin off its TripAdvisor unit into a separate, publicly traded company.

S&P reaffirmed a "BBB-" corporate credit rating for Bellevue, Wash.-based Expedia.

Should Expedia go forward with the TripAdvisor spinoff as contemplated, S&P said it would likely affirm the rating at "BBB-" but the agency added that any changes in the plan that favor shareholders over debtholders could cause it to reevaluate.

S&P placed its ratings on Expedia under review in April, after the company announced the spinoff plans.

TripAdvisor lets travelers post advice and reviews and offers planning features such as flight searches and links to hotel and flight bookings. Under the proposed deal, Expedia would continue to include the domestic and international operations of the company's travel brands including Expedia.com, Hotels.com, Hotwire and carrentals.com.

The transaction would raise Expedia's use of debt and squelch its growth rate, profit margin and discretionary cash flow, said S&P credit analyst Andy Liu.

"We believe that margin pressure on Expedia following the splitoff will ratchet up," Liu said. "TripAdvisor's higher profit margin has been offsetting Expedia's margin pressure from travel services."

Hotel and air bookings and TripAdvisor earnings drove first-quarter revenue, which was up 15 percent from a year earlier. However, earnings before interest, taxes, depreciation and amortization were only up 3 percent over the same period because of higher marketing expenses and technology investments at Expedia.

If approved by shareholders, the transaction is expected to be completed in the fourth quarter.

Expedia shares rose 29 cents to $30.67 in afternoon trading Tuesday.