Carlson Wagonlit Travel has entered into negotiations with its bank lenders to alter the covenants related to its debt. Meanwhile, ratings agency Standard & Poor's on Tuesday lowered the global travel management company's long-term corporate credit rating from B to B-. S&P also lowered the rating on $850 million of debt from B+ to B-. CWT has been on the ratings agency's CreditWatch list since March 2.
"The rating actions reflect Standard & Poor's view that the economic downturn is likely to lead to a severe decline in CWT's free cash flow generation in 2009 and 2010," said S&P credit analyst Silvia Ortolan in a statement issued by the ratings agency. "In particular, the CreditWatch placement relays our view of a potentially ongoing decline in revenues and earnings, which could narrow the covenant headroom under CWT's existing facilities."
S&P said it would review the CreditWatch placement within the next three months, once there is clarity on potential amendments to CWT's credit facilities and the ratings agency has judged the effectiveness of measures CWT adopts to adjust to current difficult trading conditions.
"We are in negotiations with our banks syndicate to renegotiate our covenants," CWT director of media and industry consultant relations Kim Derderian confirmed to
BTN. Covenants are the financial criteria, such as earnings, on which creditors regularly assess the ability of loanees to repay their debts. It is understood that CWT is seeking to change certain of its covenants to provide for temporary relief and additional headroom.
Regarding the downgrading by S&P, Derderian said: "Everyone is seeing a decline in business travel, which is prompting the concern of the ratings agencies. The credit agencies are being far more cautious than they were a year and a half ago. We are a solid company. We are being very careful about our costs and doing everything in our power to remain a leader in our field."
CWT is not the only major global travel management company to face financial or ownership challenges in recent months. American Express, the parent bank of American Express Business Travel, applied for Troubled Asset Relief Program assistance from the U.S. government in December 2008. BCD Travel has received a $50 million cash injection from its parent company, BCD Holdings
(BTNonline, May 11). HRG has continued to be troubled by a low share price that has allowed BCD owner John Fentener van Vlissingen to build a large minority stake, but the company has not sought fresh funds from shareholders.