Investing.com -- S&P Global Ratings has upgraded the ratings of Global Business Travel Group Inc., also known as American Express (NYSE: AXP ) Global Business Travel (Amex GBT), from ’B+’ to ’BB-’ due to the company’s strong performance. The ratings have also been removed from CreditWatch Positive, where they were placed on March 29, 2024, and a stable outlook has been assigned.
Amex GBT, a leading global business travel management company, has been demonstrating solid growth in both revenue and profit due to increased demand for business travel, market share gains, and technological productivity gains. The company’s S&P Global Ratings-adjusted leverage is forecasted to decrease to the low-3x area in 2025, which is below the 3.5x leverage threshold for the upgrade.
However, the proposed acquisition of CWT Group LLC by Amex GBT has hit a roadblock with the U.S. Department of Justice filing a civil antitrust lawsuit to block the transaction on January 10, 2025. The future of this transaction is uncertain. Despite this, S&P Global Ratings believes that Amex GBT has sufficient resources to cover additional expenses related to the delayed transaction and would maintain its leverage if the merger receives regulatory approval.
Amex GBT reported a solid revenue growth of 6% year over year and its S&P Global Ratings-adjusted EBITDA significantly improved to 11.3%, reflecting the company’s recent focus on cost controls and operating leverage. The company’s leverage decreased to the mid-4x area on an S&P Global Ratings-adjusted basis in 2024 and is expected to further decrease to the low-3x area by the end of 2025.
Amex GBT is projected to continue gaining market share as demand for business travel remains strong. This is reflected in a revenue growth forecast of 4%-5% for 2025. The company’s EBITDA is expected to continue to grow significantly and EBITDA margins are expected to improve to over 14% in 2025. This is due to the company benefiting from operating leverage and technological improvements, which should translate to solid free operating cash flow generation in the 14%-16% area.
Amex GBT’s proposed acquisition of CWT could enhance its credit metrics, increase its global presence, add an additional 4,000 customers, and grow total transaction value by approximately 45%. The combined company would benefit from a more diverse set of customers, including CWT’s global multinational, military, and government clients and within Amex GBT’s customer base of small to midsize enterprises. The company could also benefit from increased choice and volume by its customer base on software, which could mitigate potential EBITDA volatility caused by business travel downturns. The company has also identified run-rate synergy opportunities of approximately $155 million within the first three years.
However, there are risks and high costs associated with integrating the two platforms. Despite this, Amex GBT has a history of delivering significant synergies from its previous acquisitions of HRG in July 2018 and Egencia in November 2021. If the proposed transaction does not proceed, S&P Global Ratings believes that Amex GBT has a sufficient cushion at this rating level to fund associated legal expenses or potential breakage costs.
Amex GBT’s current capital allocation policy and public net leverage guidance of 1.5x-2.5x are incorporated in the ’BB-’ rating. The company repurchased $55 million of shares in 2024 and its board recently authorized an additional $300 million of repurchases through 2027. The company maintains a target net leverage level of 1.5x-2.5x, which will roughly translate to 3.0x-4.0x on an S&P Global Ratings-adjusted basis going forward.
The company has also demonstrated its ability to reduce its interest expense burden through several transactions, including the $1.4 billion term loan B refinancing in July 2024 and subsequent term loan repricing in February 2025. Additionally, the company’s floating rate interest expense is largely hedged via fixed rate interest rate swaps, further demonstrating prudent risk management.
Despite substantial improvement in revenue and EBITDA alongside the recovery in business travel, the company’s accounts receivable and accounts payable balances are highly correlated with total transaction value trends. This, along with the company’s TTV seasonality, typically has a drag on the company’s cash flow in the first quarter. However, S&P Global Ratings expects a smoother business recovery trend, working capital initiatives, and recent cash interest savings to improve the company’s cash flow profile such that its reported cash flow from operations increases to approximately $300 million in 2025 from $160 million in 2023 and approximately $270 million in 2024.
The stable outlook reflects S&P Global Ratings’ view that market share gains, operating leverage, and cost efficiencies will support good operating performance such that Amex GBT’s leverage will approach the low-3x area and discretionary cash flow to debt will remain in the 6%-10% area over the next 12 months.
The rating could be lowered if Amex GBT’s credit metrics materially deteriorate, including debt to EBITDA rising above 4.0x or discretionary cash flow to debt decreasing below 5% on a sustained basis. The rating could be raised if Amex GBT substantially increases its scale while continuing to successfully integrate acquisitions and realize associated synergies and adheres to a financial policy commensurate with maintaining its S&P Global Ratings-adjusted debt to EBITDA below 3.0x on a sustained basis.
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