Sabre: Shares Clipped on a Small but Costly Debt Exchange Perhaps Signaling Demand Uncertainty

Narrow-moat Sabre's shares dropped around 10% during March 4 trading, which we attribute to investor concerns about the company’s demand prospects after the travel platform operator announced a small, yet high-cost, debt exchange. Sabre is exchanging $150 million of April 2025 debt at a 4% interest rate for $182.6 million in debt (including $32.6 million in cash used for the earlier retirement of the prior note) maturing August 2026 at a rate between 4.0% and 7.5% (to be dictated by its share price). We see the $30 million-plus in cash used to extend $150 million in debt by a year and a half as costly and perhaps stoking angst over the outlook for a recovery in industry air global distribution system volume. That said, we think Sabre should meet its obligations even under the scenario of very minimum recovery in global air bookings, given the company’s $600 million in cash and our forecast for around breakeven and $247 million in free cash flow to equity in 2024 and 2025, respectively. We don’t plan to change our $5 fair value estimate, leaving shares undervalued. Still, we expect shares to remain volatile until there is more visibility on industry air volume demand and certainty on the cost of credit in the marketplace.