Arming for Battle? Travelocity Parent To Raise $400M

Computer reservations giant Sabre (NYSE: TSG), parent of travel e-tailer Travelocity.com (Nasdaq: TVLY), said Thursday it would raise up to US$400 million worth of working capital, a possible sign the company is looking to fortify itself as the online travel war becomes more intense.

Fort Worth, Texas-based Sabre said it will raise the cash by selling 10-year notes in the company. Similar to bonds, the notes carry an interest rate of about 7.44 percent.

Sabre said it increased the size of the offering, which is being underwritten by Banc of America, Goldman Sachs and Morgan Stanley, from $300 million due to "strong investor demand."

"We believe the public debt market provides a unique alternative for accessing long-term capital at rates that are very attractive by historical standards," Sabre chief financial officer Jeffery Jackson said. "It is also a way for us to diversify our funding sources."

Sabre said it intends to use the proceeds to reduce debt and for general corporate purposes.

Neither Travelocity nor its parent company is currently strapped for cash. Travelocity shares closed Thursday at $26.25 while Sabre is trading above $50.

Timely Boost

The cash infusion comes as Sabre and Travelocity fight increasingly aggressive and well-heeled competition in the travel sector, one of the bright lights of the e-commerce industry in recent quarters.

On July 31st, Priceline (Nasdaq: PCLN) surprised analysts and reported its first profitable quarter. Additionally, while the initial excitement over the airline-backed Orbitz seems to have died down, it continues to aggressively pursue market share and remains a long-term threat, according to analysts.

Head-to-Head

Travelocity has squared off most directly with Expedia (Nasdaq: EXPE), control of which was sold last month by Microsoft (Nasdaq: MSFT) to USA Networks in a $1.8 billion deal that gives Expedia access to multiple media channels.

In early July, Expedia unveiled a plan to license its fare-searching technology to 20,000 online and offline travel agents through Worldspan. That system duplicates an effort by Sabre to hook travel agents to the Web through its eVoya Webtop system.

Eking Out Profits

Travelocity managed a profitable second quarter, but only after several special charges connected with the firm's expansions and acquisitions were taken out.

Travelocity and Sabre have not been shy about expanding through acquisition either, most recently making a deal to buy Australia's Whereto.