Expedia's Stock Fall Means Debt Covenant May Be Violated

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TRACKING THE NUMBERS: Expedia Might Trip Debt Covenant [Wall Street Journal]

Summary: A sharp drop in its stock price and falling cash flow mean online travel company Expedia may have to write off a portion of the $5.86 billion in goodwill on its balance sheet. That would reduce shareholder equity, trigger a violation of one of its debt covenants, and likely raise lenders' fees and impair borrowing terms. The goodwill was generated back when IAC/Interactive purchased businesses that eventually became a spun-off Expedia. The goodwill figure now exceeds the company's market value of $5.2 billion.
Related links: Expedia Q2 2006 Earnings Conference Call Transcript • Bill Miller on Expedia • Priceline: Strong Growth That Doesn't Look Sustainable
Potentially impacted stocks and ETFs: Expedia (EXPE), Priceline (PCLN), Travelocity (TSG)

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