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Why Silver Lake is investing in travel during a global lockdown

How are investors now betting on travel, given the uncertainty over when the lockdown ends? 


Since the pandemic hit stateside, Silver Lake and Sixth Street have shown up as equity and debt investors in coronavirus-hit Airbnb. Travel booking company Expedia yesterday raised $3.2billion—including some $1.2billion in equity from Apollo and Silver Lake.


The logic behind these bets, at least for Silver Lake co-CEO Egon Durban: Cash is king. He told Fortune that he is betting that in the long term, the nation will go back to normal and that “capitalism is not going to fail.” To manage the uncertainty of how long the coronavirus may keep the world in some kind of lockdown, Durban is betting on companies downtrodden by the coronavirus, but are cash-rich.


“In both the cases of [Expedia and Airbnb], we believe these companies are well-funded through whatever version of whatever restart and whatever healthcare solution is necessary,” said Durban in a virtual Fortune Brainstorm Tech conversation Thursday. “Though there may be a delay in realization of the internal rate of return.”


The coronavirus has depressed valuations across the board and given investors an opportunity to find more lucrative deals than before. The $1billion debt-and-equity Airbnb deal in which Silver Lake invested came reportedly with an interest rate of over 10%.


But it’s still a bet that the economy will come back before the cash runs dry for the companies—a downright terrifying thing to try to predict given how little we know about the virus, and its apparent proclivity to re-emerge when everything seems under control. 


“We’re planning for a second wave outbreak, for equity markets to go down 20%, credit markets to tighten and get scary, banks to re-price their capital,” Durban said. “We’re planning for the worst across all of our portfolio.” Source: Fortune

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