Expedia, the online travel agency, slashed plans to buy back its own shares yesterday, blaming unattractive financing conditions in jittery credit markets.

Plans to finance a $3.5 billion (€2.5 billion) share buyback with new debt ran aground as funding costs have risen in response to a heavy pipeline of new debt supply for leveraged buyouts. Credit investors have also been skittish on fears that the US sub-prime mortgage crisis could spread to other asset classes.

Barry Diller, Expedia's chairman and chief executive, said: "The terms available to us in the current debt market environment were simply unacceptable."

Expedia said it would buy back 25 million shares, or 8 per cent of its stock, for $27.50 - $30 a share. In its original plan, announced in June, the company said it would tap the debt markets to help fund the buyback of 42 per cent of its shares.

Analysts estimate that the deal would have seen Expedia raise at least $2.5 billion of new debt, gearing the company up to six times. Standard & Poor's, the rating agency, lowered Expedia's rating to non-investment grade in response to the original plan.

The revised buyback will cost about $720 million. Expedia said it planned to finance it with its existing bank credit facility.

Tougher credit conditions have forced several other companies to postpone or cancel planned debt offerings in recent weeks, as investors have struggled to absorb record volumes of high-yield bond and loan deals, many with aggressive structures.

As investors face a $300 billion pipeline of new bond and loan issuance for the rest of 2007, premiums for high-yield debt have risen sharply in recent weeks.

The buyback was Mr Diller's latest effort to boost the share performance of Expedia, coming after reports that he was working on a $30 a share buyout to take it private. Shares of Expedia fell 8.8 per cent to $26.80 yesterday, but are 27 per cent higher on the year.