Royal Caribbean Puts 28 Ships Up as Collateral for $3.3B in New Debt
Royal Caribbean Cruises Ltd. announced Wednesday that it plans to issue $3.3 billion in new debt - secured by the ownership of 28 ships out of its 60-plus-vessel global fleet.
The proceeds of the issuance will be used to refinance an existing $2.3 billion debt facility that matures in March 2021, with the remaining $1 billion held in reserve for general purposes. The bonds and guarantees will be secured by 28 of the company's vessels and related intellectual property.
In cautionary notes, Royal Caribbean pointed to the risks of conducting a passenger vessel operation in the COVID-19 era. These include government travel restrictions, the potential for the extension of cruise suspension, guest cancellations, crewing challenges, potential COVID outbreaks on board, the public perception of health risks aboard cruise ships and the possibility of restricted access to ports of call.
Moody's warns of protracted cruise shutdown
On the same day, bond rating agency Moody's downgraded Royal Caribbean's unsecured rating from a prime Baa3 to "not prime" Ba2, and it assigned a negative outlook signaling possible further reductions ahead.
It also assigned the company a Ba1-PD probability of default rating ("subject to substantial default risk") and a Baa3 rating (one step above "not prime") to the company's planned secured note issuance.
"The downgrades reflect the risks Royal Caribbean faces as their operations continue to be suspended and Moody's expectation of a slow recovery resulting in financial metrics that are not indicative of an investment grade rating for the foreseeable future," said Pete Trombetta, Moody's lodging and cruise analyst in a statement Wednesday.
"Moody's forecasts that cruise operations will continue to be suspended in the US beyond the current July 24 no-cruise order issued by the Centers for Disease Control and Prevention (CDC) and available capacity will be modest for the remainder of 2020 and possibly into early 2021, as the risk of fully restarting operations before proper safety protocols are in place far exceed the potential reward," he added.
In addition to large-scale systemic factors, Moody's cited Royal Caribbean's high leverage, which could exceed a 4.0 debt-to-EBITDA ratio for more than two years.