S&P Upgrades Norwegian Cruise Line Credit Rating

Norwegian Bliss in Ponta Delgarda, Azores photo credit Spacejunkie2 Flickr Account

Norwegian Cruise Line Holdings today announced that S&P Global Ratings (S&P) has recently upgraded NCLC’s (NCL Corporation, a subsidiary of Norwegian Cruise Line Holdings) issuer credit rating and issue-level ratings.

NCLC’s issuer credit rating has been upgraded to B+, marking a notable improvement in the company’s creditworthiness, according to a press release.

In addition, S&P has raised the issue-level ratings on NCLC’s existing secured and unsecured debt. The company’s senior secured debt ratings were raised to BB/BB- and its unsecured debt rating was upgraded two notches to B.

S&P highlighted several factors for the upgrade, including NCLC’s current forward-booked position, increased capacity, occupancy recovery, and higher pricing providing good revenue and cash flow visibility for 2024. In addition, S&P noted that the Company’s leverage will benefit from higher revenue, EBITDA, and cash as it generates a full year of operations from its 2023 ship deliveries, without incurring incremental ship delivery debt in 2024.

Further enhancing its financial position, on March 7, 2024, the company successfully completed the refinancing of its $650 million backstop commitment. This commitment has been refinanced from a secured to an unsecured commitment, and as part of this refinancing, the company has repaid its $250 million 9.75% senior secured notes due 2028, eliminating its highest interest rate debt.

“The upgraded ratings are an important recognition of the strength of our business and our ability to reduce leverage,” commented Mark A. Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd. He continued, “Our recent refinancing, which reduces interest costs while releasing the related collateral, is a clear demonstration of our commitment to de-levering and improving our balance sheet.”

Royal Caribbean Reports Q3 2022 Earnings; Net Income of $33 Million

Royal Caribbean Reports Q3 2022 Earnings; Net Income of $33 Million

Anthem of the Seas in Liverpool, UK Photo Credit Spacejunkie2 (Flickr)

Royal Caribbean Group today reported third quarter 2022 Earnings per Share of $0.13 and Adjusted Earnings per Share of  $0.26.

Third quarter results were better than expected and above guidance for the quarter mainly due to higher load factors from strong close-in demand, further improvement in onboard revenue and better cost performance. The Group also introduced the Trifecta Program, a new three-year initiative designed to drive superior performance, according to a press release.

"Last quarter's better-than-expected performance was a result of the continued robust demand environment and strong execution by our teams," said Jason Liberty, president and chief executive officer of Royal Caribbean Group.

"The combination of our leading global brands, the best and most innovative fleet in the industry, our nimble global sourcing platform and the very best people have delivered a successful return of our business to full operations and positions us well to deliver record yields and adjusted EBITDA in 2023," added Liberty. "The Trifecta Program provides us with the financial coordinates we are looking to achieve over the next three years. As we have demonstrated in the past, we expect the formula of moderate yield growth, strong cost discipline, and moderate growth of our fleet will deliver a strong financial profile."

Business Highlights

• Load factors in the third quarter were 96% overall, with Caribbean sailings reaching almost 105%.
• Total Revenue in the third quarter was $3.0 billion, Net Income was $33.0 million and Adjusted EBITDA was $742.3 million.
• Booking volumes in the third quarter accelerated versus the second quarter of 2022 and remained significantly higher than booking volumes received in the third quarter of 2019 for all future sailings.
• For 2023, all quarters are currently booked well within historical ranges at record pricing.
• During the third quarter, the company addressed $5.6 billion of its 2022 and 2023 debt maturities, resulting in $0.1 billion and $2.1 billion of maturities remaining in 2022 and 2023, respectively.
• Based on continued strength in consumer demand and typical load factor seasonality, the company expects fourth-quarter load factors to be similar to the third quarter overall, and to reach triple digits by year-end.
• For the fourth quarter of 2022, based on current currency exchange rates, fuel rates and interest rates, the company expects to generate Total Revenue of approximately $2.6 billion, Adjusted EBITDA of $350 - $400 million and Adjusted Loss per Share of ($1.30) – ($1.50).
• The Trifecta Program is designed to achieve three important financial goals by the end of 2025: increasing Adjusted EBITDA per APCD to triple digits, increasing Adjusted EPS to double digits, and achieving ROIC in the teens, while in parallel returning to an investment grade profile and reducing carbon intensity by double digits as compared to 2019.

Third Quarter 2022

The company reported Net Income for the third quarter of $33.0 million or $0.13 per share compared to a Net Loss of $(1.4) billion or $(5.59) per share for the same period in the prior year. The company also reported an Adjusted Net Income of $65.8 million or $0.26 per share for the third quarter compared to an Adjusted Net Loss of $(1.2) billion or $(4.91) per share for the same period in the prior year.

Third quarter load factors were 96% overall and almost 105% for Caribbean Sailings. As expected, total revenues per passenger cruise day were flat as reported and up 1%  in constant currency versus the third quarter of 2019 despite the negative impact from the redemption of future cruise certificates (FCCs) and lower-than-average load factors on high-priced Europe itineraries.  

Gross Cruise Costs per APCD increased by 1% as reported and in constant currency, compared to the second quarter of 2022. Net Cruise Costs (NCC), excluding fuel, per APCD improved by 11% as reported and 10% in constant currency, compared to the second quarter of 2022. Gross Cruise Costs per APCD and NCC, excluding fuel, per APCD for the third quarter included $3.37 per APCD related to health protocols and one-time lagging costs related to the fleet ramp-up.

NCC, excluding fuel, per APCD for the fourth quarter is expected to be higher by low to mid-single digits compared to the fourth quarter of 2019, all on a constant currency basis. The company still expects to have transitory costs in the fourth quarter, but is expected to normalize as the company is nearing full occupancies, full crew staffing levels, and adapting protocols. The improvement is partially offset by inflationary and supply chain challenges, mainly related to fuel and food costs, which are expected to continue to weigh on costs through the rest of this year and through the first half of 2023.

Update on Bookings

Booking volumes in the third quarter were significantly higher than in the corresponding period in 2019, the company said.

This improvement in bookings was helped by the easing of testing and vaccination protocols which now align more closely with the broader travel industry, allowing everyone to enjoy a cruise vacation.

Guests continue to make their cruise reservations closer to sailing than in the past, resulting in about 50% more bookings in the third quarter for current year sailings when compared to the third quarter of 2019. 

While 2022 bookings remain strong and on pace to achieve occupancy targets, the most notable change has been a substantial acceleration in demand for 2023 sailings.

Booking volumes for 2023 doubled during the third quarter when compared to the second quarter and were considerably higher than bookings for 2020 sailings during the comparable period in 2019, the highest in company history.

As of September 30, 2022, the Group's customer deposit balance was $3.8 billion, reflecting typical seasonality as peak summer sailing deposits have been recognized in revenue. In the third quarter, approximately 95% of total bookings were new versus FCC redemptions.

Trifecta Program

The Trifecta Program is a three-year financial performance initiative designed to chart out the pathway back to superior performance with three main goals to be achieved by the end of 2025, the company said, including:

• Triple Digit Adjusted EBITDA per APCD, to exceed prior record Adjusted EBITDA per APCD of $87 in 2019.
• Double Digit Adjusted Earnings per Share to exceed the prior record Adjusted Earnings per Share of $9.54 in 2019.
• Return on Invested Capital ("ROIC") in the teens to exceed the prior record ROIC of 10.5% in 2019 through optimizing capital allocation and enhancing operating income; all while returning to an investment grade profile and reducing carbon intensity by double digits compared to 2019.

To achieve these goals, the company expects to execute its proven formula of moderate capacity growth, moderate yield growth, and strong cost controls, all while ensuring disciplined capital allocation, investing in the future and improving the balance sheet.

"Our brands, vacation offerings and fleet have never been stronger and we are well positioned for a continued step change in financial performance," said Liberty. "Our proven formula for success is unchanged as we grow capacity and, enhance profitability while seeking to deliver superior shareholder return."

Liquidity and Financing Arrangements

As of September 30, 2022, the Group's liquidity position was $3.1 billion, which includes cash and cash equivalents, undrawn revolving credit facility capacity, and a $700 million commitment for a 364-day term loan facility.

During the third quarter, the company took proactive actions to address $5.6 billion of 2022 and 2023 maturities, in addition to securing financing for the Silversea Endeavour acquisition:

• In August, the company issued $1.15 billion of 6.00% convertible notes due 2025 and used the proceeds to repurchase $800 million of its 4.25% convertible notes maturing June 2023 and $350 million of its 2.875% convertible notes maturing November 2023;
• In August, the company issued $1.25 billion of 11.625% unsecured notes due 2027 to refinance 2022 and 2023 debt maturities;
• In August, the company extended its existing commitment from Morgan Stanley for a $700 million delay draw term loan facility to August 2023;
• In September, the company amended its $554 million Term Loan (due October 2023) such that the aggregate outstanding principal balance is $502 million, with $30.0 million maturing in October 2023 and $472 million maturing in October 2024.
• In September, the company priced $1.0 billion of 8.25% secured notes and $1.0 billion of 9.25% guaranteed notes, both due 2029 and callable in 2025 to refinance $1.0 billion of secured notes and $1.0 billion of guaranteed notes, both due June 2023. The transaction closed in October.

"During the third quarter, we took a series of proactive actions to methodically address a significant amount of our 2022 and 2023 debt maturities," said Naftali Holtz, chief financial officer, Royal Caribbean Group. "Our strong near-term liquidity enables us to focus on continuing to improve the balance sheet as we seek to return to an investment grade profile."

Carnival Corporation Reports 2022 Q3 Earnings; EBITDA Turns Positive

Carnival Corporation Reports 2022 Q3 Earnings; EBITDA Turns Positive

Carnival Corporation has provided its third quarter 2022 business update.

Key Highlights:

• U.S. GAAP net loss of $770 million and an adjusted net loss of $688 million for the third quarter of 2022.
• Adjusted EBITDA for the third quarter of 2022 was over $300 million, turning positive for the first time since the resumption of guest cruise operations and marking a significant milestone.
• Revenue increased by nearly 80% in the third quarter of 2022 compared to second quarter 2022, reflecting continued sequential improvement.
• Occupancy in the third quarter of 2022 increased 15 percentage points from the prior quarter.
• Since the announcement of the company's relaxed protocols in mid-August, aligning the company towards land-based vacation alternatives, booking volumes for all future sailings are considerably higher than strong 2019 levels.
• The third quarter of 2022 ended with $7.4 billion of liquidity, including cash and borrowings available under the company's revolving credit facility.

Carnival Corporation & plc's Chief Executive Officer Josh Weinstein commented: "The well-being of the Caribbean region, Florida and other states still in the path of Hurricane Ian is very important to us. On behalf of Carnival Corporation, I would like to extend our deepest concern for those affected by Hurricane Ian and Fiona, some of whom are our own employees, travel agent partners, destination communities and loyal guests."

Weinstein noted: "During our third quarter our business continued its positive trajectory, achieving over $300 million of adjusted EBITDA and reaching nearly 90% occupancy on our August sailings. We are continuing to close the gap to 2019 as we progress through the year, building occupancy on higher capacity and lower unit costs."

Weinstein continued: "Since announcing the relaxation of our protocols last month, we have seen a meaningful improvement in booking volumes and are now running considerably ahead of strong 2019 levels. We expect to further capitalize on this momentum with renewed efforts to generate demand. We are focused on delivering significant revenue growth over the long-term while taking advantage of near-term tactics to quickly capture price and bookings in the interim."

Weinstein added: "With a transformed fleet, an unmatched portfolio of well-recognized brands, unparalleled scale in an under-penetrated industry and an incredibly talented global team, we have the ability to drive durable revenue growth through pricing improvements over time. We believe this will provide significant free cash flow and accelerate our return to strong profitability and investment grade credit ratings."

Third Quarter 2022 Results and Statistical Information

• Revenue increased by nearly 80% in the third quarter of 2022 compared to the second quarter of 2022, reflecting continued sequential improvement. For the cruise segments, revenue per passenger cruise day ("PCD") for the third quarter of 2022 decreased compared to a strong 2019.
• Onboard and other revenue per PCD for the third quarter of 2022 increased significantly compared to a strong 2019.
• PCDs for the third quarter of 2022 were 17.7 million, representing a 55% increase from the prior quarter.
• Occupancy in the third quarter of 2022 increased 15 percentage points from the prior quarter.
• Available lower berth days ("ALBD") for the third quarter of 2022 were 21.0 million, which represents 92% of total fleet capacity, increasing from 74% in the second quarter of 2022.
• Adjusted EBITDA for the third quarter of 2022 was over $300 million, turning positive for the first time since the resumption of guest cruise operations and marking a significant milestone.

Total customer deposits were $4.8 billion as of August 31, 2022, approaching $4.9 billion as of August 31, 2019, which was a record third quarter. New bookings during the third quarter of 2022 primarily offset the historical third quarter seasonal decline in customer deposits (a $0.3 billion decline in the third quarter of 2022 compared to a $1.1 billion decline for the same period in 2019).

Guest Cruise Operations

Weinstein said: "With our return to guest cruise operations essentially complete, we are now relentlessly focused on driving top line growth and returning to strong profitability. We believe the strategic changes we have already made to our fleet resulting in a younger and more efficient fleet, coupled with our recent portfolio optimization efforts including COSTA by CARNIVAL, will provide strong tailwinds along our path to profitability."

As of September 30, 2022, approximately 95 per cent of the company's capacity is serving guests. The company expects eight of its nine brands will have their entire fleet serving guests by the end of the fourth quarter of 2022.

According to a press release, given Costa Cruises' significant presence in Asia, particularly China, which remains closed to cruising, the brand continues to evaluate deployment options and fleet optimization alternatives beyond the previously announced transfers of Costa Luminosa to Carnival Cruise Line as well as Costa Venezia and Costa Firenze to the COSTA by CARNIVAL concept.

The company's brands continue to responsibly relax their COVID-19-related protocols aligning the company towards land-based vacation alternatives.

This generally includes greatly reduced or eliminated testing requirements and significantly broadens the demand pool by welcoming unvaccinated guests. These relaxed protocols generally became effective throughout September and are subject to local destination regulations.

The company saw a continuation of its 2022 sequential improvement in adjusted cruise costs excluding fuel per ALBD in constant currency in the third quarter of 2022 and said it expects to see continued improvement in the fourth quarter of 2022 with a low double-digit increase as compared to the fourth quarter of 2019 driven in part by higher advertising expense to drive 2023 revenue.

While the company's year-to-date adjusted cruise costs excluding fuel per ALBD during 2022 have benefited from the sale of smaller-less efficient ships and the delivery of larger-more efficient ships, this benefit is offset by a portion of its fleet being in pause status for part of the year, restart related expenses, an increase in the number of dry dock days, the cost of maintaining enhanced health and safety protocols, inflation and supply chain disruptions. The company anticipates that many of these costs and expenses will end in 2022.

Given the seasonality of its business, the company expects a net loss and breakeven to slightly negative adjusted EBITDA for the fourth quarter ending November 30, 2022. Having achieved over $300 million in adjusted EBITDA in the third quarter, the company anticipates positive adjusted EBITDA for the second half of 2022 despite the seasonality of its business and the increasing investment in advertising to drive yields in 2023. Additionally, on a year-over-year basis, the company expects an improvement in adjusted EBITDA and occupancy, with occupancy returning to historical levels during 2023.

Bookings

Booking volumes for all future sailings during the third quarter of 2022 saw a continuation of the accelerated booking volumes during the second quarter of 2022, closing the gap to strong 2019 levels. Since the announcement of the company's relaxed protocols in mid-August, aligning the company towards land-based vacation alternatives, booking volumes for all future sailings are considerably higher than strong 2019 levels. (The company's current booking trends will be compared to booking trends for 2019 sailings as it is the most recent full year of guest cruise operations.)

Cumulative advance bookings for the fourth quarter of 2022 are below the historical range and at lower prices, primarily due to future cruise credits ("FCCs"), as compared to 2019 sailings.

Cumulative advance bookings for the full year 2023 are slightly above the historical average and at considerably higher prices, as compared to 2019 sailings, normalized for FCCs.

Financing and Capital Activity 

During the third quarter of 2022, the company completed a $1.15 billion public equity offering of its common stock. The company expects to use the net proceeds from the offering for general corporate purposes, which could include addressing 2023 debt maturities. In addition, the company invested $0.5 billion in capital expenditures, repaid $0.4 billion of debt principal and incurred $0.4 billion of interest expense, net during the quarter. The company ended the third quarter of 2022 with $7.4 billion of liquidity, including cash and borrowings available under the revolving credit facility.

Additionally, the company exchanged $339 million in aggregate principal amount of its outstanding Convertible Senior Notes due 2023 (the "Existing Notes") for the same amount of Convertible Senior Notes due 2024, extending maturities at the existing rate of 5.75%. The New Notes have the same initial conversion price as the Existing Notes, representing no dilution to shareholders at scheduled maturity versus the Existing Notes, the same coupon and no upfront cost to the company.

 

Carnival Cruise Line to Operate Full Ships this Summer at 110 Percent Occupancy

Carnival Cruise Line to Operate Full Ships this Summer at 110 Percent Occupancy

With its full fleet sailing as of May, Carnival Cruise Line is helping lead the comeback for Carnival Corporation.

The brand is expected to operate at 110 per cent occupancy for the all-important summer season, according to Arnold Donald, president and CEO of Carnival Corporation.

“Carnival Cruise Line, our largest brand, achieved consistently positive adjusted EBITDA beginning in March. Carnival Cruise Line also became our first brand to sail its entire fleet in May and is expecting occupancy to approach 110 per cent during our third quarter,” he said.

Donald, on the company’s second-quarter and business update call, noted these “close-to-home” cruises, where guests perceive far less friction travelling than going abroad.

With a strong North American cruise market, Carnival is pivoting to add more capacity in the form of two redeployed Costa Cruises vessels under the Costa by Carnival umbrella. The Costa Venezia will sail from New York starting in 2023 while the Costa Firenze will homeport in California beginning in 2024.

Coronavirus Could Pose Threat to Cruise Ship Credit Ratings

The cruise ship Diamond Princess is docked at the port of Yokohama, south of Tokyo, in this photo taken by Kyodo February 7, 2020. Mandatory credit Kyodo/via REUTERS

The impact on cruise companies’ earnings from cancelled trips, steep discounts and ships quarantined over coronavirus concerns could pose credit risks, said rating agencies Moody’s Investors Service and S&P Global Ratings.

Carnival Corp and Royal Caribbean Cruises said last week that scrapped itineraries in Asia due to the outbreak would affect their earnings per share more than expected. Norwegian Cruise Line Holdings on Thursday forecast an impact of 75 cents per share on full-year adjusted earnings, citing virus-linked fallout.

“It reduces the flexibility that these companies have in their rating categories,” said Moody’s analyst Peter Trombetta. “It removes some of their cushions.”The earnings impact on both Carnival and Royal Caribbean were deemed “credit negative” by Moody’s although neither company’s credit ratings were immediately affected.

In a note published on Wednesday, S&P Global analysts wrote that the impact on Carnival’s cash flow from the coronavirus outbreak is expected to drive leverage above the 2.5 debt to EBITDA ratio is 2020, the threshold that would normally warrant a downgrade if breached. However, if the analysts believe the impact on Carnival to be temporary and that leverage could be lowered within a year or two, they do not expect to downgrade the rating.

Financially, “Carnival would be impacted the most. They also have the most capacity in China. So they would probably see the biggest hit to earnings,” said Trombetta.

In response to a request for comment, a Carnival spokesman said, “The primary impact on the cruise industry is focused mostly on China, which is an emerging market for the cruise industry, so the impact is relatively small.” Neither Royal Caribbean nor Norwegian responded to a request for comment.

While the outbreak casts a shadow on the cruise industry in the short-term, credit analysts said they did not expect the effect to be lasting.

“We have very short memories,” said Trombetta, citing disasters like the wreck of the Costa Concordia ship in 2012, which killed 32 people. “People want to go on cruises. Once some time passes, that demand – so far – seems to keep coming back.”

Fitch Ratings, the third of the three largest credit rating agencies do not publicly rate the cruise companies, but analyst Colin Mansfield, who covers the gaming, lodging and leisure sectors, said he expected the consequences of the epidemic to be temporary.

And yet, Norwegian Cruise Line Chief Executive Frank Del Rio noted on a call with investors on Thursday that the coronavirus in particular “has caused near panic in the travelling public.”

“The decrease in bookings is similar to what we see – we have seen in past similar events, whether they be geopolitical during the financial crisis, et cetera. What’s a little bit different about this one is the increase in cancellations.”

That bias could create longer-term problems for the industry. There is some potential for “a softer demand picture in general if cruise gets some bad PR from this that sticks in peoples’ minds for any period of time,” said Paul Golding, an analyst at Macquarie Capital. (Reporting by Kate Duguid; Editing by Megan Davies, Steve Orlofsky and Daniel Wallis)(c) Copyright Thomson Reuters 2019.