Business

Carnival borrows $2 billion as investors clamor for cruise ship-backed bond

Carnival borrows $2 billion as investors clamor for cruise ship-backed bond
Written by admin

Carnival, the world’s largest cruise operator, has borrowed $2 billion in a bond offering that uses a dozen of its ships as collateral as it tries to refinance the huge pile of debt it has amassed during the pandemic.

The company was able to borrow more than the $1.25 billion it originally planned to raise, and at a lower interest rate. Carnival According to two people briefing on the deal, it was just prepared to stomach hours ago.

The new debt was discounted and priced at a coupon of 10,375 percent, giving investors a 10.75 percent return. That was well below the 11.5 percent yield that bankers marketed Tuesday morning to lend to investors, and the company cited “strong investor demand” for the bonds.

The issuance is the company’s first foray into the scrap bond market since May, with the company’s 10.5 percent bond coupon. scared the stock market.

The double-digit coupon underlined the rapid rise in borrowing costs as the Federal Reserve raised interest rates this year. Similarly-rated corporate bonds traded with an average yield of 9.64 percent on Tuesday, according to Ice Data Services.

Carnival is not alone payment and premium Due to the turmoil in the financial markets. PitchBook LCD data showed that scrap-rated companies had to offer an average return of 12.25 percent in October to increase their new debt. Last week, cinema operator AMC borrowed $400 million with a 15.1 percent return to finance a subsidiary.

As part of the bond agreement, Carnival’s parent company transferred 12 vessels, most of which had been operational in the past two years, with a total value of $8.2 billion, to a subsidiary that ultimately issued the bonds, using the vessels as collateral.

John McClain, a high-yield portfolio manager at Brandywine Global Investment Management, said the bond showed he was “creative” with collateral to avoid paying Carnival’s “eye-watering” interest rates. “Without ships, I don’t believe they can access capital at a price they’re comfortable with,” he said.

The share price is down 62 percent this year to just over $8, but it rose more than 11 percent on Tuesday after the bond was announced.

Ross Hallock, head of high-yield research, said the structure of the bond, which will mature in 2028, puts lenders “on the forefront” for any claims over 12 ships should Carnival fail to meet the payments. At Covenant Review.

Carnival has had to contend with a ballooning debt pile of nearly $35 billion in early September following the pandemic. Meanwhile, the recovery in cruise bookings has been delayed. Last month, the Miami-based company reported a net loss of $770 million for the fiscal third quarter.

Carnival’s dollar-denominated senior unsecured bonds due in 2026 rose as much as 4.7 percent Tuesday as a sign of assurance on the company’s cash flow, but they are still trading at well below par, according to bond trading platform MarketAxess. continues. At the start of the pandemic, the company offered collateralized bonds against its fleet of more than 80 to lure investors.

Still, some traders said the cruise industry’s vulnerability to economic downturns and Carnival’s high debt level meant the double-digit yield on offer wasn’t high enough.

“When I see 11.5 percent for highly cyclical, highly leveraged US companies and compare that to other companies in the market [that are offering similar yields]I’m not impressed,” said one investor. “North of the 15 percent is when it gets interesting. . . It is not difficult to find efficiency in this market.”

About the author

admin

Leave a Comment