Cruise lines have continued to be some of the worst-hit stocks on the market. While it’s not surprising given the nature of their business, some analysts are a little surprised that many of these cruise lines haven’t declared bankruptcy yet. One of the larger cruise lines, Carnival (NYSE: CCL), announced just before the weekend that it would be raising around $1.6 billion in total debt in order to pay its bills.
More specifically, Carnival will be selling these bonds in the U.S. and European junk bond market. This is where less stable companies typically offer bonds for higher interest rates due to their desperate circumstances, although not all junk bonds are necessarily bad investments. Regardless, Carnival planned bond sale is an attempt to raise some more, desperately needed cash to finance its survival until sometime 2021, where the company hopes things will return to normal.
“The Corporation expects to use the net proceeds from the offerings of the Notes for general corporate purposes, including, without limitation, the financing or refinancing of a portion of the purchase price, rental payments, costs and expenses related to certain of our current and future property…” read the official press release from the company.
Since the start of the COVID-19 pandemic, Carnival has been forced to raise over $10 billion in financing to stay afloat. However, this current $1.6 billion bond will be the first unsecured bond the cruise line has offered, in which Carnival has no collateral to offer investors. As such, the fact that Carnival is being forced to offer unsecured bonds is another sign of financial weakness for the struggling cruise line.
So far this year, Carnival’s bonds have offered anywhere from 8% to as much as 12% in annual returns, substantially more than most companies out there. However, given the possibility of bankruptcy, a five-year note is a significant gamble for any investor. Even if Carnival doesn’t go bankrupt, it’s going to have to deal with major interest payments in the coming years which, alone, could end up sinking the company.
Shares of Carnival were down around 4.5% on Friday following the news of this extra, much-needed financing. Since the beginning of 2020, shares of Carnival have plummeted by around 60%. It’s a similar story with most other cruise lines out there, such as Royal Caribbean, which are down by a similar margin so far this year due to the coronavirus. Although the prospect of a soon-to-come COVID-19 vaccine has helped send stocks jumping a little, it’s not enough to make up for the big losses seen so far this year.
Carnival Company Profile
Carnival is the largest global cruise company, with more than 100 ships on the seas. Its portfolio of brands includes Carnival Cruise Lines, Holland America, Princess Cruises, and Seabourn in North America; P&O Cruises and Cunard Line in the United Kingdom; Aida in Germany; Costa Cruises in Southern Europe; and P&O Cruises in Australia. Carnival also owns Holland America Princess Alaska Tours in Alaska and the Canadian Yukon. Carnival’s brands attract more than 12.5 million guests annually. – Warrior Trading News
