Norwegian Cruise Line Holding refinances costly debt with lower cost options

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Published on Thursday, 30 May 2013 08:11

Written by Kari Reinikainen

Norwegian Cruise Line Holding, the listed parent company of Norwegian Cruise Lin e and NCL America, has announced the refinancing of certain of its secured credit facilities.

In addition, the Company has received commitments to refinance certain of its other secured credit facilities. No material incremental debt will result from these transactions. Once completed, the transactions mean that the company has replaced higher cost debt with lower cost options.

“The first transaction, totaling $1.3 billion, consists of a $675 million term loan and a $625 million non-amortizing revolving credit facility. This new facility matures in 2018 and refinanced existing credit facilities which had maturities beginning in 2015 and were secured by Norwegian Star, Spirit, Sun, Dawn, Pearl and Gem,” the company said in a statement.

The facility bears interest at LIBOR (London Inter-Bank Offered Rate) plus an applicable margin of between 2.25% and 1.50% based upon the company's leverage ratio.

In connection with this transaction, the company has issued a notice of redemption for the remaining $228 million outstanding of its $350 million 9.5% Senior Unsecured Notes due 2018 with a redemption date of June 28, 2013.

The second transaction, for which the Company has received commitments, will refinance facilities secured by Norwegian Jewel, Jade and Pride of America by amending the credit agreements to reduce the applicable margins and enhance certain terms and conditions. This transaction is subject to customary closing conditions and is expected to close in the second quarter of 2013.

"These transactions, coupled with our recent initial public offering and unsecured notes offering, reflect the optimization of our capital structure and positions the company for the future," said Kevin Sheehan, President and Chief Executive Officer of Norwegian Cruise Line. "We have now replaced all of our higher rate debt with facilities with more favorable rates and terms and enhanced our maturity profile to better match the increased cash flow generation that accompany our upcoming fleet additions."

Royal Caribbean quantifies financial impact of the Grandeur of the Seas fire – cancels more sailings

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Published on Wednesday, 29 May 2013 21:09

Written by Teijo Niemelä

Royal Caribbean Cruises Ltd. today quantified the financial impact of the Grandeur of the Seas fire.

On May 27, 2013, Royal Caribbean Cruises Ltd.'s vessel Grandeur of the Seas experienced a fire in an industrial area on the aft of the ship. The company has taken the vessel out of service and expects that it will take approximately six weeks to complete the repair efforts. The company estimates that the direct financial impact of this event, net of insurance, is a reduction of $0.10 per share. "The extent of the financial impact was relatively high because the affected sailings were during the premium summer season," said Jason Liberty, senior vice president and chief financial officer. The ship is expected to return to service for its July 12, 2013 sailing date.

"We are gratified that no one was hurt and that the safety and comfort systems performed exactly as designed," said Adam Goldstein, president and chief executive officer of Royal Caribbean International. "I extend my appreciation to our crew who performed so well, as well as to our guests who have been cooperative, understanding and highly complimentary of the shipboard team throughout," Goldstein continued.

To regain pricing power, invest in upgrading fleet - analyst

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Published on Wednesday, 22 May 2013 09:01

Written by Kari Reinikainen

Carnival Cruise Lines, the US focused contemporary market brand in the Carnival Corp & plc group, should invest more in upgrading its existing vessels in order to regain pricing power that has been hurt in incidents involving its ships in the recent past, a cruise industry analyst says, adding that the same goes for the industry as a whole.

Karl Burns, analyst at Panmure Gordon in London, told the Financial Times that the decline in yields “bodes ill for the future as we think Carnival will struggle to regain pricing power.” He added that “the market must begin to appreciate there are structural as well as cyclical challenges to the Carnival business model.”

“The focus seems to be on new ships. Older vessels need to be marketed better to boost revenues,” Burns told Cruise Business. More investment may be needed in upgrading older vessels to allow them to obtain better yields.

Carnival Corp & plc recently unveiled a $700 million programme to technical upgrades to reduce the risk of incidents such as the one that crippled Carnival Triumph in the Caribbean in the spring. About $300 million of the total will be invested in the ships of Carnival Cruise Lines. The incident combined with bad publicity that followed has put Carnival Cruise Lines’ yields under downward pressure and the parent company issued a profit warning yesterday, largely as a result of these problems.

Burns welcomed the investment decision, but added that it might serve the industry as a whole well to focus investment on upgrades of existing ships rather than adding capacity on the market by contracting newbuildings. Yields per berth have trended lower over a long period of time and weak consumer markets in Europe in particular and to some degree also in the US indicate that the situation is unlikely to improve in the near future.

Cruise operators have struggled to stimulate on board spending too, which combined with low ticket prices poses a headache for the industry. “By investing more in upgrading existing ships,  you could get the dual benefit of higher yields and no capacity growth,” Burns said, concluding that the bottom line of the industry's current problems is that it has not succeeded in significantly increasing its penetration rate on key markets, such as North America and Europe.

"Worst may not be over yet for Carnival brand” – Farley

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Published on Wednesday, 22 May 2013 08:16

Written by Kari Reinikainen

The worst may not be over yet for Carnival Cruise Lines, the US focused mass market brand in Carnival Corp & plc  group, says Robin Farley, leisure, lodging and gaming analyst at UBS Invesrment Research in New York.

Farley downgraded Carnival to neutral from buy after a profit warning on Tuesday.

“We had maintained a buy rating after previous incidents due to the belief that the worst was behind for the Carnival brand and that perception issues would start to resolve going forward. Tonight's news signals that the worst may not yet be behind for the Carnival brand, and the guidance reduction suggests that booking trends have gotten worse, not better, in the last two months, signaling that perception problems may not have bottomed yet,” she said in a research note emailed to Cruise Business.

“Remaining on the sidelines in the near term may be the best course of action until the tide turns on Carnival's perception problems.  Carnival management has been one of the best regarded management teams in the consumer sector and on a wider basis for more than a decade.”

“Our downgrade is a change in our view of the stock, not a change in our view of the company. This management team will right the ship. Our downgrade is only a matter of timing.

“Downgrading after bad news has already happened, but our concern is that the worst is not behind Carnival just yet. We had maintained BUY after previous incidents with belief that perception issues would start to resolve going forward, but lower guidance tonight means bookings have gotten worse, not better, in the last few weeks.”

Carnival group management is focused on rebuilding the Carnival Cruise Lines’ brand and re-establishing service to travel agents for improved relationships. “Constant negative publicity has damaged the Carnival brand more than what management had expected when CCL (Carnival group) last gave guidance in March’13, and that is particularly notable for a management team that historically has been viewed as guiding conservatively. “

“Based on the 75 bps of lowered guidance due to the Carnival brand in March, and now an additional 250 bps of yield decline attributable to the brand, the cumulative 325 bps of yield reduction for Carnival Corp suggests that the Carnival brand, which is about 30% of Carnival Corp, may be seeing yield declines of 10-11% at the brand level this year,” Farley stated.