Cruise ship operator Carnival looks to tap markets for $6bn in cash

Company offering coupon of 12.5% on $3bn of bonds and plans to sell more shares

The cruise ship Carnival Spirit docked at Port Kembla in Wollongong, Australia, last week. The cruise ship operator has tapped capital markets for $6bn of new bonds and is planning to issue new sharesShow more

Cruise line operator Carnival is turning to all corners of the capital markets to raise at least $6 billion (of cash, the biggest test yet of investor willingness to finance industries ravaged by the coronavirus outbreak.

The company is tapping bond investors on both sides of the Atlantic with the sale of at least $3bn of notes in US dollars and euros. The new bonds will be secured by a first-priority claim on the company’s assets such as its vessels and intellectual property and mature in three years. The dollar-denominated portion is being marketed with a coupon of about 12.5 per cent and the entire offering could be increased to $4bn, according to sources.

Carnival said it also plans to raise $1.25bn by issuing common stock and another $1.75bn through the sale of convertible notes to improve its liquidity position.

Combined with the $3bn the company drew on its bank credit lines earlier this month, the bond and stock sales could give the company as much as $10bn of additional liquidity. The company’s shares fell in early trading on Tuesday, before rebounding sharply, trading up almost 10 per cent at 11:38am New York time.

The offering is a barometer for pandemic-hit capital markets, which have faced historic upheaval in recent weeks. While investors have been loading up on new debt from America’s safest companies, they’ve largely avoided riskier firms, especially those affected by the virus. Even with ships as collateral, investors can’t be sure when Carnival will sail again after a series of Covid-19 outbreaks at sea raised concern about the safety of the industry. When it does, the fallout is likely to weigh on consumer demand.

Carnival is attempting to take advantage of rampant investor demand that has seen more than $200bn of debt sold in the US and Europe over the past week. Some companies, including Sysco and YUM! Brands, offered higher premiums to lure investors.

“What we’re seeing right now are a few phenomenal businesses that are under pressure because of the shutdown. These companies are doing what they can to strengthen their balance sheets, some with new bond sales,” said William Smith, a high-yield portfolio manager at AllianceBernstein.

The cruise companies were left out of the recent US federal government bailout package due to their offshore status. Although many are headquartered in Miami, most are incorporated in places where they aren’t subject to US federal income taxes and American minimum wage rules. The cruise industry, which has large fixed costs, is now bracing for the possibility of having to go months without customers.

Carnival, the industry’s biggest operator, is incorporated in Panama. While it is still rated as investment grade by Moody’s Investors Service and S&P Global Ratings, its existing unsecured bonds have been trading at distressed levels in recent weeks. The new secured debt sale is being managed by banks’ high-yield syndicate desks, sources said.

JPMorgan Chase, Goldman Sachs and Bank of America are leading the bond sale, which is expected to be completed on Wednesday. Carnival had been in discussions with banks to raise as much as $7bn through equity and debt to shore up its finances, Bloomberg previously reported.

Earlier this year, Carnival hosted one of the most dramatic coronavirus episodes aboard its Princess Cruises-branded Diamond Princess off Yokohama in Japan. The Diamond Princess had more than 700 Covid-19 cases, which was the biggest outbreak outside mainland China for a while.

Another ship on its Holland America Line, Zaandam, is still at sea searching for a place to dock after the death of four passengers from undisclosed causes. The company transferred passengers it believed to be healthy to another ship, and both ships are now sailing to Fort Lauderdale, Florida.