Coronavirus: Carnival Corp agrees new $6bn financing deal

Carnival Corporation is bolstering its finances by more than $6 billion as the world’s largest cruise company battles the impact of coronavirus.

The owner of brands such as P&O Cruises, Cunard, Princess Cruises and Holland America Line, is making a share offering to raise $3 billion and issuing $1.75 billion in senior convertible notes.

The company has also commenced an underwritten public offering of $1.25 billion of shares of common stock.

Underwriters are also being given an option to purchase up to $187.5 million of additional shares.

The corporation expects to use the net proceeds from the offering for “general corporate purposes” as it faces a prolonged pause in operations, delays in new ship deliveries and the prospect of making substantial refunds.

The company drew down $3 billion in credit earlier in March plus other financial arrangements.

Carnival said in a detailed filing to the US Securities and Exchange Commission (SEC): “Covid-19 has had, and will continue to have, a materially adverse impact on our financial condition and operations, which impacts our ability to obtain acceptable financing to fund any resulting shortfalls in cash from operations.

“The spread of novel coronavirus and the recent developments surrounding the global pandemic are having material negative impacts on all aspects of our business.”
These include an outbreak of the virus on Diamond Princess while under quarantine in Japan which led to the death of several passengers. Others on Grand Princess subsequently died due to the disease.
Numerous passengers and crew on other ships, including Zaandam, Costa Luminosa, Ruby Princess, Costa Magica and Costa Favolosa, have been diagnosed with Covid-19.
Passengers and crew on HAL ship Zandaam are currently experiencing flu-like symptoms, and some have died.
Costa Magica and Costa Favolosa are currently working with the US Coast Guard to facilitate medical evacuations, and both vessels are anchored near the port of Miami.
About 6,000 passengers are on ships still at sea that are not expected to disembark until the end of April.
“Some of our crew is unable to return home, and we will be providing them with food and housing,” the company added.
The corporation announced voluntary pauses of cruise operations by its continental European and North American brands on March 13, which was then extended to all brands.
“Each brand has separately announced the duration of its pause, but we expect such pauses to be extended – and some extensions have already been announced – and any such extensions may be prolonged,” the company disclosed.
“The pauses will be dependent in part on various travel restrictions and travel bans issued by various countries around the world.
“We have updated our cancellation policies, the terms of which vary widely by brand and sailing date, to permit cruisers to cancel certain upcoming cruises and elect to receive refunds in cash or future cruise credits.
“As an incentive to accept the future cruise credits, our brands have offerings which vary widely in terms but generally increase the value of the future cruise credits or onboard credits – credits that can be used as onboard spending money on a future sailing.
“The volume and pace of cash refunds could have a material adverse effect on our liquidity and capital resources.
“For the seven week period beginning January 26, 2020 and ending March 15, 2020, booking volumes for the remainder of 2020 were significantly behind the prior year on a comparable basis as a result of the effects of Covid-19.
“As of March 15, 2020, cumulative advanced bookings for the remainder of 2020 were meaningfully lower than the prior year and at prices that are considerably lower than the prior year on a comparable basis.
“All of our fleet operations are subject to voluntary pauses that we expect to be extended.
“Due to the unknown length of the pauses, booking volume data for 2020 may not be informative. In addition, because of our updated cancellation policies, booking volumes may not be representative of actual cruise revenues.
“For the first half of 2021, booking volumes since mid-December 2019 through March 1, 2020, were running slightly higher than the prior year.
“In contrast, for the first half of 2021 and during the two weeks ended March 15, 2020, we booked 546,000 occupied lower berth days, which was considerably behind the prior year pace.
“As of March 15, 2020, cumulative advanced bookings for the first half of 2021 were slightly lower than the prior year.”

The company also expects to be required to pay cash refunds of customer deposits “with respect to a portion of our cancelled cruises”.

“The current portion of our customer deposits was $4.7 billion as of February 29, 2020,” Carnival disclosed.

“Depending on the length of the pause and level of guest acceptance of future cruise credits, we may be required to provide cash refunds for a substantial portion of the balance.

“For the two weeks ended March 15, 2020, and on a weighted average basis based on available lower berth days, approximately 45% of the guests who have contacted us have accepted future cruise credits in lieu of cash refunds for cancelled voyages.

“We continue to take future bookings for 2020 and 2021, receiving customer deposits on those bookings.”

A total of 16 cruise ships are due to be delivered through to 2025, including four during the remainder of the 2020 financial year.

“We believe the effects of Covid-19 on the shipyards where our ships are under construction will result in delays in ship deliveries, which we cannot predict and may be prolonged,” the group added.

Additionally, certain ships will be laid up and fully manned at a cost of $2 million-$3 million a month for each vessel.

Others will be manned by a limited number of crew, costing $1 million a month for each vessel.

“We currently estimate the substantial majority of our fleet will be in prolonged ship layup,” the group revealed.

“In addition, we expect to incur ongoing selling and administrative expenses, and incremental Covid-related costs associated with sanitizing our ships and defending lawsuits, although we anticipate substantially reducing our advertising spend during the pause in operations.

“After transitioning to a prolonged pause, we anticipate estimated ongoing ship and administrative operating costs to range from $200 million-$300 million per month.”

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