Norwegian Cruise Line Holdings is finalising plans to improve its liquidity by agreeing debt holidays with lenders and cutting capital expenditure.
In an update on its response to the Covid-19 crisis, the operator announced plans to secure debt relief for a 12-month period with credit agencies and lenders.
All 28 ships in the firm’s three brands (NCL, Regent Seven Seas and Oceania) are currently out of service after a no sail order was extended by the US Centers for Disease Control and Prevention up to July 24.
Of $514 million of repayments due over the next year, $385 million with financing backed by Export Credit Agency (ECA) Euler Hermes has been deferred to April 2021.
The company said it is in the process of deferring the remaining $155 million of payments to March 31, 2021 with other ECA lenders.
NCL also has an option to extend a $230 million Pride of America term loan by one year and is working with lenders to evaluate additional options to defer or refinance existing debt.
The operator said it had taken swift action to “mitigate the financial and operational impacts of Covid-19”.
This includes $515 million of capital expenditure reductions including $345 million, or nearly 70%, of non-newbuild capital outlay in 2020.
It is also finalising $170 million reduced and deferred capital expenditures for newbuild related payments to March 31, 2021.
With cruise ships out of action, the operator has also seen significantly reduced operating expense for crew payroll, food, fuel, insurance and port charges.
It has also secured significantly reduced or deferred marketing expense in the first half of the year and introduced a temporary shortened working week and reduced hours alongside a 20% salary reduction for shoreside staff.
NCL said: “The company anticipates estimated ongoing ship operating expenses and administrative operating costs combined to range from approximately $70 million to $110 million per month during the suspension of operations.”
The operator has made use of a $675 million credit facility as well as its existing facility of $875 million. Total debt was $8.6 billion on March 31.
It said its cash and cash equivalents were $1.4 billion and it “believes it was in compliance with all debt covenants” and total “cash burn” will range from $110 million to $150 million per month during the suspension of operations.
“The Company is also currently evaluating several additional strategies to enhance its liquidity position,” the update said.
“These strategies may include, but are not limited to, pursuing additional financing from both the public and private markets through the issuance of equity and/or debt securities, which may include secured debt. The timing and structure of any transaction will depend on market conditions.”
Mark A Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings, said: “Our quick action to proactively and aggressively implement initiatives to preserve cash and enhance liquidity in this uncertain and fluid environment puts us in a stronger position to withstand the adverse financial effects of Covid-19.
“We will not only benefit from the actions taken to strengthen our liquidity profile but will also benefit from a period of reduced capital expenditures with no newbuild deliveries until at least mid-2022. We will continue to evaluate all additional options to enhance liquidity.”
NCL said it will continue to work with health and safety authorities on new protocols so it is ready to sail once it is deemed safe.
Frank Del Rio, president and chief executive, said: “With the Covid-19 pandemic impacting communities worldwide, we continue to closely monitor the evolving global public health environment.
“We have also taken decisive action to protect the company’s future by shoring up our liquidity position through cost mitigation and cash conservation measures as well as pursuing additional sources of liquidity to help us weather this global pandemic.
“We believe the disruption to the travel industry, while swift and severe, will eventually subside.
“Our guests continue to demonstrate their desire for cruise vacations as we continue to experience demand for voyages further in the future across our three brands.
“When the time comes, we will be ready to safely resume operations and welcome our loyal guests on board.”
Prior to the Covid-19 pandemic, NCL said 2020 had been off to a strong start with all three brands in a record position for bookings and at higher prices on a comparable basis.
However, as of April 17, advanced bookings for the remainder of 2020 were “meaningfully lower” than the prior year with pricing down “low-single digits”.
The firm said “booking trends indicate demand for cruise vacations in the medium and longer term with the booked position for 2021 essentially flat compared to prior year at pricing that is down mid-single digits”.
Future credits worth 125% of the original booking are being offered valid to December 2022 for cancelled cruises. Around half of customers have opted for cash refunds instead.
The firm reported it has $1.8 billion of advanced ticket sales, including $850 million for cancelled departures and $350 million for future 2020 cruises.
NCL has withdrawn its first quarter and full year 2020 guidance but added it expects to report a net loss for the quarter to March 31 and the year to December 31.
“The Covid-19 outbreak has had a significant impact on the company’s financial position and results of operation,” it said in the update.
“If the temporary suspension of sailings is further extended, the company’s liquidity and financial position would likely continue to be significantly impacted.”