Royal Caribbean cuts debt ratio to 4x, hopes for 3x by year-end 2024

By Devika Patel

Knoxville, Tenn., Feb. 2 – Royal Caribbean Group repaid about $4 billion of debt in 2023 and lowered its leverage ratio to 4x as of Dec. 31, 2023, with an eye to getting the ratio down to 3x by the end of 2024.

“Better performance and disciplined capital allocation allowed us to accelerate reduction in leverage to around 4x total debt to adjusted EBITDA at year-end,” chief financial officer Naftali Holtz said on the company’s fourth quarter and year ended Dec. 31, 2023 earnings conference call on Thursday.

“We will continue to proactively pay down debt and pursue opportunistic refinancings and expect to further reduce leverage to close to mid-3x by the end of 2024.

“We repaid roughly $4 billion of debt with excess cash flow because, as we saw the performance accelerate, our formula of just being disciplined around the capital allocation allowed us to pay down debt faster than we thought and we’ll continue to do that this year,” he said.

The balance sheet saw a lot of action in the last three months of 2023.

During the fourth quarter, the company refinanced its $3 billion revolving credit facilities and $500 million term loan into new $3.5 billion multiyear revolving credit facilities.

Royal Caribbean also repaid the remaining $500 million of its 11.50% senior secured notes due June 2025 with liquidity on hand.

The company also settled its 2.875% convertible notes in November 2023 using $224.5 million of liquidity on hand and issuing 146,500 shares.

Royal Caribbean lowered its cost of capital in the quarter and plans to refinance or pay down its secured notes for a fully unsecured balance sheet in 2024.

“During the fourth quarter, we refinanced our revolving credit facilities and term loan and repaid the remaining $500 million of our 11˝% senior secured notes,” Holtz said.

“We settled our 2.875% convertible notes in November by utilizing $225 million of cash and issuing just under 147,000 shares.

“We made significant progress during 2023, strengthening the balance sheet towards our Trifecta goal of investment grade metrics.

“Our priorities to address debt remained unchanged, managing debt maturities, reducing interest expense and removing remaining restrictions on capital allocation and towards a fully unsecured balance sheet.

“We lowered our cost of capital.

“We also want to unsecure the balance sheet and that will come as some of the notes that we’ve had to issue, either secured or guaranteed, have the opportunity to refinance those or pay them down,” he said.

In 2020, Royal Caribbean Group raised significant capital through several debt offerings to bolster its liquidity position during the industry-wide shutdown of cruise operations. These offerings included both secured and unsecured debt.

During the third quarter of 2023, S&P upgraded the company’s credit rating to BB- with a stable outlook, and Moody’s upgraded the company’s credit rating to B1 with a positive outlook.

“We’re in very close contact with the rating agencies,” Holtz said.

“We were very pleased with the credit upgrades, that ratings upgrades that we had last year,” he said.

Total revenues were $3.3 billion for the quarter and $13.9 billion for the year.

Adjusted EBITDA was $1 billion for the quarter and $4.5 billion for the year.

As of Dec. 31, 2023, liquidity was $3.1 billion.

Cash and cash equivalents were $497 million as of Dec. 31, 2023, compared to $1,935,000,000 as of Dec. 31, 2022.

Long-term debt was $19,732,000,000 as of Dec. 31, 2023, compared to $21,303,000,000 as of Dec. 31, 2022.

Current portion of long-term debt was $1.72 billion as of Dec. 31, 2023, compared to $2,088,000,000 as of Dec. 31, 2022.

The company noted in a Thursday press release that, as of Dec. 31, 2023, the scheduled debt maturities for 2024, 2025, 2026, and 2027 were $1.7 billion, $2.6 billion, $3.4 billion and $3.8 billion, respectively.

About 80% of the company’s debt carries fixed interest rates.

Royal Caribbean is a Miami-based cruise vacation company.

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