S&P rates new Royal Caribbean notes BB+

Standard & Poor's assigned its BB+ rating to Royal Caribbean Cruises Ltd.'s proposed $350 million senior notes due 2013 and affirmed its BB+ corporate credit rating, and other ratings.

The outlook is negative.

Proceeds from the sale of the notes are expected to be used for general corporate purposes, including capital expenditures, to repay debt outstanding under the company's revolving credit facility, and to enhance the company's overall liquidity position.

S&P said the ratings for Royal Caribbean reflect its high debt leverage for the rating, challenges associated with the absorption of increased industry capacity, particularly in the next 12 months, and the sensitivity of the travel and leisure industry to economic cycles.

These factors are partially offset by Royal Caribbean's position as the world's second-largest cruise company, its strong brands, a relatively young and high-quality fleet of ships, and an experienced management team.

Pro forma for the note offering, S&P said Royal Caribbean's liquidity position is adequate to meet the company's intermediate-term financing needs. As of Sept. 30, the company had about $1 billion in liquidity, consisting of $380 million in cash and full availability under its $580 million revolving credit facility.

In October, Royal Caribbean's liquidity position declined as the company used excess cash and drew on its revolver to pay $465 million to accept delivery of Mariner of the Seas. However, this use of cash was somewhat offset by an increase in the company's credit facility commitment to $655 million (also in October).

S&P said it expects that the proposed note offering will allow Royal Caribbean to repay the outstanding borrowings under the revolver and bring liquidity back to about $1 billion.

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