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Moody's: Royal Caribbean positive
Moody's Investors Service said it changed Royal Caribbean Cruises Ltd.'s outlook to positive from stable and affirmed the company's existing ratings. Ratings affirmed include the company's senior unsecured debt at Ba2, senior implied rating of Ba2, long-term issuer rating of Ba2, and speculative grade liquidity rating of SGL-2.
Moody's said the change in outlook to positive reflects: 1. Royal Caribbean's increase in net yield due to an improving cruise price environment, 2. Moody's expectation that these trends are likely to continue leading to an improvement in debt to EBITDA and interest coverage; 3. the completion of the company's extensive capital spending program and Moody's expectation of a more measured pace of ship building activity going forward; 4. the company's improving risk profile as it transitions from being a net borrower to a generator of free cash flow.
Moody's said the ratings could be considered for an upgrade if the cruise pricing environment continues to improve, debt to EBITDA drops to around 5.0x and EBIT to interest is at least 2.0x, the company continues to maintain sufficient liquidity (together with free cash flow) to meet its near-term capital spending, debt amortization and potential put obligations, and pursues a capital spending plan that can be funded internally.
Given the improvement in overall industry conditions so far this year, and the company's commitment to reduce absolute debt, Moody's does not expect downward ratings momentum, However, the outlook could change to stable or the ratings pressured if the improving cruise price environment were to stall or reverse causing leverage statistics to deteriorate, the agency said.
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