Carnival boosts liquidity to navigate pandemic through late next year

By Devika Patel

Knoxville, Tenn., July 10 – Carnival Corp. & plc has raised enough liquidity to see it into late next year, even if the company is unable to generate revenue during that time, according to its management.

In response to the Covid-19 pandemic, the company paused its cruise operations in mid-March. Since the pause in operations, the company has taken significant actions to preserve cash and secure additional financing to maximize its liquidity, raising over $10 billion through a series of financing transactions.

“We secured over $10 billion in new capital while working to extend debt maturities and secure covenant waivers with over 20 lenders,” president and chief executive officer Arnold Donald said on the company’s first quarter ended May 31 earnings conference call on Friday.

“We were able to access the capital markets in the early days and in a meaningful way, initially raising $6.6 billion of capital and doing so at a time when the capital markets were still closed to many and, while it was certainly financially painful for a company that had always managed an investment-grade credit rating, bearing the cost of the initial raise was prudent to ensure our long-term viability.

“Because of our strong balance sheet, we were able to raise the majority of that $6.6 billion of capital along with an additional $2.8 billion on a secured basis, minimizing dilution.

“Our overall blended interest rate is just 5%, despite the recent expansion of debt, and we still retain meaningful flexibility going forward to manage further uncertainty,” Donald said.

The company can raise more capital if needed and is prepared for a range of scenarios, including a zero-revenue environment, into late next year.

“Importantly, we have capacity to issue additional debt,” Donald said.

“Beyond that, we are also evaluating the potential to monetize non-core assets to provide additional liquidity or potentially reduce our debt burden over time.

“We are confident that we are prepared for a wide range of scenarios for the next 12 months.

“Additional cash conservation efforts combined with future liquidity measures will enable us to sustain ourselves beyond 12 months into late next year, even in a zero-revenue scenario.

“We will emerge a leaner, more efficient company to optimize cash generation, pay down debt and position us to return to a strong investment-grade credit rating over time,” Donald said.

The company is focused on addressing its debt and returning to investment-grade credit ratings.

“We will continue to work on extending 2021 maturities,” chief accounting officer and chief financial officer David Bernstein said on the call.

“In addition, over time, we will opportunistically look to further enhance our liquidity position.

“We should have excess cash flow that can go to pay down the debt and it may take a number of years, but our target is to get back to investment-grade credit ratings,” Bernstein said.

As of quarter-end, the company’s available liquidity was $7.6 billion, including $6.9 billion of cash.

On March 16, Carnival Corp., Carnival plc and some of their subsidiaries borrowed about $3 billion under their amended and restated five-year $1.7 billion, €1 billion and £150 million multi-currency revolving credit agreement.

As before, the facilities carry two one-year extension options.

The $3 billion borrowing is available for six months.

Carnival has now fully drawn down the facility agreement.

The corporation said it borrowed under the facility agreement in order to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the Covid-19 outbreak.

The proceeds from the facility agreement borrowings were earmarked to be used for working capital, general corporate or other purposes.

On April 1, Carnival Corp. priced an upsized $4 billion issue of 11½% three-year first-priority senior secured notes (Baa2/BBB-) at 99 to yield 11.901%.

The issue size was increased from $3 billion and was priced on the high-yield syndicate desk.

A proposed €300 million minimum tranche was withdrawn.

The coupon printed 12.5 basis points tighter than coupon talk in the 12% area and 100 bps beneath the initial coupon talk of 12½%. The price came on top of final price talk and at the rich end of initial price guidance of 98 to 99.

The upsize had been expected, as the deal was heard to be as much as four-times oversubscribed, said market sources, who added that interest in the Carnival investment-grade first-priority paper was intense among high-yield investors and distressed debt accounts.

Proceeds were earmarked for general corporate purposes.

On April 2, Carnival Corp. priced $1.75 billion of three-year convertible notes (BBB-) at par with a coupon of 5.75% and an initial conversion premium of 25%. The deal had a $262.5 million greenshoe, which was partially exercised for $200 million on April 6.

Pricing came at the cheap end of tightened talk for a coupon of 5.5% to 5.75% and at the rich end of talk for an initial conversion premium of 22.5% to 25%.

Initial price talk was for a coupon of 5.75% to 6.25% and an initial conversion premium of 17.5% to 22.5%.

BofA Securities Inc., Goldman Sachs & Co. LLC and J.P. Morgan Securities LLC were the joint bookrunners for the Rule 144A offering.

The notes are non-callable and have no put options. There is full dividend protection.

The securities will be settled in cash, shares or a combination of both at the company’s option.

The notes are contingently convertible subject to a 130% trigger.

Concurrently with the convertible note offering, Carnival priced a secondary offering of $500 million, or 62.5 million shares at $8.00 a share.

The stock offering was decreased from a proposed $1.25 billion.

Proceeds were earmarked for general corporate purposes.

On June 22, Carnival Corp. held a lender call to launch a $1.5 billion equivalent U.S. dollar and euro term loan B.

Price talk on the U.S. piece was Libor plus 675 bps to 700 bps with a 1% Libor floor and an original issue discount of 96.

The euro piece has a minimum size of €500 million.

The term loan is non-callable for one year and callable at 102 in year two.

J.P. Morgan Securities LLC and Goldman Sachs were the leads on the deal.

Proceeds were earmarked for general corporate purposes.

On June 26, Carnival Corp. upsized the U.S. dollar and euro term loan B to roughly $2.76 billion equivalent from $1.5 billion equivalent and increased pricing to Libor/Euribor plus 750 bps from talk in the range of Libor/Euribor plus 675 bps to 700 bps.

Also, tranche sizes firmed up, with the U.S. term loan sized at $1.86 billion and the euro term loan sized at €800 million. At launch, the euro tranche was described as a minimum of €500 million.

Furthermore, the 50 bps MFN was revised to life from 12 months.

Carnival Corp. is a Miami-based unit of London-based cruise operator Carnival plc.

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