S&P cuts Carnival outlook to negative

Standard & Poor's revised the outlook for Carnival Corp. to negative from stable on its announcement to increase its common dividend by 2c per share per quarter, or about $60 million to $65 million a year

S&P affirmed Carnival's ratings, though, including senior unsecured debt at A-.

While the dividend increase does not represent a substantial amount, it occurs at a point in which Carnival's credit measures are somewhat weaker than S&P's previous expectation.

Moreover, Carnival is accepting delivery of eight ships between Aug. 31 and fiscal yearend Nov. 30, 2004. To meet maintenance capital spending and anticipated dividends, S&P expects that $300 million to $400 million in additional external financing will be required despite substantial cash balances.

Beyond 2004, Carnival is expected to generate significant discretionary cash flow and will be in position to reduce debt leverage more meaningfully. As a result, credit measures are expected to be more in line with the ratings beginning in 2005.

Based on its current business analysis, over time, S&P is looking for Carnival to maintain debt to EBITDA at 2.5x or better at the current ratings level. When calculated pro forma for the P&O Princess merger, debt to EBITDA is seen in the high-2x to low-3x range at fiscal yearend Nov. 30.

Liquidity is adequate during the intermediate term, with $1.05 billion of cash, $1.9 billion available under bank revolvers and $736 million available under committed ship-financing arrangements at Aug. 31. In addition, S&P sees cash from operating activities at $2.5 billion in fiscal 2004.

Debt maturities are modest, including the convertible puts, and S&P believes Carnival is adequately positioned to meet intermediate-term spending requirements, but may opportunistically access the capital markets.

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