Carnival to sell $ 1.5 billion in junk bond as cruises return to the water

(Bloomberg) – Carnival Corp. increased the size of its junk-bond sale to $ 2 billion, just over a week after the cash-intensive cruise operator increased the size of a leveraged loan deal which helped the company reduce its borrowing costs.

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Its offer of 7.5-year unsecured notes, against an initial target of $ 1.5 billion, is expected to be valued later Tuesday at a yield of 6%, according to people with knowledge of the matter, who have asked not to. be identified to discuss a private transaction. . Order books were due to close at 2:45 p.m. in New York.

The company refinances expensive debt and pushes back the maturities. The proceeds from today’s sale will be used to make scheduled principal payments on debt in 2022 and for general corporate purposes, the people added.

The cruise line is focused on “cleaning the runway” of short-term debt maturities as it works to get all ships back on the water, said Jody Lurie, analyst at Bloomberg Intelligence. Management has forecast higher cash consumption in the fourth quarter with a return to positive free cash flow by the middle of next year.

“Carnival removes all obstacles to normalcy,” said Lurie.

While the Miami-based company has said it plans to put its entire fleet back to sea by spring 2022, it is still burning money as travel picks up. Carnival’s long-term debt stood at $ 28 billion at the end of the third quarter, up from $ 9.7 billion at the end of 2019.

The oversized deal follows a $ 2.3 billion loan sale earlier this month, which was also increased by $ 1.5 billion and helped the cruise ship operator replace the expensive 11.5% debt issued near the onset of the pandemic. The financing costs for the new loan were closer to 4%.

According to Bloomberg Intelligence calculations, Carnival has already cut interest charges by more than $ 250 million through loan refinancing this year. Its ability to refinance itself at a lower cost shows both investor optimism for the cruise industry and the lack of opportunities in a market still driven by liquidity.

Today’s deal would make Carnival the second-largest issuer of junk bonds by dollar volume this year, behind T-Mobile US Inc., according to data compiled by Bloomberg.

If the company is indeed able to return to pre-pandemic operations and generate positive cash flow next year, its obligations could tighten relative to those of competitor Royal Caribbean Cruises Ltd., which is currently trading slightly. more, said Lurie.

Read more: $ 2.4 Billion Carnival Rides Refi Wave Due 2022: Credit React

Bank of America Corp. manages the sale of the new offer.

(Updates with increased sizing throughout and expected performance in second paragraph.)

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