• Carnival also drew $3 billion from its bank credit lines earlier this month
  • Carnival, which posted net income of $3 billion last year, expects to record a loss this year
  • Carnival admita cruise demand may never return to pre-virus levels


Carnival (CCL), the world’s biggest cruise line owner which has shut down its operations, is planning to raise $6 billion in new funds as it is largely blocked from receiving any stimulus money from the U.S. federal government.

Carnival, whose Princess cruise ships were among the first to be quarantined due to the coronavirus outbreak, said it will raise $3 billion through sales of bonds secured on its ships; $1.75 billion in convertible bonds and $1.25 billion through new common share issuance.

The dollar-denominated portion of the bond offering has a coupon of about 12.5%, Bloomberg reported.

JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. are leading the bond offering, which is expected to close on Wednesday.

Carnival also drew $3 billion from its bank credit lines earlier this month.

The company also said it will suspend dividend payments to shareholders.

“Based on these actions and assumptions regarding the impact of COVID-19, we have concluded that we will be able to generate sufficient liquidity to satisfy our obligations and remain in compliance with our existing debt covenants for the next twelve months prior to giving effect to any additional financing, which may occur,” the company said in a securities filing.

Cruise lines, especially Carnival, have been badly damaged by the ramifications of the coronavirus pandemic as demand has virtually vanished.

They also did not qualify for any of the U.S. government’s $2 trillion stimulus package since U.S.-based cruise companies are domiciled in foreign countries.

Viruses spread quickly on cruise ships, especially among senior citizens who are typically the largest demographic taking cruises.

Carnival, which posted net income of $3 billion last year, now expects to record a loss this year and admitted demand for cruises may never return.

The “resulting illness and loss of life… could have a long-term impact on the appeal of our brands, which would diminish demand for vacations on our vessels,” the company stated.

Future cruises, Carnival added, would likely be subject to “heightened governmental regulations and travel bans and restrictions” which would limit the number of customers and ports of call.

The company also said it has taken on significant costs in sending passengers back to their home countries, helping stranded crewmembers and cleaning out their vessels.

Carnival also faces lawsuits from angry passengers who were stranded on the Grand Princess, which was detained off the coast of California for five days in early March after it was hit by virus infections. More lawsuits are possible.

“We have never previously experienced a complete cessation of our cruising operations, and as a consequence, our ability to be predictive regarding the impact of such a cessation on our brands and future prospects is uncertain,” Carnival added.

The success of this financing bid could determine how much investors want to risk on industries hurt by the pandemic. In the case of Carnival, there is no certainty when its ships will get back on the water.

“We cannot predict when any of our ships will begin to sail again and ports will reopen to our ships,” Carnival said in the filing. “Moreover, even once travel advisories and restrictions are lifted, demand for cruises may remain weak for a significant length of time and we cannot predict if and when each brand will return to pre-outbreak demand or fare pricing.”

A number of Carnival-owned ships remain at sea, stranding thousands of passengers. The Zaandam, a cruise vessel operated by Carnival’s Holland America, is currently at sea, looking for a port, after eight people tested positive for coronavirus.

Carnival shares have plunged about 80% year to date.

Earlier in March, Moody’s and S&P Global downgraded Carnival’s debt rating and hinted at further downgrades, which will make it even more difficult for Carnival to raise money.

Wedbush analyst James Hardiman said Carnival is suffering "a monthly cash burn of approximately $500 million" and the new injection of cash could keep the company afloat for the next 12 to 13 months.

But Hardiman doubts the cruise industry will ever rebound from this ongoing disaster, even after their self-imposed tour suspensions expire and the pandemic subsides.

"Cruise travel is likely to be dead last on [peoples’ vacation] lists in terms of both risk and necessity," he wrote.

Brian Chappatta of Bloomberg also has doubts about Carnival future prospects.

“Even if it manages to raise $6 billion through bond and stock sales as planned, analysts say that only gives Carnival an 18.5-month liquidity cushion to wait out the coronavirus-induced halt,” he wrote. “That’s not much comfort, given that the bonds mature in twice that time and it’s anyone’s guess when -- or if -- the cruise business returns to normal.”