Carnival borrows $2 billion as investors demand cruise ship-backed bonds

Carnival, the world’s largest cruise operator, has borrowed $2 billion by offering a bond that has used dozens of its ships as collateral, as it works to refinance its huge debts accumulated during the pandemic.

The company managed to borrow more than 1.25 billion dollars that it had initially planned to raise, at a lower interest rate carnival He was ready to get ready just hours in advance, according to two people familiar with the deal.

The new debt was discounted and priced at a coupon of 10.375 percent, providing investors with a return of 10.75 percent. That was significantly lower than the 11.5 percent yield that bankers marketed to credit investors on Tuesday morning, with the company citing “strong investor demand” for the bond.

The issuance is the company’s first foray into the junk bond market since May, when it received a 10.5 percent bond coupon Stock market panic.

The two-digit coupon underlined the rapid increase in borrowing costs as the Federal Reserve raised interest rates this year. Similar rated corporate bonds traded on average on Tuesday with a yield of 9.64 percent, according to Ice Data Services.

Carnival is not the only one premium payment Because of the turmoil in the financial markets. PitchBook LCD data showed that junk-rated companies had to show an average return of 12.25 percent for raising new debt in October. Last week, cinema operator AMC borrowed $400 million with a 15.1 percent return to fund a subsidiary.

As part of the bond deal, Carnival’s parent company transferred 12 ships, most of which had begun operating in the past two years and totaling $8.2 billion, to a subsidiary that eventually issued the bonds, using the ships as collateral.

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John McClain, high-yield portfolio manager at Brandywine Global Investment Management, said the bonds showed Carnival was “innovating” with guarantees to avoid paying “impressive” interest rates. “Without the ships, I don’t think they would have had access to capital at a price they would be comfortable with,” he said.

Its share price is down 62 percent this year to just over $8, but is up more than 11 percent on Tuesday after the bond announcement.

Ross Hallock, head of high-yield research, said the structure of the bond, which matures in 2028, puts lenders “at the front of the line” for any claim on 12 vessels in the event Carnival is unable to meet the payments. in the revision of the Covenant.

Carnival has had to contend with a ballooning debt pile, totaling about $35 billion as of early September, in the wake of the pandemic. Meanwhile, the recovery in cruise bookings has slowed. Last month, the Miami-based company reported a net loss of $770 million in its fiscal third quarter.

Grand Unsecured Carnival dollar-denominated bonds maturing in 2026 rose as much as 4.7 percent on Tuesday, in a sign of reassurance about the company’s cash flow, but it continues to trade well below face value, according to bond trading platform MarketAxess. At the start of the pandemic, the company offered secured bonds against its 80-plus fleet to entice investors.

However, some traders said the cruise sector’s vulnerability to the economic downturn and the high level of Carnival debt meant the double-digit yield on supply wasn’t high enough.

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“When I see 11.5 percent of highly cyclical, high-influence American companies and compare them to others in the market [that are offering similar yields]I’m not impressed, said one investor. North 15 percent when it gets fun. . . It’s not hard to find a return in this market.”

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