In a filing to the US Securities and Exchange Commission (SEC) late last week, Carnival Corp painted a bleak picture of its operations going forward in the light of the COVID-19 pandemic.
In an update, the company explained that some of the ships will go into warm layup where they will be manned by a full crew and others will be put into prolongedlayup and manned by a limited number of crew.
Carnival estimated that the cost per warm layup was around $2 mill to $3 mill per month per ship and the cost of a prolonged ship layup was about $1 mill per month per ship. “We will decide whether each vessel in our global fleet will be in a warm ship layup or a prolonged ship layup depending on the circumstances, including the length of pause, which we expect to be extended and may be prolonged,” the company said.
However, the company admitted that the substantial majority of the fleet could be in prolonged ship layup. In addition, was facing ongoing selling and administrative expenses, and incremental COVID-related costs associated with sanitising the ships and defending lawsuits.
Some cost savings will be accrued from substantially reducing the advertising spend during the pause in operations. After transitioning to a prolonged pause, Carnival anticipated ongoing ship and administrative operating costs to range from $200 mill to $300 mill per month.
As of 29thFebruary, 2020, in the first quarter results filing, the portion of Carnival Corp’s long-term debt was $2.2 bill with the debt maturing on or prior to 30thNovember, 2020 amounting to $1.5 bill.
In addition, on 13thMarch, 2020,Carnival fully drew down the $3 bill existing multi-currency facility, which amounts were due in September, 2020 and which the company expects to repay and redraw, in whole or in part. Carnival’s around $200 mill per year interest expense for the financial year ended30thNovember, 2019 will be increased by the additional interest accrued under the $4 bill of secured notes and $1.75 bill of convertible notes issuance announced on 1st April, as reported on ICSI’s website.
Carnival also has$2.8 bill from four export credit facilities that are available to fund the originally planned ship deliveries for theremainder of 2020 and $5.9 bill available to fund ship deliveries originally planned for 2021 and beyond.
In addition to pursuing additional financing, the company said that it was taking action to improve liquidity, including capital expenditure and operating expense reductions. The company said that it had identified about $1 bill of reduction opportunities from the previously disclosed estimated fiscal 2020 capital expenditures.
This reduction does not take into account the impact on timing of payments in connection with new shipbuildings, as a result of the delays in ship deliveries.
In the filing, Carnival explained; “While we cannot guarantee an outcome, we also intend to pursue deferrals of existing debt maturities, including through available government programmes.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.
“In addition, the magnitude, duration and speed of the global pandemic is uncertain. As a consequence, we cannot estimate the impact on our business, financial condition or near- or longer-term financial or operational results with certainty, but we expect a net loss on both a US GAAP and adjusted basis for the fiscal year ending 30thNovember, 2020,” the company said.
By 1stApril, 2020, nearly all of the ships had disembarked their passengers. However, there were around 6,000 passengers still onboard ships at sea that are due to disembark their passengers by the end of April. Some of our crew are unable to return home, and Carnival willprovide them with food and housing.
As of 29thFebruary, 2020, Carnival’s various brands had 16 cruise ships due to be delivered through 2025, including four during the remainder of fiscal 2020. Carnival explained that the effects of COVID-19 on the shipyards where the ships are under construction, will result in ship delivery delays, which cannot be predicted and may be prolonged.
In March and April, 2020, Moody’s and S&P Global downgraded the long-term issuer and senior unsecured debt ratings on Carnival. In addition, the long-term ratings were placed on review for further downgrade by both rating agencies. The short-term commercial paper credit ratings were also downgraded and placed on review for further downgrade.
