To shore up its liquidity, Royal Caribbean Cruises has instigated a private offering of $1 bill aggregate principal amount of 10.875% Senior Secured Notes due 2023 and $2.32 bill aggregate principal amount of 11.500% Senior Secured Notes due 2025.
The $1 bill notes will mature on 1st June, 2023, while the second tranche will mature on 1st June, 2025 and are redeemable at the company’s option beginning 1st June, 2022. The Notes are expected to be issued on or around 19th May 19 this year.
All of the notes and the related guarantees will be secured by 28 of its vessels and material intellectual property. The obligations under the notes and the related guarantees will be secured by the collateral in an amount not to exceed permitted capacity under the company’s existing debt.
Royal Caribbean said that it expected to use the net proceeds from the offering to repay its $2.35 bill 364-day senior secured term loan agreement with Morgan Stanley Senior Funding, as the administrative agent and collateral agent and the other lenders, agreed on 23rd March, 2020. The remainder of the net proceeds will be used for general corporate purposes, which may include repayment of additional debt.
On the same day, bond rating agency Moody’s downgraded Royal Caribbean’s unsecured rating from a prime Baa3 to “not prime” Ba2, and it assigned a negative outlook signalling possible further reductions ahead.
It also assigned the company a Ba1-PD probability of default rating (subject to substantial default risk) and a Baa3 rating (one step above ‘not prime’) to the company’s planned secured note issuance.
“The downgrades reflect the risks Royal Caribbean faces as their operations continue to be suspended and Moody’s expectation of a slow recovery resulting in financial metrics that are not indicative of an investment grade rating for the foreseeable future,” said Pete Trombetta, Moody’s lodging and cruise analyst in a statement on Wednesday.
“Moody’s forecasts that cruise operations will continue to be suspended in the US beyond the current 24th July no-cruise order issued by the Centres for Disease Control and Prevention (CDC) and available capacity will be modest for the remainder of 2020 and possibly into early 2021, as the risk of fully restarting operations before proper safety protocols are in place far exceed the potential reward,” he added.
Earlier, Royal Caribbean had estimated its cash outgoings to be in the range of about $250 mill to $275 mill per month on average, during a suspension of operations.
This amount included ongoing ship OPEX, administrative expenses, and debt service expense, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) but excluded cash refunds of customer deposits, as well as cash inflows from new and existing bookings.