Carnival Cruise Lines Seeks to Borrow $3 Billion, Raise $3 Billion More

(Bloomberg) — Cruise line operator Carnival Corp. is turning to all corners of the capital markets to raise at least $6 billion of cash, the biggest test yet of investor willingness to finance industries ravaged by the coronavirus outbreak.

The company is tapping bond investors on both sides of the Atlantic with the sale of at least $3 billion of notes in U.S. dollars and euros. The new bonds will be secured by a first-priority claim on the company’s assets such as its vessels and intellectual property and mature in three years. The dollar-denominated portion is being marketed with a coupon of about 12.5% and the entire offering could be increased to $4 billion, according to people with knowledge of the transaction.

Carnival said it also plans to raise $1.25 billion by issuing common stock and another $1.75 billion through the sale of convertible notes to improve its liquidity position. Combined with the $3 billion the company drew on its bank credit lines earlier this month, the bond and stock sales could give the company as much as $10 billion of additional liquidity. The company’s shares fell early in the session before rebounding sharply, trading up almost 10% as of 11:38 a.m. New York time.

The offering is a barometer for pandemic-hit capital markets, which have faced historic upheaval in recent weeks. While investors have been loading up on new debt from America’s safest companies, they’ve largely avoided riskier firms, especially those shuttered by the virus. Even with ships as collateral, investors can’t be sure when Carnival will sail again after a series of Covid-19 outbreaks at sea raised concern about the safety of the industry. When it does, the fallout is likely to weigh on consumer demand.

Carnival is taking advantage of rampant investor demand that has seen more than $200 billion of debt sold in the U.S. and Europe over the past week. Some, including Sysco Corp. and YUM! Brands Inc., offered higher premiums to lure investors.

“What we’re seeing right now are a few phenomenal businesses that are under pressure because of the shutdown. These companies are doing what they can to strengthen their balance sheets, some with new bond sales,” said William Smith, a high-yield portfolio manager at AllianceBernstein.

The cruise companies were left out of the recent federal bailout package due to their off-shore status. Although many are headquartered in Miami, most are incorporated in places where they aren’t subject to U.S. federal income taxes and American minimum wage rules. The cruise industry, which has large fixed costs, is now bracing for the possibility of having to go months without customers.

Carnival, the industry’s biggest operator, is incorporated in Panama. While it’s still rated investment grade by Moody’s Investors Service and S&P Global Ratings, its existing unsecured bonds have been trading at distressed levels in recent weeks. The new secured debt sale is being managed by banks’ high-yield syndicate desks, said the people, who asked not to be identified because the details are private.

JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. are leading the bond sale, which is expected to be completed on Wednesday. Carnival had been in discussions with banks to raise as much as $7 billion through equity and debt to shore up its finances, Bloomberg previously reported.

Carnival earlier this year hosted one of the most dramatic coronavirus episodes aboard its Princess Cruises-branded Diamond Princess, off Yokohama, Japan. The Diamond Princess had more than 700 Covid-19 cases, the biggest outbreak outside mainland China for a while.

Another ship on its Holland America Line, Zaandam, is still at sea searching for a place to dock after the death of four passengers from undisclosed causes. The company transferred passengers it believed to be healthy to another ship, and both ships are now sailing for Fort Lauderdale, Florida.

(Updates with details on potential increase in size of the offering starting in first paragraph and investor quote.)

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