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Carnival boosts bond sale and cuts stock issue

The cruise operator's new bonds will carry high coupons
April 2, 2020

Carnival (CCL) has increased the size of its bond sale and reduced the amount of shares it will offer, after launching a $6bn (£4.8bn) fundraising drive earlier this week.

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The embattled cruise operator, which has ceased all voyages for the first time in its history in response to the coronavirus outbreak, will now issue $4bn in three-year bonds, having previously set this level at $3bn. The bonds, which will be secured against some of Carnival’s fleet, carry a coupon of 11.5 per cent.

Carnival will now issue 62.5m shares at a price of $8 per share, with an aggregate value of $500m - down from $1.25bn as previously announced. The final tranche of Carnival’s fundraising plan is maintained at $1.75bn in three-year bonds that can be converted into shares. These bonds will have a coupon of 5.75 per cent.

In a warning issued last month, Carnival said that the impact of coronavirus “may continue well beyond” the containment of the outbreak and expects to register a net loss for its year ending 30 November 2020. Some Carnival passengers have become sick and lost their lives, and the company has been subject to lawsuits from passengers who boarded its Grand Princess ship in February.

Carnival’s debt remains investment grade. Ratings agencies S&P and Moody’s downgraded Carnival’s long-term issuer and senior unsecured debt ratings last month. Moody’s lowered the company’s senior unsecured rating twice in March, taking it down to Baa3 on the same day that Carnival announced its fundraising plans. Baa3 is Moody’s lowest investment grade rating and is one notch above ‘junk’ status.

“The normal ongoing credit risks include the highly seasonal and capital intensive nature of cruise companies, competition with all other vacation options,” Moody’s wrote in a note published on the same day as Carnival’s updated fundraising package.