The main line
Shares of major cruise lines were broadly mixed on Thursday after Carnival announced a $1 billion stock sale — its second equity raise in recent months — to pay down debt as the cruise industry continues to feel the impact. of the Covid-19 pandemic. rising inflation and higher fuel prices.
Carnival is raising cash again as it looks to get ahead of debt payments due next year.
Key facts
Shares of major cruise operator Carnival fell nearly 12% on Thursday after the company said it would sell $1 billion worth of stock – just over 102 million shares – at $9.95 a share, with an option to buy an additional 15.3 million shares .
In what is Carnival’s second capital raise since its May debt offering, the company said it “expects to use the net proceeds from the offering for general corporate purposes, which may include addressing 2023 debt maturities.” .
Carnival ended the second quarter with about $35 billion in debt – more than its peers – and $7.5 billion in cash, but analysts last month warned that this could “shrink quickly” if customer demand takes a hit in the form of fewer bookings and more canceled deposits. .
Rivals Norwegian Cruise Line and Royal Caribbean Cruises saw their stocks drop more than 8% and nearly 9%, respectively, after the news spooked investors.
The move to raise more cash is likely to lead to more questions about the health of the cruise business, according to a recent note from Stifel analysts, who say the stake sale will dilute existing shareholders’ stakes by about 8.5%.
Despite the negative headline, the firm believes Carnival is instead being “proactive” and trying to advance debt payments due next year that executives have hinted at in previous quarters.
Crucial quotes
Not surprisingly, investors “will panic and assume that every cruise-related name will probably look to raise capital at some point in the near future,” Stifel analysts predict.
Surprising fact
Carnival shares are down 54% so far this year, while Royal Caribbean and Norwegian are down 56% and 44% respectively.
Key background
Cruise lines took a big hit during the pandemic lockdowns in 2020, which saw orders without sailings for most of the year. Many cruise lines came under pressure with business in the doldrums, taking on huge amounts of debt in the interim. Although cruises have seen a rebound in demand as voyages return – and major operators are experiencing a busy summer season, many are still seeing a slow return to full capacity. Amid a challenging economic climate this year, high inflation and rising oil prices have begun to hurt the industry.
Further reading
Carnival shares fall nearly 15% as Morgan Stanley warns of potential stock meltdown (Forbes)
