- Carnival Corporation will not be receiving a federal bailout amid the coronavirus pandemic.
- The company is diluting shareholders and raising massive amounts of junk debt to generate liquidity for the crisis.
- With a global recession on the horizon, Carnival is sailing into uncharted territory. And bankruptcy is on the table.
It’s poetic. justice for Carnival Corporation (NYSE: CCL) and other cruise lines that have routinely ripped off American taxpayers by shipping jobs and profits overseas. These companies exploit loopholes in maritime law to register their ships in nations like Panama and the Bahamas to dodge taxes and underpay workers. But now, their unethical strategy is coming back to bite them. Excluded from Trump’s $ 2 trillion stimulus package , the cruise industry will be left to fend for itself during the coronavirus pandemic. And companies are turning to desperate measures to raise the cash they need to survive. Carnival Corporation has issued a staggering $ 4 billion in high-interest, junk debt and diluted its hapless shareholders to the tune of . 5 million additional shares. These moves are designed to raise capital to help Carnival weather the pandemic without government bailout money. But it may not be enough to save the company from sliding into bankruptcy. Did Carnival Cruise Strong-Arm Passengers into Dangerous Cruises?
high-profile coronavirus cruise ship disasters, including Carnival’s Diamond Princess, Grand Princess, and Coral Princess, many are wondering why people are still going on cruises in the middle of a global pandemic. J Dan blames the poor judgment of the passengers. Here is what he had to say on Twitter:
This chart shows Carnival’s revenue over the trailing 19 months. |
Carnival generated a suspiciously high amount of revenue in the first quarter of . This suggests they didn’t refund many passengers or significantly scale back operations in the early months of the pandemic. The company grew first-quarter revenue by around 1% from
Data by ycharts
by recording impairments, Carnival is admitting that these assets (the ships) will not generate as much cash flow as previously anticipated due to the impacts of COVID – 35. according to the quarterly report , many Carnival ships have net carrying values that exceed their estimated undiscounted future cash flows. This may have something to do with Princess Cruises’ CEO Jan Swartz
With significant cash burn expected in the second and third quarters, Carnival Cruise looks to bolster its liquidity through equity dilution and high-interest junk debt. (The company has issued $ 4 billion in 5 % senior secured notes and $ 1. billion in 5. % senior convertible notes due in . The convertible notes will have a conversion rate of $ 1, to 1, , 04 shares and a conversion price of $ per share, setting the stage for massive equity dilution.
On top of the junk debt, Carnival is also doing a dilutive equity raise of 76, , (new shares of common stock . Carnival will sell the shares for $ 8. 03 per each. This will generate the company approximately $ 754 million in cash. The deal’s underwriters will also have the option to purchase a staggering 9, , (additional shares by May 1. Can Carnival Fight off Bankruptcy?
Carnival’s long-term debt is spiking sharply. |
Data by ycharts Carnival Cruise has raised around $ 6.5 billion that it will add on to the $ 1. billion in cash it held on its balance sheet at the end of the first quarter
. This is a huge amount of money that may help the company sail through a near term coronavirus pandemic. But it comes at the cost of massively diluting shareholders and may not be enough to stave off bankruptcy. Carnival’s junk-rated debt comes at super-high interest rates that will further drag down cash flow. It joins $ 7. (billion in fixed-rate debt and $ 5. (billion in floating-rate debt) already on the company balance sheet. With a massive global recession on the horizon, Carnival Cruise is sailing into uncharted territory. And bankruptcy is on the table.
The opinions expressed in this article do not necessarily reflect the views of CCN.com.