Cruise stocks rocked after Norwegian Cruise issues ‘going concern’ warning

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Norwegian announces debt and equity offerings, furloughs of 20% of shoreside employees


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Shares of Norwegian Cruise Line Holdings Ltd. took a dive Tuesday, after the cruise operator issued a “going concern” warning, citing the impact of the coronavirus pandemic on its business.

Norwegian’s
NCLH,
-0.49%

warning also weighed heavily on the stocks of rivals Carnival Corp.
CCL,
-0.57%

and Royal Caribbean Cruises Ltd.
RCL,
-0.94%

. The stocks’ selloffs come despite Norwegian also announcing a series of financial transactions that if completed would provide enough liquidity to fund operations even if its cruises remain suspended for over 12 months.

Norwegian said in an 8-K filing with the U.S. Securities and Exchange Commission that it is taking “significant measures” to combat the impact of COVID-19 on its business, and is evaluating several strategies to enhance its liquidity position, which could include pursuing additional financing in the public and private debt and equity markets.

Among the measures, Norwegian said it would furlough 20% of its shoreside employees through July 31, but that date may change. In addition, the shoreside employees not furloughed will have salaries cut 20%, along with reduced work hours, through at least June 22.

The measures were taken as Norwegian said it has experienced “meaningful softness” in near-term demand, elevated cancellations, booking trends over the medium- to longer-term that were lower than the same time last year at lower prices. The company said it expects to be required to pay cash refunds of advanced ticket sales on suspended cruises, with advanced sales totaling $1.8 billion as of March 31.

Don’t miss: Half of all Americans are canceling their summer vacations — what to expect in refunds from cruise lines, hotels and airlines.

As of March 31, Norwegian said it was in compliance with all of its debt covenants, but because of the suspension of cruises and drop in advanced bookings, as well as debt maturities over the next year, Norwegian said there is “substantial doubt about the company’s ability to continue as a going concern, as the company does not have sufficient liquidity to meet its obligations over the next 12 months, assuming no additional financing or other proactive measures.”

The stock plummeted 22.6% in very active midday trading. Volume reached one-day record 154.3 million shares, compared with the full-day average of about 35.8 million shares, and enough to make the stock the most actively traded on the New York Stock Exchange.

Meanwhile, Carnival’s stock dropped 8.7% and Royal Caribbean shares tumbled 10.1%.

Following the going concern warning disclosure, Norwegian announced a series of financing transactions, that if completed, would give it a liquidity position of $3 billion.

Among of the transactions, the company announced a private placement of $400 million in senior notes due 2026 with an affiliate of private equity firm L Catterton. The investment will give L Catterton the right to nominate one member to Norwegian’s board of directors.

Norwegian also announced a public offering of $350 million worth of common shares, and said its NCL Corp. Ltd. subsidiary (NCLC) has proposed to sell $650 million in senior notes due 2024. The notes will be convertible into Series A Preference Shares of NCLC, which will be exchangeable into a number of Norwegian shares.

NCLC also proposed a private offering of $600 million in senior notes due 2024.

“Contingent on completion of the transactions, the company expects to have approximately $3 billion of liquidity,” Norwegian said in an emailed statement to MarketWatch. “This strengthens the company’s financial position and ensures it is well positioned to withstand well over 12 months of voyage suspensions in a potential downside scenario.”

The company had said in its COVID-19 update that if it issued debt securities to boost liquidity, it could become subject to additional restrictions “limiting its ability to operate its business, and it may be required to further encumber its assets.”

Norwegian’s stock has plunged 79.7% over the past three months. The top-4 biggest one-day declines for the stock since it went public in January 2013 were all suffered in March. Tuesday’s selloff would rank as the fifth-biggest selloff.

In comparison, Carnival’s shares have lost 70.1% the past three months, while Royal Caribbean’s stock has tumbled 68.1% and the S&P 500 index
SPX,
-0.36%

has dropped 14.3%.

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