Royal Caribbean Cruises Ltd is seeking an additional US$2 billion from investors to boost liquidity as the cruise liner’s ships remain at port due to quarantines to stop the spread of the coronavirus.
The company is raising $1 billion in the bond market and another $1 billion through convertible notes, according to a news release. Proceeds are for general corporate purposes and to repay debt, and the deals are being led by JPMorgan Chase & Co.
Initial pricing discussions on the three-year senior guaranteed bonds, which may be sold as soon as Thursday, are in the range of high-9 per cent to 10 per cent, according to people familiar with the matter.
The three-year convertible bonds, which are also expected to price today, are being offered at a coupon of five per cent to 5.5 per cent, and with a 20 per cent to 25 per cent conversion premium, according to other people familiar with the matter, who asked not to be named discussing a private transaction.
Shares of Royal Caribbean fell as much as 4.4 per cent to $55.58 on Thursday morning in New York.
The company sold $3.3 billion of secured bonds in May at steep yields of about 11.7 per cent and 12.3 per cent for the three-year and five-year notes, respectively. Strong demand allowed it to cut the interest rate slightly on the three-year notes at the time.
The bonds have rallied amid a broad recovery in credit markets, with the three-year and five-year notes yielding between 8.6 per cent to 8.7 per cent, according to Trace data. The company’s quick return to the bond market comes as Wall Street banks are urging companies to tap the market while they can.
The gradual reopening of businesses after months-long shutdowns and a pick-up in manufacturing activity have given investors reason for optimism in recent weeks. But underwriters who cater to heavily indebted corporations are offering their clients a bleak preview of what may lie ahead.
Royal Caribbean’s bonds issued in May used a unique structure that allowed the company to pledge assets to investors while getting around a secured debt limit from its investment-grade style covenants. The new bonds are guaranteed on a senior unsecured basis by a subsidiary of the company that will own all the equity interests of ships valued at about $7.7 billion, according to the news release.
The company fell into junk in May after Moody’s Investors Service downgraded the unsecured debt rating to Ba2, two steps below investment grade. S&P Global Ratings cut the company to high yield in April.
Royal Caribbean’s offering is one of several deals from companies in the cruise sector. Viking Cruises Ltd. sold $675 million of secured bonds in May at a 13 per cent coupon after adding investor protections. Carnival Corp. completed a $4 billion secured offering in April and Norwegian Cruise Line Holdings Ltd. sold $675 million of secured notes in May.