Xekyn

1 hour ago, TeeRick said:

So as an example.  Radiance of the Seas.  Twenty years old.  Initial Cost $350M. 90,000 tons.  So $2.7M scrap value?  But what about tax write-off value?  Assume the current market value whatever that is?  Flagged in the Bahamas so not sure how tax write-off's are calculated there?

It's not about the scrap value (which is essentially pocket change) it's about the massive savings from no longer having to fuel, staff, maintain & operate the ship any longer. The ships are a sunk cost, they have essentially zero resale value because demand for the entire industry will be so significantly decreased moving forward; there simply won't be enough paying customers to fill the ships regardless of who operates them. 

Every single cruise line faces the same problem, they need to get leaner in a hurry and minimize their monthly expenditures, scrapping ships is the most effective way to do this, particularly those that older and more inefficient in terms of running costs and generally smaller, as the consensus across the industry seems to be that even when things do return they will be sailing nowhere close to 100% occupancy. 

They'll also get more than just the value of the scrap metal, there's a lot of valuable electronics and other items onboard that can be resold prior to scrapping. Cumulatively stripping + scrapping a ship probably brings in a not insignificant amount of revenue. 

It seems extraordinarily unlikely that they'll find buyers for any of these ships, I suspect the vast majority will be stripped down for anything of value and sold for scrap. The unfortunate reality of the situation is that the cruising industry that emerges on the other side of this pandemic will face a vastly different landscape than the one that preceded it; there will be limitations on where they can sail, the maximum occupancy of the ships and a considerable reduction in overall demand for the foreseeable future.

All of the major cruise lines will have to get significantly leaner just to remain solvent (let alone profitable) and scrapping ships is one way to drastically reduce overheads. 

Trading the volatility of $RCL, $NCLH & $CCL for the last few weeks has been immensely profitable, i'm definitely bearish on RCL stock at this point after closing out my position at just below $47 per share last week. 

The 8-K report (https://fintel.io/doc/sec-rcl-8k-royal-caribbean-cruises-2020-may-04-18386) they filed with the SEC on April 28th is pretty telling, particularly the following snippet:

"In the event we take certain actions while the Bpi Deferred Tranche is outstanding, we will be required to prepay the outstanding balance of the Bpi Deferred Tranche. These actions include the payment of dividends, the repurchase of stock, and the issuance of debt or equity other than for liquidity. These restrictions are subject to customary carveouts such as, in the case of new debt, debt incurred to finance new ships."

While securing additional liquidity is certainly a positive for the company in these turbulent times, taking 4-5 year loans that eliminate their ability to pay dividends or buyback stock for the duration (unless repaid in full) makes it extraordinarily unlikely that $RCL will recover anywhere close to its ATH stock price for a long time. Additionally the added caveat that the 'issuance of equity' for liquidity purposes is exempted from these restrictions suggests that there is a very real possibility that RCL will need to significantly dilute their stock in order to secure additional revenue to stay afloat in the event of a prolonged cruising hiatus, which would limit the potential ceiling of their stock price during the (hopefully) eventual recovery.

The company is certainly not on deaths door, but I would advise anyone investing in cruise stocks to tread cautiously as it is far from a foregone conclusion that they will recover to anywhere close to their pre-coronavirus levels, in fact quite the opposite. RCL didn't have the healthiest balance sheet to begin with (significant liabilities) as they were stretching themselves to rapidly expand in a booming industry, they were not well positioned whatsoever to deal with a crisis of this magnitude.

I also fear their stock is currently overbought and the price somewhat inflated by an influx of amateur/retail investors who have seen the substantial decline in prices and think they'll see an enormous return once the pandemic blows over and things return to 'normal'. While i'm still fairly confident RCL will survive, they will be feeling the economic repercussions of this downturn for years to come, as it has burdened them with additional liabilities with no guarantee that the cruising industry that emerges on the other side will be anywhere close to as profitable as it has been up until now; with every single day that passes exacerbating these problems further.

Not trying to be doom & gloom, I love cruising with RCL & Celebrity and hope to return as soon as it is safe and responsible to do so, but anyone thinking of investing them in as a company for long-term gains (not just 100 shares for the OBC) should be extremely cautious, as I anticipate another slide (and continued volatility) is all but guaranteed.