NCL's financial condition- Moodys and S & P.

[smeyer418]

S&P, Moody’s assign Star ratings

27/4/2004

Standard & Poor's assigned its 'BB' corporate credit ratings to NCL Corp. Ltd. and its parent, Star Cruises Ltd. The outlook on both ratings is stable. At the same time, S&P assigned its 'B+' rating to NCL's proposed senior unsecured US$350m notes due 2014.

Meanwhile, in its first ratings of Star Cruises, Moody's assigned a ‘B3’ foreign currency issuer rating and ‘Ba3’ senior implied rating to the Malaysian-based operator. The outlook is stable.

 

S&P credit analyst Ee-Lin Tan noted NCL’s rating is closely tied to Star’s creditworthiness. Star’s rating is constrained by its weaker market position, lower profitability and small size relative to Carnival Corp. (A-/Negative/A-2) and Royal Caribbean Cruises Ltd. (BB+/Stable/--).

 

‘While Star Cruises is dominant in Asia, the key challenge lies in strengthening NCL's position in North America, without letting its older fleet with less facilities damage its brand equity in the near to medium term,’ Tan said. The midsize older vessels forming half of NCL's fleet generate significantly lower EBITDA than newer ships. Tan called the group's strategy to add one to two new ships per year in North America and redeploy midsize vessels to the Asia-Pacific region ‘highly crucial to growth and profitability in the medium term.’

 

The ratings agency noted the Star group’s ‘volatile profitability’ and ‘very aggressive capital structure’ with operating margins of 17%-25% in the past four years and vulnerability to geopolitical and economic factors. ‘Operating cash flows have generally been insufficient to cover capital expenditure, leading to a high reliance on debt to fund the group's growth,’ S&P said. ‘On a consolidated basis, EBITDA interest cover is low at 2x-3x, while total debt to EBITDA is extremely high at 8x-9x.’ With large fleet investments, group leverage is expected to remain high, and profitability and cash flow coverage ratios should stay weak in the medium term, unless debt is reduced through equity injections, S&P said.

 

Partly offsetting these weaknesses is the group's strategic importance to its parent, Malaysia-based Genting Bhd., and ultimate shareholder Tan Sri Lim Goh Tong and his family, which together control more than 50% of Star Cruises. Genting benefits from strong cash flows from its gaming and resort operations, S&P said.

 

Moody’s listed similar challenges and strengths for the Star group and pointed to the strategy of maintaining key hubs in Singapore and Hong Kong while developing potentially large markets (China and Australia) using midsize ships from NCL. ‘A crucial unknown,’ Moody's said, ‘is whether the Hawaii market can absorb the premium-priced capacity [NCL] is supplying to offset the higher costs of operating under a US flag.’

 

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