A Potential Princess Bankruptcy: A Look and What That Could Mean For You

[SCOOTERNINJA]

 

Princess can't go bankrupt...after all, they have been around for a long time and are a part of the CCL that has recently seen an infusion of money from Saudia Arabia.  That appears to be the viewpoint of some commenters  on Cruise Critic.  But is this accurate?  The answer is probably no but it is certainly anyone's guess.

Let's take a look at another recent bankruptcy for a hard lesson.  This is the tale of Pacific Gas and Electric (PG&E).  PG&E is a electric utility operating in California and on the West Coast.  PG&E had good financials and appeared to be a strong utility operator that would be a powerhouse for decades to come.  Then comes a single event in November 2018 that changed everything.   The 'Camp Fire' starts and horribly wipes out Paradise, California and kills 85 people.  It turns out, the fire was caused by a power line of PG&E.  What happens - - well PG&E realizing that the legal claims for this fire are likely to be very large takes action to 'limit' the amount of recovery of those persons that lost homes and those persons that lost family members.  How was this accomplished?  Stop paying debts to creditors and then a filing of Ch. 11 Bankruptcy.  PG&E filed bankruptcy as a means of survival and to make sure that its lenders were paid out before these folks with legal claims (unsecured claims) were able to secure those claims with judgment liens against PG&E property.  End result -  PG&E will continue to operate and those folks that lost loved ones are likely to see pennies on the dollar for the value of their claims (discussions are still occurring in Ch. 11 for any settlement monies paid to these victims).

 

Now let's take a look at Princess Cruises and see if we can see any similarities   A single event happens around January 2020 - the Coronavirus.  Strangely, early on the Coronavirus seems to strike Princess ships with a higher frequency than other ships.  What happens?  Deaths on Princess Ships with some being blamed by the actions and choices of Princess.  Are those deaths Princess' fault?  That is left to be decided by the courts.   But even despite those questions, one may ask - - is Princess' business model profitable in a future COVID world?  That is certainly a great question.  One might ask whether a business model that caters to the elderly in confined spaces makes any business sense.  Some have their doubts and these doubts appear to be well placed.  So one might ask - would CCL be better off financially if the Princess brand ceased to exist or was reorganized into a different model through the bankruptcy courts?  Great question!

 

Let's Address a few misconceptions about bankruptcy:

1) The first misconception about bankruptcy is that a foreign company can't access US bankruptcy courts.  This is incorrect.  Foreign companies can access US bankruptcy courts.

2) The second misconception is that a bankruptcy of a subsidiary requires the bankruptcy of a parent (such as CCL).  This is also incorrect.  Subsidiaries are treated as separate entities for purposes of business dealings and bankruptcy.  A parent can certainly file bankruptcy which brings the subsidiaries under the bankruptcy umbrella but a bankruptcy of a subsidiary does not necessarily bring the parent under the umbrella of the subsidiary bankruptcy.  This is what allows successful companies to  take risks and to try new business models and ideas - - some which are bound to fail.

3)  If I file a proof of claim in the bankruptcy court, I will get the money that is owed to me or at least have the same standing as other creditors.  This one is the big INCORRECT.  In bankruptcy, there are levels of claims and priority claims will likely get every dollar that they are entitled to before the 'lower' claims receive any compensation.  Largely - this is the difference between secured and unsecured creditor status.  A bank that loans a cruise company money for ships will likely be a 'secured' creditor having a secured interest in property of the company including the cruise ship itself.  A customer that is owed money by a cruise company is likely an 'unsecured creditor' standing at the end of the line to collect their debt.

 

Oh no...should I worry about my large deposit which I have been waiting on?  Perhaps!  One might ask, if Princess is contemplating bankruptcy is there a reason that they are delaying refunding the money?  Perhaps!  See - if a company make a payment to a debtor within 90 days of filing bankruptcy, then it must typically re-acquire that money through the bankruptcy courts.  This is what is called a 'preferential payment.'  This is how we often know that bankruptcy is imminent when a company stops paying their debts - - i.e. the company doesn't want to give rise to the pain in the ass preferential payment re-collection process prior to receiving approval of its Ch. 11 reorganization plan.

 

So how can I avoid all of this mumbo jumbo bankruptcy nonsense as a customer simply waiting to receive my deposit back for a cruise that never took place?  Well - likely the easiest avenue is simply going through the credit card chargeback process.  This is the process where a credit card company basically 'overturns' the sale.  Should I wait?  The answer is probably no for the following reasons: (1) some credit card companies/banks have timing limits for initiating the chargeback process; (2) some credit card companies/banks limit the chargeback process for companies facing 'financial insolvency' ; and (3) it is theoretically possible that a chargeback dispute filed within 90 days of a bankruptcy filing ultimately results in the preferential payment process of the bankruptcy court.

 

Overall:  If you are at all worried about losing your money for Princess insolvency issues - - you really ought to consider the credit card chargeback process sooner rather than later.  If you don't care too much about the money and wouldn't mind if it ultimately ends up in the hands of Princess' lender, then you obviously have nothing to worry about and you have the chance to tell us all how smart you were if Princess ultimately does not file bankruptcy and if you ultimately get your money back.  I hope someone will enjoy the Post.

 

 

Note:  Some claim that they don't like to read long posts.  Those persons are not forced to read this so they need not worry and don't need to tell us that they don't read long posts.

[PrincessLuver]

6 minutes ago, SCOOTERNINJA said:

 

Overall:  If you are at all worried about losing your money for Princess insolvency issues - - you really ought to consider the credit card chargeback process sooner rather than later.  If you don't care too much about the money and wouldn't mind if it ultimately ends up in the hands of Princess' lender, then you obviously have nothing to worry about and you have the chance to tell us all how smart you were if Princess ultimately does not file bankruptcy and if you ultimately get your money back.  I hope someone will enjoy the Post.

 

 

Note:  Some claim that they don't like to read long posts.  Those persons are not forced to read this so they need not worry and don't need to tell us that they don't read long posts.

 

 

Well done..

[voljeep]

9 minutes ago, SCOOTERNINJA said:

 

Princess can't go bankrupt...after all, they have been around for a long time and are a part of the CCL that has recently seen an infusion of money from Saudia Arabia.  That appears to be the viewpoint of some commenters  on Cruise Critic.  But is this accurate?  The answer is probably no but it is certainly anyone's guess.

Let's take a look at another recent bankruptcy for a hard lesson.  This is the tale of Pacific Gas and Electric (PG&E).  PG&E is a electric utility operating in California and on the West Coast.  PG&E had good financials and appeared to be a strong utility operator that would be a powerhouse for decades to come.  Then comes a single event in November 2018 that changed everything.   The 'Camp Fire' starts and horribly wipes out Paradise, California and kills 85 people.  It turns out, the fire was caused by a power line of PG&E.  What happens - - well PG&E realizing that the legal claims for this fire are likely to be very large takes action to 'limit' the amount of recovery of those persons that lost homes and those persons that lost family members.  How was this accomplished?  Stop paying debts to creditors and then a filing of Ch. 11 Bankruptcy.  PG&E filed bankruptcy as a means of survival and to make sure that its lenders were paid out before these folks with legal claims (unsecured claims) were able to secure those claims with judgment liens against PG&E property.  End result -  PG&E will continue to operate and those folks that lost loved ones are likely to see pennies on the dollar for the value of their claims (discussions are still occurring in Ch. 11 for any settlement monies paid to these victims).

 

Now let's take a look at Princess Cruises and see if we can see any similarities   A single event happens around January 2020 - the Coronavirus.  Strangely, early on the Coronavirus seems to strike Princess ships with a higher frequency than other ships.  What happens?  Deaths on Princess Ships with some being blamed by the actions and choices of Princess.  Are those deaths Princess' fault?  That is left to be decided by the courts.   But even despite those questions, one may ask - - is Princess' business model profitable in a future COVID world?  That is certainly a great question.  One might ask whether a business model that caters to the elderly in confined spaces makes any business sense.  Some have their doubts and these doubts appear to be well placed.  So one might ask - would CCL be better off financially if the Princess brand ceased to exist or was reorganized into a different model through the bankruptcy courts?  Great question!

 

Let's Address a few misconceptions about bankruptcy:

1) The first misconception about bankruptcy is that a foreign company can't access US bankruptcy courts.  This is incorrect.  Foreign companies can access US bankruptcy courts.

2) The second misconception is that a bankruptcy of a subsidiary requires the bankruptcy of a parent (such as CCL).  This is also incorrect.  Subsidiaries are treated as separate entities for purposes of business dealings and bankruptcy.  A parent can certainly file bankruptcy which brings the subsidiaries under the bankruptcy umbrella but a bankruptcy of a subsidiary does not necessarily bring the parent under the umbrella of the subsidiary bankruptcy.  This is what allows successful companies to  take risks and to try new business models and ideas - - some which are bound to fail.

3)  If I file a proof of claim in the bankruptcy court, I will get the money that is owed to me or at least have the same standing as other creditors.  This one is the big INCORRECT.  In bankruptcy, there are levels of claims and priority claims will likely get every dollar that they are entitled to before the 'lower' claims receive any compensation.  Largely - this is the difference between secured and unsecured creditor status.  A bank that loans a cruise company money for ships will likely be a 'secured' creditor having a secured interest in property of the company including the cruise ship itself.  A customer that is owed money by a cruise company is likely an 'unsecured creditor' standing at the end of the line to collect their debt.

 

Oh no...should I worry about my large deposit which I have been waiting on?  Perhaps!  One might ask, if Princess is contemplating bankruptcy is there a reason that they are delaying refunding the money?  Perhaps!  See - if a company make a payment to a debtor within 90 days of filing bankruptcy, then it must typically re-acquire that money through the bankruptcy courts.  This is what is called a 'preferential payment.'  This is how we often know that bankruptcy is imminent when a company stops paying their debts - - i.e. the company doesn't want to give rise to the pain in the ass preferential payment re-collection process prior to receiving approval of its Ch. 11 reorganization plan.

 

So how can I avoid all of this mumbo jumbo bankruptcy nonsense as a customer simply waiting to receive my deposit back for a cruise that never took place?  Well - likely the easiest avenue is simply going through the credit card chargeback process.  This is the process where a credit card company basically 'overturns' the sale.  Should I wait?  The answer is probably no for the following reasons: (1) some credit card companies/banks have timing limits for initiating the chargeback process; (2) some credit card companies/banks limit the chargeback process for companies facing 'financial insolvency' ; and (3) it is theoretically possible that a chargeback dispute filed within 90 days of a bankruptcy filing ultimately results in the preferential payment process of the bankruptcy court.

 

Overall:  If you are at all worried about losing your money for Princess insolvency issues - - you really ought to consider the credit card chargeback process sooner rather than later.  If you don't care too much about the money and wouldn't mind if it ultimately ends up in the hands of Princess' lender, then you obviously have nothing to worry about and you have the chance to tell us all how smart you were if Princess ultimately does not file bankruptcy and if you ultimately get your money back.  I hope someone will enjoy the Post.

 

 

Note:  Some claim that they don't like to read long posts.  Those persons are not forced to read this so they need not worry and don't need to tell us that they don't read long posts.

tldr - ya got a cliff notes version ?

[SCOOTERNINJA]

Just now, voljeep said:

tldr - ya got a cliff notes version ?

Yep - very last sentence.

[frugaltravel]

10 minutes ago, voljeep said:

tldr - ya got a cliff notes version ?

Lots of speculation and opinions here. Another thread to pass over 😀

Edited May 18, 2020 by frugaltravel

[dag144]

Absolutely a great post!   Thank you Scotterninja

[SCOOTERNINJA]

4 minutes ago, frugaltravel said:

Lots of speculation and opinions here. Another thread to pass over 😀

You are free to do some research and share your speculation.  Some of us would love to hear your insight on bankruptcy if you believe anything about bankruptcy is stated incorrectly here.

[voljeep]

I prefer glass half full "speculation" - stay positive

 

instead of gloom and doom, hole in the bottom of glass depression

 

guess who's happier ?

[SCOOTERNINJA]

2 minutes ago, voljeep said:

I prefer glass half full "speculation" - stay positive

 

instead of gloom and doom, hole in the bottom of glass depression

 

guess who's happier ?

I love positive speculation just as much.  From a legal and investment end - it is probably best to look at in the event of what might happen and why it is that might happen.  This is called 'mitigating risk' and all good businesses try to do this.  The saying goes...'you don't want to be caught with your pants down.'

 

Hope this helps!

[iancal]

SCOOTERNINJA......excellent post.  Thank you very much.

 

Fortunately we do not have any monies owing.  If we did we would certainly be going down the credit card dispute route.

 

What we find perplexing is the attitude by some who put their misplaced loyalty to a cruise line above their own prudent financial affairs management.

 

We enjoy cruising however we are not about to give any cruise line a dime of our money until we see what the post covid industry will look like, what the on board environment will be, and what the actual itineraries will be over and above what is currently published.    We also believe that there will be a flood of litigation coming down the pipe.

Edited May 18, 2020 by iancal

[SCOOTERNINJA]

6 minutes ago, iancal said:

SCOOTERNINJA......excellent post.  Thank you very much.

 

Fortunately we do not have any monies owing.  If we did we would certainly be going down the credit card dispute route.

 

What we find perplexing is the attitude by some who place their misplaced loyalty to a cruise line above their own prudent financial affairs management.

Thank you for the feedback!  In my dealings, I've ran across many with the 'bury the head in the sand' approach.  These people only like to hear what they want to hear...so I am probably not as perplexed.  But for those that have an open mind and take the time to read, hopefully they can get something out of this and posts of others that attempt to be educational.

Edited May 18, 2020 by SCOOTERNINJA

[SCOOTERNINJA]

7 minutes ago, iancal said:

We enjoy cruising however we are not about to give any cruise line a dime of our money until we see what the post covid industry will look like, what the on board environment will be, and what the actual itineraries will be over and above what is currently published.    We also believe that there will be a flood of litigation coming down the pipe.

That is a prudent approach!  My mom has mobility issues given her age - - but we have been able to help her see the world through cruising.  We are also taking the same wait and see approach before booking any future cruises and are realistically looking years down the road if it even is feasible given her age.  I agree with you that it is an industry that will be quite a bit different and some won't survive when all is said and done.  

[17pandd]

Excellent post, well worded and informative.  Thanks.

[c-boy]

It was an enlightening post to read. Certainly gave reason to pause and think.  

 

My money is on mankind to 

 

[MrBill64]

The interesting part that I took away from this post was that companies planning on filing chapter 11 stop paying their debts for 90 days. Could be a reason why refunds have not been paid.

[pms4104]

As a unit of a publicly traded corp, can Princess even declare bankruptcy?  

 

 

Would it not need to be a corp move?

 

[npcl]

1 hour ago, SCOOTERNINJA said:

You are free to do some research and share your speculation.  Some of us would love to hear your insight on bankruptcy if you believe anything about bankruptcy is stated incorrectly here.

While certainly subsidiaries can declare bankruptcy independently the odds of Princess doing so is slim to none.  The reason why is because of the organization of CCL. Most of Carnivals debt is held by the parent corporation such as the recent bonds sold.  The only debt that might be tied to a subsidiary is that tied to the credit export facilities  which is usually linked to specific ships.  Since those are the newer ones that the lines are less likely to get rid of, again unlikely for CCL to use a subsidiary to declare BK.

 

So that would leave the law suites as about the only reason that a CCL subsidiary would declare BK.  However, one of the difficulties of suing a cruise line is the existing laws that greatly limit damages for incidents that occur at sea.  For there to be any material damages from those suites it would need to be tied to an activity that occurred on land.  A much more difficult case to prove and one that is applicable to only a smaller percentage of the cases.

 

Then lets look at the BK itself.  If the company were to declare BK in the US there are a number of ways that creditors could access assets of the parent corporation of a wholly owned subsidiary. Or as one legal paper put it.

 

 Unpaid creditors of the subsidiary instinctively may look to the parent as a target to recover on their claims under any number of legal theories, including piercing the corporate veil, breach of fiduciary duty, and deepening insolvency.  The parent also may find that it has exposure to the subsidiary’s creditors under various state and federal statutes, or under contracts among the parties.  In addition, untangling the affairs of the parent and subsidiary, if the latter is going to reorganize under chapter 11 and be owned by its creditors, can be difficult. 

 

In the US for example

A parent entity can be liable for the debts of an insolvent subsidiary under the following doctrines:

Common law principles, including:

alter ego;

piercing the corporate veil;

single business enterprise;

agency.

State corporate and creditors' rights laws.

Federal bankruptcy laws for fraudulent or preferential transfers of subsidiary assets.

Substantive consolidation in bankruptcy.

"Control group" state and federal liability statutes.

So could Princess declare BK by itself, certainly. is it likely to happen?  No

 

Much more likely a BK and structural reorganization would be at the parent level.

Edited May 18, 2020 by npcl

[Bgwest]

The OP offers much which is stated as fact. 
Sir/Madam is your CV such that you are qualified to offer all you did as fact, or just opinion?

No offense intended. It’s just that I tend to review the creds of an author before reading his/her offering. 

[cruzsnooze]

Would a restructure mean getting refunds VS a chapter 11 ?

[npcl]

11 minutes ago, cruzsnooze said:

Would a restructure mean getting refunds VS a chapter 11 ?

If you take the airlines as an example. When the major airlines have restructured in the past, they have usually left the customers whole, and have continued to honor deposits, vouchers and even airline miles.  They have not had to do such, but have rather than alienate their customer base.  They have usually used the reorganization to reduce debt, restructure contracts, get rid of pension costs, etc, but have left the customers untouched.

 

Cruise lines are a lot like airlines in that they are capital intensive businesses in a highly competitive market.  If they were to impact their customers (refunds, deposits, and FCCs) they might as well liquidate because they would lose their customer base and have a very bad rep for attracting new ones.

Edited May 18, 2020 by npcl

[SCOOTERNINJA]

18 minutes ago, cruzsnooze said:

Would a restructure mean getting refunds VS a chapter 11 ?

I think by 'restructure' you mean 'reorganization.'  That is the very definition of a Ch. 11 (it is a reorganization) where the company continues on but debts are wiped out.  A Ch. 7 is where a company liquidates its assets and no longer exists.

[SCOOTERNINJA]

27 minutes ago, Bgwest said:

The OP offers much which is stated as fact. 
Sir/Madam is your CV such that you are qualified to offer all you did as fact, or just opinion?

No offense intended. It’s just that I tend to review the creds of an author before reading his/her offering. 

There is nothing stated as fact as to what Princess will or won't do 😉 .  As I don't work for Princess nor do I advise Princess when it comes to its legal or investment affairs, I have no personal knowledge what its ultimate plans may or may not be.

 

There is, however, an explanation as to some relatively common bankruptcy concepts.  I am well educated but certainly there are those whose sole practice is Ch. 11 reorganization and you can find their materials on various legal sites such as Westlaw/Lexis.  I enjoy these materials and could make some relatively lengthy recommendations if you have specific questions.

[SCOOTERNINJA]

36 minutes ago, npcl said:

While certainly subsidiaries can declare bankruptcy independently the odds of Princess doing so is slim to none.  The reason why is because of the organization of CCL. Most of Carnivals debt is held by the parent corporation such as the recent bonds sold.  The only debt that might be tied to a subsidiary is that tied to the credit export facilities  which is usually linked to specific ships.  Since those are the newer ones that the lines are less likely to get rid of, again unlikely for CCL to use a subsidiary to declare BK.

 

So that would leave the law suites as about the only reason that a CCL subsidiary would declare BK.  However, one of the difficulties of suing a cruise line is the existing laws that greatly limit damages for incidents that occur at sea.  For there to be any material damages from those suites it would need to be tied to an activity that occurred on land.  A much more difficult case to prove and one that is applicable to only a smaller percentage of the cases.

 

Then lets look at the BK itself.  If the company were to declare BK in the US there are a number of ways that creditors could access assets of the parent corporation of a wholly owned subsidiary. Or as one legal paper put it.

 

 Unpaid creditors of the subsidiary instinctively may look to the parent as a target to recover on their claims under any number of legal theories, including piercing the corporate veil, breach of fiduciary duty, and deepening insolvency.  The parent also may find that it has exposure to the subsidiary’s creditors under various state and federal statutes, or under contracts among the parties.  In addition, untangling the affairs of the parent and subsidiary, if the latter is going to reorganize under chapter 11 and be owned by its creditors, can be difficult. 

 

In the US for example

A parent entity can be liable for the debts of an insolvent subsidiary under the following doctrines:

Common law principles, including:

alter ego;

piercing the corporate veil;

single business enterprise;

agency.

State corporate and creditors' rights laws.

Federal bankruptcy laws for fraudulent or preferential transfers of subsidiary assets.

Substantive consolidation in bankruptcy.

"Control group" state and federal liability statutes.

So could Princess declare BK by itself, certainly. is it likely to happen?  No

 

Much more likely a BK and structural reorganization would be at the parent level.

Thank you for your thoughts, much appreciated. The alter ego/piercing the corporate veil arguments are relatively difficult when dealing with sophisticated publicly traded companies because they tend to be good at not commingling their assets.

[Bgwest]

6 minutes ago, SCOOTERNINJA said:

There is nothing stated as fact as to what Princess will or won't do 😉 .  As I don't work for Princess nor do I advise Princess when it comes to its legal or investment affairs, I have no personal knowledge what its ultimate plans may or may not be.

 

There is, however, an explanation as to some relatively common bankruptcy concepts.  I am well educated but certainly there are those whose sole practice is Ch. 11 reorganization and you can find their materials on various legal sites such as Westlaw/Lexis.  I enjoy these materials and could make some relatively lengthy recommendations if you have specific questions.

An autodidact approach can be useful, too. 

[SCOOTERNINJA]

58 minutes ago, pms4104 said:

As a unit of a publicly traded corp, can Princess even declare bankruptcy?  

 

 

Would it not need to be a corp move?

 

The CCL Board ultimately has the fiduciary duty to do what is in  the  best interest of its shareholders.  If the Princess brand is causing CCL problems as a whole to the  detriment of the share price, the Board could certainly recommend and approve legal actions on or for its subsidiaries.

Edited May 18, 2020 by SCOOTERNINJA