Carnival to issue $1.25 billion in unsecured bonds to institutions

[BlerkOne]

1 hour ago, cruisingguy007 said:

 

No spin, it's in plain English. Why would they even mention it if were a collateral free unsecured loan? It makes no sense. Just because they will continue to be operated by Carnival and it's subsidiaries does not mean they remain unencumbered, you can bet they are encumbered now. It actually sounds more like a disguised leasing arrangement than a unsecured loan.     

 

"will contribute 12 unencumbered vessels to the Issuer"

They are not collateral. The Issuer is Carnival Holdings - not the bond buyers. Carnival Holdings (Bermuda), is a subsidiary of Carnival Corporation. The plain English can be found in the filing Carnival is legally required to make.

[BlerkOne]

1 hour ago, buckeyefrank said:

While the vessels aren't technically pledged as collateral, effectively they are.  If the holding company declares bankruptcy, the bond holders have priority and will be paid first.  I have no idea how many other debtors are in the holding company, but the new bonds have first priority.  It's semantics...   If they were pledged and don't make the payment,.... forced to sell..... if they're not pledged and don't make the payment..... forced to sell.  Pledged or not, if Carnival isn't able to meet their payment requirements, they will be in some deep trouble.

Technically, it is an important distinction. The ships will become assets of the holding company and there could be other assets along with other bonds that have or could be issued.

 

That the holding company is based in Bermuda is another distinction and that the bonds won't be offered for sale in the US yet another.

 

It is brilliant.

[buckeyefrank]

27 minutes ago, BlerkOne said:

Technically, it is an important distinction. The ships will become assets of the holding company and there could be other assets along with other bonds that have or could be issued.

 

That the holding company is based in Bermuda is another distinction and that the bonds won't be offered for sale in the US yet another.

 

It is brilliant.

Why is it brilliant?

 

They issued them in Bermuda, almost certainly, because of tax benefits for the investors.  Not for the benefit of Carnival.   The approx 10.5% interest rate they're paying is ridiculously high. 

 

Not sure how it gets better for them exactly.  They are sailing now with basically full ships and fuel costs, payroll costs and food costs soaring.  Those ships not sailing full are because the fares are higher than they have been in like 5 years.  A lot of people are turned off since they're still expecting the pricing from the pandemic.  

 

I personally think they will eventually weather the storm, however; this is CLEARLY kicking the can down the road.  They have no other choice.  It's not brilliant... brilliant would be paying off existing loans / bonds with profits, not borrowing more.

[BlerkOne]

20 minutes ago, buckeyefrank said:

Why is it brilliant?

 

They issued them in Bermuda, almost certainly, because of tax benefits for the investors.  Not for the benefit of Carnival.   The approx 10.5% interest rate they're paying is ridiculously high. 

The bonds aren't recorded in the US. 10.5% is extremely reasonable for junk bonds.

 

20 minutes ago, buckeyefrank said:

 

Not sure how it gets better for them exactly.  They are sailing now with basically full ships and fuel costs, payroll costs and food costs soaring.  Those ships not sailing full are because the fares are higher than they have been in like 5 years.  A lot of people are turned off since they're still expecting the pricing from the pandemic.  

Quantify "A lot".

 

Carnival didn't raise fares like the Disney Parks did. Now that is a turn off.

 

20 minutes ago, buckeyefrank said:

 

I personally think they will eventually weather the storm, however; this is CLEARLY kicking the can down the road.  They have no other choice.  It's not brilliant... brilliant would be paying off existing loans / bonds with profits, not borrowing more.

It has always been the plan. Brilliant is the creative financing. And clearly institutions are happy with the bond offering and future of Carnival or the demand would not be as high as it is. When bonds start going unsold. then there might be  problem.

 

[buckeyefrank]

52 minutes ago, BlerkOne said:

The bonds aren't recorded in the US. 10.5% is extremely reasonable for junk bonds.

 

Quantify "A lot".

 

Carnival didn't raise fares like the Disney Parks did. Now that is a turn off.

 

It has always been the plan. Brilliant is the creative financing. And clearly institutions are happy with the bond offering and future of Carnival or the demand would not be as high as it is. When bonds start going unsold. then there might be  problem.

 

At least you're agreeing that they are junk bonds.  That's a start.  They had no choice.   I wouldn't call issuing junk bonds... brilliant, but that's me.

 

And the "institutions" you mentioned may also be individuals...   We will likely never know who pumped cash into the company.  Could be a hedge fund, could be wealthy individuals.  We keep calling them bonds, but they are really notes being sold to "accredited investors".  Keep in mind that "accredited investors" also sunk money into Enron and Bernie Madoff.  Just because one is "accredited" doesn't mean they're smart.

[BlerkOne]

14 minutes ago, buckeyefrank said:

At least you're agreeing that they are junk bonds.  That's a start.  They had no choice.   I wouldn't call issuing junk bonds... brilliant, but that's me.

It is quite common.

 

14 minutes ago, buckeyefrank said:

 

And the "institutions" you mentioned may also be individuals...   We will likely never know who pumped cash into the company.  Could be a hedge fund, could be wealthy individuals.  We keep calling them bonds, but they are really notes being sold to "accredited investors".  Keep in mind that "accredited investors" also sunk money into Enron and Bernie Madoff.  Just because one is "accredited" doesn't mean they're smart.

There will always be cheaters. Are you really trying to blame Carnival for that?

 

I recall Executive Life from 1991.

[cruisingguy007]

54 minutes ago, buckeyefrank said:

I wouldn't call issuing junk bonds... brilliant, but that's me.

 

Junk bonds built Vegas! 😁

[bucfan2]

2 minutes ago, cruisingguy007 said:

 

Junk bonds built Vegas! 😁

Yes Sir.  And let's all hope it works for Carnival as well.  It's certainly a desperate move, but not like they had much choice.

[cruisingguy007]

10 minutes ago, bucfan2 said:

Yes Sir.  And let's all hope it works for Carnival as well.  It's certainly a desperate move, but not like they had much choice.

 

Steve Wynn is a pioneer and legend for it. 

[spleenstomper]

7 hours ago, fyree39 said:

I lost money when Crystal Cruises went under, so I'm gun-shy. I have a B2B on the Mardi Gras for 2024 and I'm wondering if I should cancel. I'll lose money due to the cancellation period, but wouldn't lose the whole shebang if they do go under. I'm remaining positive, though, for the other cruises I have booked and paid-for.

I gather you don’t have trip insurance? 

[Bgcruising]

23 hours ago, BlerkOne said:

Right, but weren't you just comparing a day in your prior post? 

[cruisingguy007]

35 minutes ago, spleenstomper said:

I gather you don’t have trip insurance? 

 

Lots of folks wait to buy insurance until closer to the sail date, often the cancellation fee can be less than insurance so it makes sense to wait. This is a valid point though in these times, buying insurance earlier and making sure it has coverage for default is probably a good idea for any far-off cruises. 

[Lane Hog]

Oh, the hand wringing.

 

Anyone look at their 401K's lately?...  Junk rating or not, anything that pay 10% are going to be popular when other investments are in double digit negatives.

Carnival's operating margin was 20-30% prior to COVID.  Assuming that cruising bounces back as well as airlines seem to be, I doubt Carnival will have a problem generating the cash to cover the interest on this debt restructuring.  The fact they were able to double the offering based on interest is a sign that people are willing to park some money with Carnival for the next six years instead of elsewhere. 

And... unlike a stock offering, this won't threaten ownership or give anyone a voice in the boardroom.

Edited October 19, 2022 by Lane Hog

[BlerkOne]

30 minutes ago, Bgcruising said:

Right, but weren't you just comparing a day in your prior post? 

I was comparing the current day and not ancient history. 

[ngrund]

23 hours ago, BermudaBound2014 said:

At 10.28% interest……

 

with a call date of 2025…..

 

oh boy 

bonds are due in 2028 when the principal is due to the bond holder

 

Call date in 2025 is when CCL has the right (not obligation) to call the bonds (pay them off early)

[LocoLoco1]

$2/Billion at 10% with 12 vessels pledged as collateral. That generically values each vessel at $160/million. What would a bank syndicate DO with 12 used ships if things go South? Lease-back? Sell outright?? 

[BlerkOne]

Just now, LocoLoco1 said:

$2/Billion at 10% with 12 vessels pledged as collateral.

Wrong. Not pledged as collateral.

[ngrund]

7 hours ago, LocoLoco1 said:

$2/Billion at 10% with 12 vessels pledged as collateral. That generically values each vessel at $160/million. What would a bank syndicate DO with 12 used ships if things go South? Lease-back? Sell outright?? 

 

6 hours ago, BlerkOne said:

Wrong. Not pledged as collateral.

This is only my take on this, and has not been stated by Carnival:

 

The ownership of ships are being transferred to the entity issuing the bonds-

The operating lines will be using the ships-

The operating lines will be making payments to that entity for the use of the ships

The entity issuing the bonds will use those funds to pay the debt

[Lane Hog]

I'm sure that there's probably also some tax benefits by having this be between two separate entities under the Carnival umbrella.

 

Had this been an operating lease, there would have been some degree of tax benefits, and typically if there would be a tax advantage to using a non-affiliated third party, it can be applied between two entities in the same corporation.

Edited October 20, 2022 by Lane Hog

[Qextor]

15 hours ago, ngrund said:

The operating lines will be making payments to that entity for the use of the ships

The entity issuing the bonds will use those funds to pay the debt

No payments, at least I don't see any mention of payments.  The money is raised by investors buying the bonds.  I too am confused about what the 12 ships have to do with anything, if they aren't collateral.

[BlerkOne]

2 minutes ago, Qextor said:

No payments, at least I don't see any mention of payments.  The money is raised by investors buying the bonds.  I too am confused about what the 12 ships have to do with anything, if they aren't collateral.

Carnival is transferring assets to a subsidiary that is issuing the bonds so the subsidiary has assets. Royal did the same thing.

[KmomChicago]

On 10/19/2022 at 9:43 AM, fyree39 said:

I lost money when Crystal Cruises went under, so I'm gun-shy. I have a B2B on the Mardi Gras for 2024 and I'm wondering if I should cancel. I'll lose money due to the cancellation period, but wouldn't lose the whole shebang if they do go under. I'm remaining positive, though, for the other cruises I have booked and paid-for.

 

I'm not what you would call optimistic, but I don't see operations ending by 2024. . . I think there will continue to be fancy dancing financially, but I think they will hold it together through restructuring if (when????) necessary. 

[quattrohead]

To my average mind, it seems like Carnival have loaned/borrowed from Carnival.

Sounds like a house of cards to me but I am just a simple guy who likes to cruise.

[Earthworm Jim]

On 10/19/2022 at 6:46 PM, cruisingguy007 said:

 

Lots of folks wait to buy insurance until closer to the sail date, often the cancellation fee can be less than insurance so it makes sense to wait. This is a valid point though in these times, buying insurance earlier and making sure it has coverage for default is probably a good idea for any far-off cruises. 

 

Insurance from a third party, not Carnival. Is the trip insurance Carnival offers backed by them, or is it a third party insurer whose finances are separate and Carnival is just the middle man? If it's the latter that might be OK, but the coverage vs. cost of Carnival's insurance isn't very good anyway. So you probably want to look somewhere else regardless.

[Badfinger]

On 10/19/2022 at 7:14 AM, ray98 said:

What a bizarre world we live in that when a company borrows $1.25B to pay interest on existing debt that some try to spin it into a positive.  In reality, this is the last tactic a company in distress has at its disposal before investor money dries up.   This is likely the last kick of the can, at some point the risk for investors is too high. 

Buying more debt at a higher rate to pay off existing debt that has a lower rate...yeah, sure...sounds good.

Does "death spiral" ring a bell?