NCLH - 4th Quarter and 2022 Year - Equity Depleted

[At Sea At Peace]

It's finally happened, they have totally depleted their net equity to a de minimis level.

 

https://www.sec.gov/Archives/edgar/data/1513761/000117184323001224/exh_991.htm

 

Big WORD SALAD continues as to how rosy everything is going to be in the Press Release, but the numbers don't lie.

[At Sea At Peace]

"As of December 31, 2022, the Company’s advance ticket sales balance, including the long-term portion, was $2.7 billion"

 

"the Company’s liquidity was approximately $1.9 billion, consisting of cash and cash equivalents of $947 million and a $1 billion undrawn commitment"

 

Again, they only have 1/3 of the advance deposits in cash.  😯

[At Sea At Peace]

 

[acct1975]

I find comparing 2022 to 2021 which was a "COVID Year" as deceptive- regardless of industry. Of course 2022 will "look" better than 2021, they were hardly sailing then and not to capacity. Comparing 2022 to so 2018 or 2019 would be a better comparison- more apples to apples. And even with that, 2022 was still shaky making up for the loss of the "COVID Years"

 

I'm not freaking out yet about NCL as a company. I'd rather see how they do 2022 vs 2023 as those years will be closer to "normal".

 

We don't need to assume a panic and run...well not yet. By 2025, it will be clear if they will be able come out of the "COVID Years" unscathed

 

[cruiseny4life]

Thanks for posting! 

[At Sea At Peace]

2 hours ago, acct1975 said:

I find comparing 2022 to 2021 which was a "COVID Year" as deceptive- regardless of industry. Of course 2022 will "look" better than 2021, they were hardly sailing then and not to capacity. Comparing 2022 to so 2018 or 2019 would be a better comparison- more apples to apples. And even with that, 2022 was still shaky making up for the loss of the "COVID Years"

 

I'm not freaking out yet about NCL as a company. I'd rather see how they do 2022 vs 2023 as those years will be closer to "normal".

 

We don't need to assume a panic and run...well not yet. By 2025, it will be clear if they will be able come out of the "COVID Years" unscathed

 

 

Yep.

 

It is bleak in the short-term though.  They simply have run dry on the net equity and despite the 87% of capacity in the 4th quarter, still lost $482,480,000.

 

To 'cover that loss' between another 13% capacity fill, net of cost, they'll also need an increase in revenues via fees (passenger ticket per se and onboard items or cost cutting) of 31% ($482,480,000/$1,519,129,000) just to break even.

 

 

[At Sea At Peace]

In another filing, the cost of financing is getting expensive and more complex.

 

https://www.sec.gov/ix?doc=/Archives/edgar/data/1513761/000110465923026003/tm237748d1_8k.htm

 

Item 1.01.

Entry into a Material Definitive Agreement.

 

Amended Commitment Letter

 

On February 22, 2023, NCL Corporation Ltd. (“NCLC”), a subsidiary of Norwegian Cruise Line Holdings Ltd., entered into the second amended and restated commitment letter (the “Amended Commitment Letter”) with funds managed by affiliates of Apollo Global Management (the “Apollo Funds”), which amends, restates and supersedes the amended and restated commitment letter, dated July 26, 2022, among NCLC and the Apollo Funds. Pursuant to the Amended Commitment Letter, the Apollo Funds have agreed to purchase from NCLC an aggregate principal amount of up to $650 million of senior secured notes at NCLC’s option. Such commitments are available through February 2024, with an option for NCLC to extend such commitments through February 2025 at its election. NCLC has the option to make up to two draws, consisting of (i) $250 million of senior secured notes due 2028 that, if issued, will accrue interest at a rate of 11.00% per annum subject to a 1.00% increase or decrease based on certain market conditions at the time drawn (the “Class B Notes”) and (ii) $400 million aggregate principal amount of 8.00% senior secured notes due five years after the issue date (the “Backstop Notes”). If drawn, the Class B Notes will be subject to an issue fee of 2.00%, and the Backstop Notes will be subject to a quarterly duration fee of 1.50%, as well as an issue fee of 3.00%.

 

Secured Notes Indenture

 

On February 22, 2023, in connection with the execution of the Amended Commitment Letter, NCLC issued $250 million aggregate principal amount of 9.75% senior secured notes due 2028 (the “Class A Notes” and, collectively with the Class B Notes and the Backstop Notes, the “Notes”), subject to an issue fee of 2.00%. NCLC intends to use the net proceeds from the Class A Notes for general corporate purposes.

 

The Class A Notes were issued pursuant to an indenture (the “Indenture”), dated February 22, 2023, by and among, inter alia, NCLC, as issuer, the guarantors named therein and U.S. Bank Trust Company, National Association, as trustee, principal paying agent, transfer agent, registrar and security agent. If issued, the Class B Notes and the Backstop Notes will also be issued pursuant to the Indenture. Interest on the Class A Notes will accrue from February 22, 2023 and is payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, beginning on May 15, 2023, at a rate of 9.75% per year. The Class A Notes will mature on February 22, 2028 unless earlier redeemed or repurchased.

 

The Class A Notes and the related guarantees are, and the Class B Notes and the Backstop Notes and the related guarantees, if issued, will be, secured by first-priority interests in, among other things and subject to certain agreed security principles, shares of capital stock in certain guarantors, our material intellectual property and two islands that we use in the operations of our cruise business. The Class A Notes are, and the Class B Notes and the Backstop Notes, if issued, will be, guaranteed by our subsidiaries that own the property that secures the Notes, as well as certain additional subsidiaries whose assets do not secure the Notes.

 

NCLC may, at its option, redeem the Class A Notes, in whole or in part, (i) at any time and from time to time prior to February 22, 2025, at a “make-whole” redemption price, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date, and (ii) on or after February 22, 2025, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date.

 

The Indenture includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness; (ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments; (iii) make investments; (iv) consummate certain asset sales; (v) engage in certain transactions with affiliates; (vi) grant or assume certain liens; and (vii) consolidate, merge or transfer all or substantially all of their assets.  Additionally, upon the occurrence of specified change of control triggering events, NCLC may be required to offer to repurchase the Notes at a repurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. The Indenture also contains customary events of default.

 

The foregoing description of the Amended Commitment Letter, the Indenture and the Class A Notes does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended Commitment Letter and the Indenture (including the form of Class A Note), as applicable, which are attached as Exhibits 10.1 and 4.1, respectively, to this Current Report on Form 8-K and incorporated herein by reference.

 

 

Backstop Agreement

 

On February 23, 2023, NCLC entered into a backstop agreement (the “Backstop Agreement”) with Morgan Stanley & Co. LLC (“MS”), pursuant to which MS has agreed to provide backstop committed financing to refinance amounts outstanding under NCLC’s senior secured credit facility that are coming due in January 2024. Pursuant to the Backstop Agreement, NCLC may, at its sole option, issue and sell to MS (subject to the satisfaction of certain conditions) five-year senior unsecured notes (the “Unsecured Notes”) up to an aggregate principal amount sufficient to generate gross proceeds of $300 million at any time between October 4, 2023 and January 2, 2024.

 

 

 

 

[PATRLR]

2 hours ago, At Sea At Peace said:

"As of December 31, 2022, the Company’s advance ticket sales balance, including the long-term portion, was $2.7 billion"

 

"the Company’s liquidity was approximately $1.9 billion, consisting of cash and cash equivalents of $947 million and a $1 billion undrawn commitment"

 

Again, they only have 1/3 of the advance deposits in cash.  😯

I'm an engineer, not a finance or business guy, so please be gentle with me if my questions/comments are off base. 

That last line doesn't sound good.  But to better understand it, can you tell me for the cruise I've booked for next December, let's say I've given NCL $500 as a deposit, is the full value of my cruise in that "advance ticket sales balance," or just my $500 deposit?  I'm assuming it's just the $500.

 

[At Sea At Peace]

13 minutes ago, PATRLR said:

I'm an engineer, not a finance or business guy, so please be gentle with me if my questions/comments are off base. 

That last line doesn't sound good.  But to better understand it, can you tell me for the cruise I've booked for next December, let's say I've given NCL $500 as a deposit, is the full value of my cruise in that "advance ticket sales balance," or just my $500 deposit?  I'm assuming it's just the $500.

 

 

😁

 

They account for amounts actually received as advanced ticket sales, so just your $500 deposit.

 

It would very informational if they would stratify their reporting on these into components ~

 

* advanced ticket sales - payments made in full

* advanced ticket sales - partial payments, not in full

* advanced ticket sales - deposits only (refundable and nonrefundable)

 

 

[davencl]

For those of you keeping track.  How does NCHL's financial health compare to other cruise corporations?

[At Sea At Peace]

37 minutes ago, davencl said:

For those of you keeping track.  How does NCHL's financial health compare to other cruise corporations?

 

Here's a peek at CCL's 2020-2022 results and status.  They need to DOUBLE (yep, screaming) revenues and keep costs even in order to break even in 2023.  They still have net equity, but at these loss rates of almost $27 BILLION over the 3-years, it's an up the stream moment without a paddle.

 

[luv2kroooz]

I listened to the call. Despite the rosy word salad tossed-up by the executives, the Director of Investor Relations, Jennifer Johns verbalized the significant risks associated with the forward looking statements that involve risks and materially uncertain environment in which the company is currently operating. This has been standard disclosure, but I don't recall them verbalizing this on the prior calls.

Can you imagine what results might have been had the not made significant, material cutbacks to  onboard service and 10% of their shoreside operations?

[Middleager]

So NCLH is down 12% so far today.  CCL is down just over 2% and RCL down 1.5%.  Is that because CCL and RCL are in better shape or they haven't reported and therefore their down days will come after?

[njhorseman]

2 minutes ago, Middleager said:

So NCLH is down 12% so far today.  CCL is down just over 2% and RCL down 1.5%.  Is that because CCL and RCL are in better shape or they haven't reported and therefore their down days will come after?

They're down because NCLH's report casts a shadow on the entire industry and  makes investors concerned that the other companies also may not hit their earning targets. Some of the factors affecting NCLH results such as higher food, fuel, labor and borrowing costs can easily affect the other companies in the industry . Only when Carnival and Royal Caribbean report their earnings will we know exactly where those companies stand, and if they also miss their earnings targets they'll take a bigger hit when they file their reports.

[Middleager]

7 minutes ago, njhorseman said:

They're down because NCLH's report casts a shadow on the entire industry and  makes investors concerned that the other companies also may not hit their earning targets. Some of the factors affecting NCLH results such as higher food, fuel, labor and borrowing costs can easily affect the other companies in the industry . Only when Carnival and Royal Caribbean report their earnings will we know exactly where those companies stand, and if they also miss their earnings targets they'll take a bigger hit when they file their reports.

I get all three are down because of similar operating environment and challenges.  NCLH is down a lot because it reported today, while the other two are only down a little.  So I was wondering if the other two are only down a little because they are in better shape, or because they have not reported, and if they report similar challenges their big drop days will come then.

 

I guess we'll see in the coming days when CCL and RCL report.

[XLVIII]

17 minutes ago, Middleager said:

I get all three are down because of similar operating environment and challenges.  NCLH is down a lot because it reported today, while the other two are only down a little.  So I was wondering if the other two are only down a little because they are in better shape, or because they have not reported, and if they report similar challenges their big drop days will come then.

 

I guess we'll see in the coming days when CCL and RCL report.

RCL reported 3 weeks ago and saw a decent bump in its stock price. 

[bmwman]

There must have been some serious crises management PR going on. The share price has dropped 11% and they are in trouble.

 

All you NCL fans read - its what I said a few years ago. BTW We are Diamond 

 

Prima is a disaster and they have now delayed the project to rebuild them bigger. Prima is an embarrassment for them and Viva is being modified.

 

The project is delayed - all the BS from FDR about 1 ship a year up to the last quarter as I said not going to happen 

 

Read carefully all you Leonardo fans - they have not got the finance for the bigger ships Two ships and that will be it 

 

For passengers, they admit they are ripping us off with record ticket prices but still losing shareholder money. and yes look at the sell-off by the market. The market price is finite and the cold winds of the recovery bounce failing are there for all to see. The share price does not lie  

 

Let's just hope FDR get the boot by the major shareholders and they bring back some sensible management. FDR only ever delivers a spin of the news without telling people he has shagged the balance sheet. They are so over-geared that interest rate rises are going to hurt. 

[bmwman]

4 hours ago, At Sea At Peace said:

In another filing, the cost of financing is getting expensive and more complex.

 

https://www.sec.gov/ix?doc=/Archives/edgar/data/1513761/000110465923026003/tm237748d1_8k.htm

 

Item 1.01.

Entry into a Material Definitive Agreement.

 

Amended Commitment Letter

 

On February 22, 2023, NCL Corporation Ltd. (“NCLC”), a subsidiary of Norwegian Cruise Line Holdings Ltd., entered into the second amended and restated commitment letter (the “Amended Commitment Letter”) with funds managed by affiliates of Apollo Global Management (the “Apollo Funds”), which amends, restates and supersedes the amended and restated commitment letter, dated July 26, 2022, among NCLC and the Apollo Funds. Pursuant to the Amended Commitment Letter, the Apollo Funds have agreed to purchase from NCLC an aggregate principal amount of up to $650 million of senior secured notes at NCLC’s option. Such commitments are available through February 2024, with an option for NCLC to extend such commitments through February 2025 at its election. NCLC has the option to make up to two draws, consisting of (i) $250 million of senior secured notes due 2028 that, if issued, will accrue interest at a rate of 11.00% per annum subject to a 1.00% increase or decrease based on certain market conditions at the time drawn (the “Class B Notes”) and (ii) $400 million aggregate principal amount of 8.00% senior secured notes due five years after the issue date (the “Backstop Notes”). If drawn, the Class B Notes will be subject to an issue fee of 2.00%, and the Backstop Notes will be subject to a quarterly duration fee of 1.50%, as well as an issue fee of 3.00%.

 

Secured Notes Indenture

 

On February 22, 2023, in connection with the execution of the Amended Commitment Letter, NCLC issued $250 million aggregate principal amount of 9.75% senior secured notes due 2028 (the “Class A Notes” and, collectively with the Class B Notes and the Backstop Notes, the “Notes”), subject to an issue fee of 2.00%. NCLC intends to use the net proceeds from the Class A Notes for general corporate purposes.

 

The Class A Notes were issued pursuant to an indenture (the “Indenture”), dated February 22, 2023, by and among, inter alia, NCLC, as issuer, the guarantors named therein and U.S. Bank Trust Company, National Association, as trustee, principal paying agent, transfer agent, registrar and security agent. If issued, the Class B Notes and the Backstop Notes will also be issued pursuant to the Indenture. Interest on the Class A Notes will accrue from February 22, 2023 and is payable quarterly in arrears on February 15, May 15, August 15 and November 15 of each year, beginning on May 15, 2023, at a rate of 9.75% per year. The Class A Notes will mature on February 22, 2028 unless earlier redeemed or repurchased.

 

The Class A Notes and the related guarantees are, and the Class B Notes and the Backstop Notes and the related guarantees, if issued, will be, secured by first-priority interests in, among other things and subject to certain agreed security principles, shares of capital stock in certain guarantors, our material intellectual property and two islands that we use in the operations of our cruise business. The Class A Notes are, and the Class B Notes and the Backstop Notes, if issued, will be, guaranteed by our subsidiaries that own the property that secures the Notes, as well as certain additional subsidiaries whose assets do not secure the Notes.

 

NCLC may, at its option, redeem the Class A Notes, in whole or in part, (i) at any time and from time to time prior to February 22, 2025, at a “make-whole” redemption price, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date, and (ii) on or after February 22, 2025, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date.

 

The Indenture includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness; (ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments; (iii) make investments; (iv) consummate certain asset sales; (v) engage in certain transactions with affiliates; (vi) grant or assume certain liens; and (vii) consolidate, merge or transfer all or substantially all of their assets.  Additionally, upon the occurrence of specified change of control triggering events, NCLC may be required to offer to repurchase the Notes at a repurchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date. The Indenture also contains customary events of default.

 

The foregoing description of the Amended Commitment Letter, the Indenture and the Class A Notes does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended Commitment Letter and the Indenture (including the form of Class A Note), as applicable, which are attached as Exhibits 10.1 and 4.1, respectively, to this Current Report on Form 8-K and incorporated herein by reference.

 

 

Backstop Agreement

 

On February 23, 2023, NCLC entered into a backstop agreement (the “Backstop Agreement”) with Morgan Stanley & Co. LLC (“MS”), pursuant to which MS has agreed to provide backstop committed financing to refinance amounts outstanding under NCLC’s senior secured credit facility that are coming due in January 2024. Pursuant to the Backstop Agreement, NCLC may, at its sole option, issue and sell to MS (subject to the satisfaction of certain conditions) five-year senior unsecured notes (the “Unsecured Notes”) up to an aggregate principal amount sufficient to generate gross proceeds of $300 million at any time between October 4, 2023 and January 2, 2024.

 

 

 

 

Yes very complicated and very expensive. These Financial instruments include something you will see for the first time RESTRICTIONS I suspect (but if of  course its conjecture) lenders are getting jittery and want to see the debt reduced or no further lending. Over trading is also an issue. They are in trouble especially as resistance comes to fares for a lower quality of service.

[bmwman]

4 hours ago, At Sea At Peace said:

 

Yep.

 

It is bleak in the short-term though.  They simply have run dry on the net equity and despite the 87% of capacity in the 4th quarter, still lost $482,480,000.

 

To 'cover that loss' between another 13% capacity fill, net of cost, they'll also need an increase in revenues via fees (passenger ticket per se and onboard items or cost cutting) of 31% ($482,480,000/$1,519,129,000) just to break even.

 

 

A PERFECT analysis and guess what guests will not pay the silly prices and I think that prices will need to drop to maintain occupancy,

[Lakesregion]

If there was ever time to buy travel insurance that guarantees full fare and expenses refunds should NCL shut down ala Thomas Cook with little or no notice.

 

Also prepare for another round of service cuts. If folks are good with only one time a day room cleaning, why not once a week. After all people are really not getting on and off the ship with all the missing ports and extra sea days so they will not begetting to cabins dirty. And another round of increases in the "specialty" restauarns and possibly a reduction in free restaurants to the two smaller ones with the large one going to a pay for the privilege eatery.

 

Large corporations, Covid not withstanding, never seem to listen to

the slowing of the music in their sector. Way too many ships chasing way too few passengers and with the Federal government

driving up the inflation rate, passengers have fewer real dollars to spend on offerings that keep cutting services..

 

 

[mking8288]

Cruise lines, including NCL citing rising interest rates payment (paying for those brand new ships - Prima and now Viva ... plus others on order and in the shipyard), rising fuel costs, material & operating costs including F&B, and of course, higher labor costs - sailing at 100% occupancy and look at more "affluent" passengers to spend more onboard spending and purchases like spa, vibe and other premium add-ons, to boost net operating revenue.  

 

Ships are said to be sailing (booked ??) at 100% capacity.  I see Alaska insides this season on fire sale with the rock bottom base prices before all the "extras" added up.  Cannot imagine that the TA this Spring could possibly be repo at 100% and ... the fuel costs.  Perhaps, Frank & his senior team, all the VP's and AVP needs to take a 25% reductions in compensations and perks, and get additional restricted shares for future appreciation of their successful turnaround ... and ditch the year-end bonuses - lead by example to demonstrate to the rank & file, the crew members at the bottom that the top guns are onboard with pulling things together.  

 

And, yes, for cruisers - review those trip & travel insurance from third-party, independent agents & brokers that are bonded and backed by trusted entities, protect those dollars invested in that once-in-a-lifetime and recurring cruise vacations.  

 

P.S.  Devils with the details are often buried in the footnotes of these (unaudited) financial statements and presentations ... 

[ChiefMateJRK]

3 hours ago, bmwman said:

A PERFECT analysis and guess what guests will not pay the silly prices and I think that prices will need to drop to maintain occupancy,

Apparently, somebody is paying those "silly prices."

 

"Occupancy is expected to average approximately 100% for the first quarter and is on track to reach historical levels for the second quarter."

[Panhandle Couple]

11 hours ago, At Sea At Peace said:

 

Yep.

 

It is bleak in the short-term though.  They simply have run dry on the net equity and despite the 87% of capacity in the 4th quarter, still lost $482,480,000.

 

To 'cover that loss' between another 13% capacity fill, net of cost, they'll also need an increase in revenues via fees (passenger ticket per se and onboard items or cost cutting) of 31% ($482,480,000/$1,519,129,000) just to break even.

 

 

No not at all.

 

They took $700,000 of depreciation to get to the loss.  They actually made money on the cruises they sailed.  Don't confuse bottom line with "losing money".  Depreciation is a tax game, and everyone uses std charts.  Like saying your used car is worth $10,000 now, no matter how well you maintain it or how far you drive it.  

 

I'm disappointed that they didn't show separate 4th qtr numbers, then full year.  Reporting the last 3 qtrs is weird, but I get that they are trying to show what they did once all ships were sailing.

 

I will have to run numbers for total year with 3rd qtr numbers, but a few things stick out in my mind.

 

End of 3rd qtr they projected reducing long term debt by $240 M in 4th qtr.  Looks like they actually reduced more than $500 M. 

 

Cash on hand looks like it went from around $1.5 B to around $1 B.   Cash is very important to company because it shows if they can make payroll consistently.  They were likely keeping large amounts last year  to guard against more shut downs.  Now that that has passed, they are paying off debt faster.

 

They refinanced some debt from 2024 to 2028.  It cost more in the long run, but 2024 had a huge amount of debt payments.  This helps smooths the debt from 2024 to 2028.

 

[Panhandle Couple]

9 hours ago, Middleager said:

I get all three are down because of similar operating environment and challenges.  NCLH is down a lot because it reported today, while the other two are only down a little.  So I was wondering if the other two are only down a little because they are in better shape, or because they have not reported, and if they report similar challenges their big drop days will come then.

 

I guess we'll see in the coming days when CCL and RCL report.

I think Carnival uses a different qtr structure.  Their 4th qtr ended in Jan (or maybe Feb?) so their report will be in different months.  Hard to make apples to apples over the last 5 qtrs because of that.  Will be easier going forward with "normal" operations. 

[jbcallender]

They are done for.  An undrawn commitment is a loan they haven't taken down yet - like the remaining credit limit on credit card.  They have comparatively little cash, paltry amount to come in from receivables.  Current ratio of .36 roughly.  Look for a buyout or sales of ships on the horizon.  Their customer base facing shrinking disposable income.  Recently rehabbed a lot of ships and built mega ships. Interest rates three times higher than 18 months ago. Ugly.

Edited March 1, 2023 by jbcallender