Cruise operator Carnival pays high price to get credit investors on board: sources

[NEW YORK] Carnival, the world's largest cruise operator, raised US$6.25 billion by issuing new debt and equity on Wednesday, borrowing at a high cost to weather the economic storm of the coronavirus pandemic, people familiar with the matter said.

Despite having its cruise ships idled to comply with travel restrictions to combat the virus, Carnival was able to attract enough investors that its capital raising was oversubscribed several times over, albeit at a steep price, the sources said.

The company priced US$4 billion in bonds maturing in 2023 - upsized from the US$3 billion originally planned - with a yield at par value of 11.5 per cent, one of sources said.

By comparison, Carnival paid a 1 per cent yield in October, when it borrowed 600 million euros (S$941.7 million) in the European debt market. Moreover, Carnival had to use its ships as collateral to attract bond investors on Wednesday.

The company also raised US$1.75 billion in convertible notes with a 5.75 per cent coupon, the source added.

Beyond the bond issues, Carnival also issued new stock to raise US$500 million, less than the US$1.25 billion it was targeting. It priced the issue at US$8 per share, another source said. Carnival shares had tumbled 33.2 per cent on Wednesday on the capital raising news, ending at US$8.80.

A representative for Carnival did not immediately respond to a request for comment.

The funds are expected to be enough to cover Carnival's existing financial obligations for the next 12 months, the company said on Tuesday.

While Carnival is deemed investment grade by rating agencies, demand for the deal came largely from investors in junk-rated debt given the imperiled state of the cruise industry, the sources said.

US companies raised a record US$109.1 billion through investment-grade bond sales last week, days after Yum Brands reopened the US market for junk-rated issues after its longest lull since the 2008 financial crisis.

REUTERS