Norwegian Cruise Line offered up two of its ships and two islands as collateral in an attempt to raise $2bn and stave off bankruptcy, after bookings collapsed and customers clamoured for refunds in the wake of the coronavirus.
The Miami-based cruise operator, whose ships have been prevented from sailing due to the pandemic, warned there was “substantial doubt” about its ability to remain in business.
Shares in the company tumbled nearly 23 per cent on Tuesday, taking their year-to-date decline to 80 per cent, after it launched a $1.6bn stock and bond offering. It also announced that the buyout firm L Catterton was investing $400m in one of its subsidiaries, NCL Corp, and will be entitled to a board seat and one board observer.
The fundraising is critical not least since half of the customers on cancelled voyages were opting to take cash refunds rather than credits towards a future cruise.
The company has suspended all voyages until June 30 and the US Centers for Disease Control and Prevention has issued a no-sail order for cruise ships that lasts until July 24 or until Covid-19 is no longer considered a public health emergency, whichever comes first.
As of April 24, advance bookings for the rest of the year were “meaningfully lower” than in 2019, with pricing dropping precipitously, Norwegian said.
If it were unable to fulfil its liquidity needs through the fundraising, it “may be necessary for us to reorganise our company in its entirety, including through bankruptcy proceedings, and our shareholders may lose their investment in our ordinary shares”, it said in a regulatory filing.
The company is hoping to raise $350m of new equity, as well as $1.25bn through two bond offerings. A $600m secured bond deal would offer investors two of the company’s ships and two islands as part of the collateral, according to a filing.
Norwegian’s last annual report said that the group owned a private island in the Bahamas — Great Stirrup Cay, which it used as a port-of-call on certain itineraries — and operated a cruise destination in Belize called Harvest Caye.
Initial pricing on the four-year secured bond signalled the company will have to pay up to 12.5 per cent to borrow the cash, far in excess of the average 6 per cent yield on unsecured debt from similarly rated issuers, according to an index run by Ice Data Services.
The deal is being offered as a slight discount, giving it an all-in yield of 13 per cent, according to the people.
The company said on Tuesday it expected to report first-quarter losses of between $1.8bn to $1.93bn but that it would delay filing its quarterly earnings report.
Norwegian has identified about $515m of capital expenditure reductions, it added, and has already cut costs by furloughing one-fifth of its shoreside employees until the end of July and cutting work hours and salaries for others.
The cruise operator also said it was co-operating with ongoing investigations by the Florida attorney-general and other attorneys-general and governmental agencies about its marketing to customers during the pandemic.
The company said between March 12 and April 30 it had been subject to three class action lawsuits alleging it “made false and misleading statements to the market and customers about Covid-19”.