RCL Stock

[BermudaBound2014]

1 hour ago, Baron Barracuda said:

Believe the positive stock reaction (aside from the overall market being up big) is aside from a miss on earnings there were no negative surprises.  During the quarter hey turned cash flow positive and their liquidity position appears stable.  Most of fleet is back in service and will soon be operating with yields above 100%.  Bookings solid and making progress on staffing issue.  Expect to be slightly in the black next quarter on an EBITDA basis.

 

With only 69% average occupancy, I'm of the belief that yields over 100% won't happen anytime soon. 

[At Sea At Peace]

3 hours ago, fredmdcruisers said:

Lost me... 

 

Yep.  4 sure.  Take care.  👍

[At Sea At Peace]

3 hours ago, BermudaBound2014 said:

 

CCL released with the opening bell (which was a bit odd).

 

Financials worse than anticipated.

 

 

Yep, but less worse than previous anticipated is a 'traders celebration for sure.  🙄

 

3 hours ago, BermudaBound2014 said:

They lost another 1.9 Billion dollars last quarter. 

 

 

Oh why look at the hard data.  Losing almost $2B in the quarter is GOOD NEWS.  😄😂  As they sing at Fenway Park, "so good, so good, so good."  Lots of trades today 'short.  😲  On a major UP day.

 

3 hours ago, BermudaBound2014 said:

Debt is now 35Billion and climbing. With all that said, customer deposits were up, and I suspect that is the reason the market has reacted positively today for all 3 majors.

 

 

The debt issuances didn't increase today as the equity.  Hummm.

 

 

[DirtyDawg]

On 6/22/2022 at 5:24 PM, At Sea At Peace said:

 

IMO, we are past the point of looking at equity (i.e., stock PPS) as the indicator of what financial experts think.  Taking a look at the debt since 12/31/2021 to today 6/22/2022 there is a stunning reduction in bond prices from face (inversely an increase in the yield over stated rates).

 

Here is one of RCL's bonds as an example of the above.

 

Again, looking to the debt, which is the first in line at the creditors table, speaks volumes in the confidence level in RCL (IMO the best financially prepared of the big 3).

 

 

Those are two ugly charts! Back in the day Michael Milken would be hawking this one big time.

[At Sea At Peace]

14 hours ago, DirtyDawg said:

Those are two ugly charts! Back in the day Michael Milken would be hawking this one big time.

 

Yep.  There are a lot of bond issuances by the big three, with a complex web of collateral (direct or indirect).  We're big, pro-cruising and believe beautiful ships will always sail.  However, the cruise industry (all including the big 3 publics) had an enormous rise in passengers pre-pandemic for a decade.  Accordingly, they all added ships, ordered newer ships, ordered newer powered ships, expanded private islands and port assistance projects.

 

So, post-pandemic, how long will it take for the linear projection of the passenger growth that was expected and the basis for the tens of billions of pre-pandemic expansions (above), to get to the level that can (1) support the capacity they expected and (2) recoup a level of profitability to get the debt to equity ratio back to where it was during their extremely profitable years?

 

My focus on debt is the belief that the real money (the debt holders) has already realized that such isn't going to be happening soon; hence the significant drop in debt trade values to face and related leaps of yields (effective interest rates derived).

 

Traders can and do make a lot of money on volatility and the prices declines and 'dead cat bounces' on the continued reporting of "losses of billions aren't that bad" and "future bookings are bright."  

 

They will have a good 2022 summer, and need it.  However, unlike restaurants and attractions in the northern states (lakes, oceans, etc.) that work to make enough during their summer 8-10 premium weeks to pay the bills upon closing after the season to get to the next year, cruise lines can't just turn off the power and lock the doors for the late Fall, Winter and Spring (and survive on a November holiday, a year end holiday week and a spring break).

 

Oh well, thanks for taking the time to look at the focus of the issue.

 

[At Sea At Peace]

On 6/24/2022 at 1:57 PM, BermudaBound2014 said:

 

Financials worse than anticipated. They lost another 1.9 Billion dollars last quarter. Occupancy rates were only 69%. Debt is now 35Billion and climbing. With all that said, customer deposits were up, and I suspect that is the reason the market has reacted positively today for all 3 majors.

 

 

 

Have had a bit more time taking a look at them as a reference for RCL and NCLH.

 

It is stunning what lipstick can't do.  Hopefully RCL and NCL won't have this "success" level when they next report.  😲

 

They boast* liquidity of $7.5 billion. 🤥

 

* which includes $5.1 billion (or 68%) in customer deposits.  

 

They boast* about revenues, occupancy and cruise capacity.  🤥

 

*  so, let's take a look at how operating at such "peak performance" has affected the bottom line.

 

Revenues - Passenger ticket and Onboard and other $4.024 billion 6-months ended 5/31/2022; Net Loss $3.726 billion.

 

Revenues - Passenger ticket and Onboard and other $75 million 6-months ended 5/31/2021; Net Loss $4.045 billion.

 

They increased revenues by $3.949 billion, or 52.5X (times) or 5,265% in order to reduce their comparative loss $319 million; i.e., they only improved (less loss) generating $4.024 billion in revenues compared to just $75 million.

[BermudaBound2014]

@At Sea At Peace How long do you give them before they have to start selling off Brands? Arnold Donald admitted it's on the table last week. 

[Baron Barracuda]

1 hour ago, At Sea At Peace said:

 

Have had a bit more time taking a look at them as a reference for RCL and NCLH.

 

It is stunning what lipstick can't do.  Hopefully RCL and NCL won't have this "success" level when they next report.  😲

 

They boast* liquidity of $7.5 billion. 🤥

 

* which includes $5.1 billion (or 68%) in customer deposits.  

 

They boast* about revenues, occupancy and cruise capacity.  🤥

 

*  so, let's take a look at how operating at such "peak performance" has affected the bottom line.

 

Revenues - Passenger ticket and Onboard and other $4.024 billion 6-months ended 5/31/2022; Net Loss $3.726 billion.

 

Revenues - Passenger ticket and Onboard and other $75 million 6-months ended 5/31/2021; Net Loss $4.045 billion.

 

They increased revenues by $3.949 billion, or 52.5X (times) or 5,265% in order to reduce their comparative loss $319 million; i.e., they only improved (less loss) generating $4.024 billion in revenues compared to just $75 million.

Same at Royal.  In each of the past two quarters revenue increased from basically $0 in prior year to $1B+ in current one yet bottom line showed no improvement.  Among factors, operating at reduced loads, high re-start expenses, fuel is up (only partially hedged) and interest costs are climbing.  Once upon a time Jason Liberty estimated newer / larger ships break even at 30% load and older / smaller ones at 50%.  That projection appears to have been overly optimistic.

[Biker19]

1 minute ago, Baron Barracuda said:

Once upon a time Jason Liberty estimated newer / larger ships break even at 30% load and older / smaller ones at 50%.  That projection appears to have been overly optimistic.

Pretty sure it wasn't detailed but I think he meant that at the ship level -lots of other expenses at the corporate level.

[Baron Barracuda]

1 hour ago, BermudaBound2014 said:

@At Sea At Peace How long do you give them before they have to start selling off Brands? Arnold Donald admitted it's on the table last week. 

In the past two years CCL disposed of over 20 ships.  Whether further sales could help is dependent on fair market value vs book value of ships in question and profit potential for each ship.  Doubt they want to sell their newer / larger/ more fuel efficient ones but who would want the smaller/older ones.

[Baron Barracuda]

23 minutes ago, Biker19 said:

Pretty sure it wasn't detailed but I think he meant that at the ship level -lots of other expenses at the corporate level.

You are correct (as usual).  Just puzzling how the past two quarters for both RCL and CCL show revenue growing from basically $0 in prior year to $1B (RCL) current year with no improvement to bottom line.  With loads over 50% ships should be modestly profitable and way ahead of last year when they sat in layup.   Must assume then that improvement from ships is being offset by higher corporate charges and restart costs.  Some is interest expense and fuel with hopefully  much of the remainder one time restart.  Next quarter will be informative with all ships back in service and operating almost full.

[exm]

Good information guys. Great article in WSJ today: this graph says a lot:

 

[DirtyDawg]

27 minutes ago, exm said:

Good information guys. Great article in WSJ today: this graph says a lot:

 

Just for comparison, RCL's Net Debt to EBITDA toped out at 7 times in the Financial Crisis in 2009. The 2022 estimate looks like more than 3X that. CCL's ratio in 2009 was 2.7 times. The 2022 estimate is 15X that! 😵

[Baron Barracuda]

Morgan Stanly took an axe to CCL today, reducing price target from $13 to $7 and saying in a bearish case stock could go to $0.  Concerned about bookings and pricing in face of likely recession, high debt, and low equity.  Concerned that much of liquidity comes from customer deposits which could dry up in event of another systemic shock.  Concerned if liquidity shrinks high yield bond market might not be receptive to new cruise line debt.

 

On the other hand, Barclays today initiated coverage of CCL with an overweight rating and a $14 price target and Carnival made statement that they expect ships to sail with 110% occupancy this summer.

 

CNBC has run the MS story several times today with hosts and guests pretty much concurring  on risk industry is facing.   CCL currently trading down 14%  with NCLH  and RCL each down 10%.  

[bruzin_for_a_cruizin]

On 6/26/2022 at 4:45 PM, exm said:

Good information guys. Great article in WSJ today: this graph says a lot:

 

Can you elucidate for us investing n00bs who really only a few shares for the OBC?

 

What I take from this is that all three major cruise lines took on a ton of debt in the past year to... stay afloat (sorry for the pun!). I presume that is anathema to future profits? Even though the 2023 number appears to be much smaller and more manageable? 

[exm]

1 hour ago, bruzin_for_a_cruizin said:

Can you elucidate for us investing n00bs who really only a few shares for the OBC?

 

What I take from this is that all three major cruise lines took on a ton of debt in the past year to... stay afloat (sorry for the pun!). I presume that is anathema to future profits? Even though the 2023 number appears to be much smaller and more manageable? 

 

The net debt-to-EBITDA (earnings before interest depreciation and amortization) ratio is a measurement of leverage, calculated as a company's interest-bearing liabilities minus cash or cash equivalents, divided by its EBITDA. The net debt-to-EBITDA ratio is a debt ratio that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant.

 

The net debt-to-EBITDA ratio is popular with analysts because it takes into account a company's ability to decrease its debt. Ratios higher than 4 or 5 typically set off alarm bells because this indicates that a company is less likely to be able to handle its debt burden, and thus is less likely to be able to take on the additional debt required to grow the business.

 

Forecasts earlier this month from Truist’s Patrick Scholes show Carnival, which started the pandemic better-capitalized than peers, ending next year with a net debt to Ebitda ratio of around 4.6 times, versus 6.4 times for Norwegian and 5.5 times for Royal Caribbean.

 

Does this makes a bit of sense?

[Biker19]

Should be interesting to see what effect the full fleet sailing has had on the bottom line this quarter:

 

As the Royal Caribbean Group completes its restart plans, Cruise Industry News recaps the trajectory of the cruise brands in bringing all their ships back after the pandemic.

 

Royal Caribbean International
Original Service Resumption: Quantum of the Seas in December 2020
Restart Completion Plan: Rhapsody of the Seas in May 2022
Ships Now in Service: Full Fleet – 26 ships 

 

In December 2020, Royal Caribbean International became one of the first major cruise lines to resume service after the COVID-19 pandemic. Seven months after pausing its entire worldwide operations, the company welcomed guests back in Singapore, with a series of cruises to nowhere onboard the Quantum of the Seas.

Half a year later, in June 2021, Royal Caribbean returned to North America and the Caribbean, with a special program in the Bahamas. Based in Nassau, the Adventure of the Seas became one of the first ships to resume service in the region, offering seven-night cruises to Freeport, CocoCay and Cozumel.

After returning to the United States in July 2021, the company continued restarting operations in additional destinations, such as the Alaska, the Mediterranean and the UK.

 

In May 2022, the brand’s restart plan was finally concluded with the service restart of the Rhapsody of the Seas. Marking the return of the company’s full fleet, the ship kicked off a summer program in the Mediterranean.

 

Celebrity Cruises
Original Service Resumption: Celebrity Millennium in June 2021
Restart Completion Plan: Celebrity Infinity in June 2022
Ships Now in Service: Full Fleet – 15 ships

 

Celebrity Cruises completed its restart plans in just one year. As the first ship to resume guest services in North America, the Celebrity Millennium was the first ship to welcome guests back for the premium brand, launching a St. Maarten-based Caribbean program in June 2021.

 

A few weeks later, the company later marked the return of the large cruise ships to the United States, with the Celebrity Edge becoming the first mainstream ship to sail from a stateside port since March 2020. Also in June, Celebrity resumed operations in the Mediterranean with the new Celebrity Apex.

Quickly adding ships back into service, Celebrity returned to the UK, the Alaska and the Galapagos in July 2021.

 

Completing the company’s restart plans – and also marking the return of the entire Royal Caribbean Group – the Celebrity Infinity welcomed guests back in June 2022.

 

Silversea Cruises
Original Service Resumption: Silver Moon in June 2021
Restart Completion Plan: Silver Shadow in June 2022
Ships Now in Service: Full Fleet – 10 ships

 

Silversea Cruises resumed guest services in June 2021. Almost at the same time, the luxury company welcomed guests back in two new ships – the Silver Moon in the Mediterranean and the Silver Origin in the Galapagos.

 

A month later, the brand added more two ships into the active lineup, resuming service in Iceland and Alaska as well.

After retuning to additional destinations, including the Antarctica in November 2021 and the Kimberley region in June 2022, the company completed its restart plans in June 2022.

 

Marking the return of Silversea’s entire ten-ship fleet, the Silver Shadow kicked off a summer program in the Alaska.

 

TUI Cruises
Original Service Resumption: Mein Schiff 2 in July 2020
Restart Completion Plan: Mein Schiff Herz in April 2022
Ships Now in Service: Full Fleet – Seven ships

 

TUI Cruises pioneered the cruise restart in July 2020, becoming the first cruise line to have a large ship back in guest operations. At the time, the German brand launched its “Blue Cruises," a series of ocean getaways onboard the Mein Schiff 2.

 

Departing from Hamburg, the sailings included several new health protocols, in addition to scenic cruising in Norway and other countries of the region. The Mein Schiff 1 followed in August 2020, offering a similar product. 

 

Still in 2020, TUI also returned to the Mediterranean, with the Mein Schiff 6 offering a program in Greece, and to the Canaries, with the Mein Schiff 2 kicking off a series of itineraries from St. Cruz de Tenerife in November.

 

After adding more destinations and ships back into the active lineup, the brand concluded its restart plans in April 2022. At the time, the Mein Schiff Herz resumed service in the Mediterranean, marking the return of TUI’s entire fleet.

 

Hapag-Lloyd
Original Service Resumption: Hanseatic Inspiration in June 2021

Restart Completion Plan: Hanseatic Spirit in August 2021
Ships Now in Service: Full Fleet – Five ships

 

Hapag-Lloyd first resumed guest services in July 2020, with an expedition ship, the Hanseatic Inspiration, and a luxury vessel, the Europa 2.

 

Sailing from Hamburg, the ships initially offered short cruises to nowhere. Later that year, the German brand later returned to the Canary Islands before relaunching service in the Mediterranean in 2021.

 

Looking Back at the Royal Caribbean Group Restart - Cruise Industry News

Edited July 5, 2022 by Biker19

[At Sea At Peace]

On 6/30/2022 at 2:37 PM, exm said:

 

The net debt-to-EBITDA (earnings before interest depreciation and amortization) ratio is a measurement of leverage, calculated as a company's interest-bearing liabilities minus cash or cash equivalents, divided by its EBITDA. The net debt-to-EBITDA ratio is a debt ratio that shows how many years it would take for a company to pay back its debt if net debt and EBITDA are held constant.

 

The net debt-to-EBITDA ratio is popular with analysts because it takes into account a company's ability to decrease its debt. Ratios higher than 4 or 5 typically set off alarm bells because this indicates that a company is less likely to be able to handle its debt burden, and thus is less likely to be able to take on the additional debt required to grow the business.

 

Forecasts earlier this month from Truist’s Patrick Scholes show Carnival, which started the pandemic better-capitalized than peers, ending next year with a net debt to Ebitda ratio of around 4.6 times, versus 6.4 times for Norwegian and 5.5 times for Royal Caribbean.

 

 

Good stuff.  Net Debt to EBITDA.  👍

 

One anomaly I see for the cruise lines is that the calculation of "net debt" (interest bearing liabilities less cash and cash equivalents) is that the Customer Deposits "cash" is used to calculate (and lower) the "net debt" number; however, the same amount of Customer Deposits is "not included" in the Debt amount to begin with (as such are non-interest bearing).

 

i.e., having ones cake and eating it too.

 

CCL for example, 10Q 5/1/22

 

Debt (excluding $4.767B in Customer Deposits) $29.263B LESS Cash and Cash Equivalents of $7.054B (which includes the $4.767B in Customer Deposits) is $22.21B in Net Debt for the ratio to EBITDA.  They had operating income (pre-interest) of ($2.964B), add back Depreciation of $1.126B so EBITDA isn't even calculable as a negative.

 

To hit the 4.6X Net Debt / EBITDA they would need EBITDA of $4.83B ($22.21 / 4.6).

 

Removing Customer Deposits in the calculation, they would need EBITDA of $5.86B ($26.98 / 4.6)

 

On 6/30/2022 at 2:37 PM, exm said:

Does this makes a bit of sense?

 

It just doesn't appear attainable or even within reach.

 

* Check my math, I'm retired.  😉

 

 

[Jimbo]

RCL Stock, hit the 52 week low this morning.

 

Expect more brands of liquor unavailable. 🤣

 

 

Shares of Carnival, the world's largest cruise operator, plunged 14% on Wednesday after a bearish research note by Morgan Stanley predicted the stock could fall to $0 in a worst-case scenario. That's not a typo.

 

Rivals sank, too. Shares of Royal Caribbean Group (RCL) slid 10% that day, while Norwegian Cruise Line Holdings (NCLH) dropped 9%. The stocks lost more ground Thursday, though not as much.

Edited July 5, 2022 by Jimbo

[DirtyDawg]

1 hour ago, At Sea At Peace said:

 

Good stuff.  Net Debt to EBITDA.  👍

 

One anomaly I see for the cruise lines is that the calculation of "net debt" (interest bearing liabilities less cash and cash equivalents) is that the Customer Deposits "cash" is used to calculate (and lower) the "net debt" number; however, the same amount of Customer Deposits is "not included" in the Debt amount to begin with (as such are non-interest bearing).

 

i.e., having ones cake and eating it too.

 

CCL for example, 10Q 5/1/22

 

Debt (excluding $4.767B in Customer Deposits) $29.263B LESS Cash and Cash Equivalents of $7.054B (which includes the $4.767B in Customer Deposits) is $22.21B in Net Debt for the ratio to EBITDA.  They had operating income (pre-interest) of ($2.964B), add back Depreciation of $1.126B so EBITDA isn't even calculable as a negative.

 

To hit the 4.6X Net Debt / EBITDA they would need EBITDA of $4.83B ($22.21 / 4.6).

 

Removing Customer Deposits in the calculation, they would need EBITDA of $5.86B ($26.98 / 4.6)

 

 

It just doesn't appear attainable or even within reach.

 

* Check my math, I'm retired.  😉

 

 

Net Debt to EBITDA is a fine ratio but with all general ratios it has to be 'tweaked' for the individual industry. The main drawback with Net Debt to EBITDA is that it treats all debt as the same. Some company's debt will be costing them 4-5% while other company's will have debt that costs them 8-9%. Obviously a 4X Net Debt to EBITDA for a company paying 8-9% on it's debt is way worse than the same ratio for a company whose debt is costing them 4-5%. 

 

 

 

[The_Big_M]

2 hours ago, At Sea At Peace said:

 

Good stuff.  Net Debt to EBITDA.  👍

 

One anomaly I see for the cruise lines is that the calculation of "net debt" (interest bearing liabilities less cash and cash equivalents) is that the Customer Deposits "cash" is used to calculate (and lower) the "net debt" number; however, the same amount of Customer Deposits is "not included" in the Debt amount to begin with (as such are non-interest bearing).

 

i.e., having ones cake and eating it too.

 

CCL for example, 10Q 5/1/22

 

Debt (excluding $4.767B in Customer Deposits) $29.263B LESS Cash and Cash Equivalents of $7.054B (which includes the $4.767B in Customer Deposits) is $22.21B in Net Debt for the ratio to EBITDA.  They had operating income (pre-interest) of ($2.964B), add back Depreciation of $1.126B so EBITDA isn't even calculable as a negative.

 

To hit the 4.6X Net Debt / EBITDA they would need EBITDA of $4.83B ($22.21 / 4.6).

 

Removing Customer Deposits in the calculation, they would need EBITDA of $5.86B ($26.98 / 4.6)

 

 

It just doesn't appear attainable or even within reach.

 

* Check my math, I'm retired.  😉

 

 

 

While it's good you called this out, it is technically correct. 

 

This is because it stems from the idea of a business as a going concern. In that context, the deposits paid do not fall under debts as they are not expected to be paid back. As a going concern, they are prepayments towards G&S purchased, so not debt as such. (Of course if the business was being wound up they would be added to the list of creditors, so debts at that point.)

 

OTOH, the reason to calculate net debt is to see the coverage of liquid assets (e.g. cash) as true debts need to be repaid. So in this context again they are part of cash that can be paid to cover those debts. (The use of cash for these purposes is legitimate as part of business operations. Deposits do not have to be held until the product/service is supplied.)

 

You are considering things from a liquidation perspective, but that is not how an operating business is assessed.

[At Sea At Peace]

11 minutes ago, The_Big_M said:

 

While it's good you called this out, it is technically correct. 

 

This is because it stems from the idea of a business as a going concern. In that context, the deposits paid do not fall under debts as they are not expected to be paid back. As a going concern, they are prepayments towards G&S purchased, so not debt as such. (Of course if the business was being wound up they would be added to the list of creditors, so debts at that point.)

 

OTOH, the reason to calculate net debt is to see the coverage of liquid assets (e.g. cash) as true debts need to be repaid. So in this context again they are part of cash that can be paid to cover those debts. (The use of cash for these purposes is legitimate as part of business operations. Deposits do not have to be held until the product/service is supplied.)

 

You are considering things from a liquidation perspective, but that is not how an operating business is assessed.

 

For sure it is technically correct.  Agreed.

 

What has become clear pandemic and almost post-pandemic is how uniquely the cruise industry has had access to interest and security free customer deposits in the many billions as de facto lines of credit.

 

I'd like to see a regulatory requirement for customer deposits to be held as "restricted cash" and not comingled with the operating funds of the cruise lines or even possibly held in escrow by a 3rd party.

 

In the alternate, openly disclose "that payments made for your future cruise are unsecured and not segregated from other company accounts and may, in lieu of your cruise, be used to satisfy debt obligations of the company and provide for operating cash flow for cruises prior to yours."😉

 

Not going to happen unless one or more of these companies "go down" and the customer deposits are used to satisfy the vultures.  

 

Again, you are right and they are technically right.

 

 

 

 

[Ptroxx]

2 hours ago, Jimbo said:

RCL Stock, hit the 52 week low this morning.

 

Expect more brands of liquor unavailable. 🤣

 

 

Shares of Carnival, the world's largest cruise operator, plunged 14% on Wednesday after a bearish research note by Morgan Stanley predicted the stock could fall to $0 in a worst-case scenario. That's not a typo.

 

Rivals sank, too. Shares of Royal Caribbean Group (RCL) slid 10% that day, while Norwegian Cruise Line Holdings (NCLH) dropped 9%. The stocks lost more ground Thursday, though not as much.

Yup.  I bought 100 shares of cci.  Just waiting for the other 2 to dip to 4/20 prices again or close.   I have buys set up for them so I don’t miss them like last time.    Lol.  

[Baron Barracuda]

Over the weekend Barrons did a mea culpa, backing away from a favorable piece they had done on the cruise industry just two months ago.  "In retrospect Barrons was overly bullish on the sector".  I found this concerning because absent some major event Barrons typically allows a fair amount of time to pass before re-examining a recommendation.  To reverse their opinion this quickly implies either their original analysis was flawed or the situation has noticeably deteriorated.  Now, in addition to the leverage issue they quote analysts concerned about recession fears, inflation and interest rates.  They admit the cruise industry has weathered a number of prior recessions but not with the debt levels they're carrying today.

[Biker19]

3 hours ago, At Sea At Peace said:

In the alternate, openly disclose "that payments made for your future cruise are unsecured and not segregated from other company accounts and may, in lieu of your cruise, be used to satisfy debt obligations of the company and provide for operating cash flow for cruises prior to yours."

Some of the language in the RCG SEC quarterly filing regarding deposits:

 

Our payment terms generally require an upfront deposit to confirm a reservation, with the balance due prior to the cruise. Deposits received on sales of passenger cruises are initially recorded as Customer deposits in our consolidated balance sheets and subsequently recognized as passenger ticket revenues during the duration of the cruise. ASC 606, Revenues from Contracts with Customers, defines a “contract liability” as an entity’s obligation to transfer goods or services to a customer for which the entity has received consideration from the customer. We do not consider customer deposits to be a contract liability until the customer no longer retains the unilateral right, resulting from the passage of time, to cancel such customer's reservation and receive a full refund. Customer deposits presented in our consolidated balance sheets include contract liabilities of $1.2 billion and $0.8 billion as of March 31, 2022 and December 31, 2021, respectively.

 

 

Certain of our surety agreements with third party providers for the benefit of certain agencies and associations that provide travel related bonds, allow the sureties to request collateral. We also have agreements with our credit card processors relating to customer deposits received by us for future voyages. These agreements allow the credit card processors to require us, under certain circumstances, including breach of the financial covenants, the existence of other material adverse changes, excessive chargebacks, and other triggering events, to maintain a reserve that can be satisfied by posting collateral. As of March 31, 2022, we have posted letters of credit as collateral with our sureties and credit card processors under our revolving credit facilities in the amount of $117.2 million.