Will Viking Go The Way of Carnival and Offer a Junk Bond?

[_alan_]

 

It seems as though Carnival plans to roll the dice on this pandemic and offer investors 16% for those willing to pony into a $500 Million Junk Bond 

https://finance.yahoo.com/news/16-leveraged-loan-painful-necessary-180010750.html

 

The same article speculates that Viking is considering the same kind of offering.  

 

[Captain_Morgan]

Interesting that the article doesn’t mention the other big brands along side of Carnival but instead specifically mentions Viking.  Although all we have is speculation until the event happens or doesn’t, it has to be acknowledged that there’s likely more fact than fiction in this reporting.  
If it comes to fruition and Viking does go down the road of offering junk bonds it would be a very clear signal that not all is rosy and financially secure, as has been very publicly referenced when it comes to Carnival.  

[Cienfuegos]

Moody's announcement that it is reviewing the appropriate ratings for various classes of Viking debt references existing debt. Senior unsecured debt,  senior secured debt, etc. Some or all of the secured debt is probably a first claim on various ships, so layering additional debt on the same assets would likely require a higher rate of interest to float the offering.

 

https://www.moodys.com/research/Moodys-places-Viking-Cruises-ratings-on-review-for-downgrade--PR_419580?WT.mc_id=AM%7eRmluYW56ZW4ubmV0X1JTQl9SYXRpbmdzX05ld3NfTm9fVHJhbnNsYXRpb25z%7e20200312_PR_419580

 

[tomworldwidewaftage]

Viking cancelled our April 3, 2020 29 day cruise Mumbai to London on March 11th.

We told Viking on March 11th we wanted a refund.

 

Viking said 21 business days for our refund, which would have been April 9th.

On April 10th Viking said refunds were going out by next week.

Now Viking is saying 90 days for our refund.

 

Stock analysis are say the public trading cruise lines will be burning a Billion dollars a month.

 

I convinced Viking won't stay out of bankruptcy before we get our refund.

[Redtravel]

Hope to get my refund before Viking runs out of money.  Junk bonds issues don’t sound positive for the future of Viking.

[OnTheJourney]

Even though Viking is privately held and run by a billionaire, I don't think it or any other company is exonerated from the potential for serious financial difficulties that may arise from the current situation. This is totally uncharted territory. As to bonds with "junk" (or otherwise referred to as high-yield) ratings, these fall into various classifications. I've invested in them (mostly through funds) many times. Doesn't mean the use of them in any way points to a company's potential failure or that they might default on them. 

[Cienfuegos]

2 hours ago, OnTheJourney said:

Even though Viking is privately held and run by a billionaire, I don't think it or any other company is exonerated from the potential for serious financial difficulties that may arise from the current situation. This is totally uncharted territory. As to bonds with "junk" (or otherwise referred to as high-yield) ratings, these fall into various classifications. I've invested in them (mostly through funds) many times. Doesn't mean the use of them in any way points to a company's potential failure or that they might default on them. 

 

That's true, to a point.  Ratings agencies are sometimes late to the game on issuing ratings and changes. Some of the mortgage backed securities pools, insurance companies, savings & loans, and banks went directly from AAA/AA to bankrupt in the 1991 and 2008 crashes.

 

However, the bond rating agencies are supposed to offer an opinion on the relative ability of an issuer to meet timely principal and interest payments. The lower the rating, in general, the higher the perceived risk.  So, the reason a CCC or B+ etc bond pays a higher rate of interest than an AAA bond is precisely that relative difference in risk to the holder of the bond.

[Cienfuegos]

Barron's magazine has an article about the impact of the shutdown on Carnival, Royal Caribbean, and NCL.  These publicly traded companies have issued various notices about their financial situation.  Some of their experience is likely relevant to Viking.

 

--cash burn is severe, pushing $700 million a month for Carnival, $440 for RC, and $250 for NCL.

--best case is Carnival, which can go out nine months on this cash burn rate

--about 45% of customers accept the future cruise voucher offers

--refunding deposits cost is $250 million a month for Carnival,  $100 for RC, and $50 for NCL

 

The article notes that repeat customers are "sticky" and will come back, eventually.  The real concern is with the 1/3 of the cruise passengers who are first timers, and may just decide to put off their first cruise for a few years.

 

 

https://www.barrons.com/articles/cruise-lines-are-burning-through-cash-their-survival-depends-on-luring-back-customers-after-coronavirus-51587741331?mod=HP_DAY_RELATED_3

[Captain_Morgan]

One thing that is without argument is the fact that Viking's passenger base is extremely loyal and they will no doubt be back in droves provided they're not being priced out of the market or are subject to being blocked as a result of medical regulations, etc. which it seems like could become a new reality if the CDC has any influence on the reopening of the industry.

 

As for the cash burn, I'm sure Viking's isn't as much as the bigger brands but that's not to say they're coming out of this unscathed.  In fact, I think its safe to say they were being hammered long before their last ship stopped moving as a result of the cancellations and refunds from the world cruise.  For a company that clearly relies on having cash infusions from their passengers in the form of full payments 10 months in advance, the only logical reason behind that practice would be to have cash on hand which would then indicate that if they're refunding all of that money AND offering credits it would seem they're balance sheet is trending in the wrong direction.  Add to the fact now that although they've downsized crew where possible like the other lines, they're still paying at least 50% of their salaries which you can argue is putting them in a good position to retain crew, but how long can that realistically last?

 

 

[Cienfuegos]

The third quarter of the year, July, August, September,, is traditionally  a strong one for the cruise lines. So, losing  that Q in 2020 will be an issue.

 

for me,  a likely Baltic / Russia trip in August or September is off the table.  Maybe April of 2021, but the situation in Russia is troubling. And far from transparent. I hope it improves in 2021.

[tomworldwidewaftage]

On 4/16/2020 at 10:07 PM, tomworldwidewaftage said:

Viking cancelled our April 3, 2020 29 day cruise Mumbai to London on March 11th.

We told Viking on March 11th we wanted a refund.

 

Viking said 21 business days for our refund, which would have been April 9th.

On April 10th Viking said refunds were going out by next week.

Now Viking is saying 90 days for our refund.

 

Stock analysis are say the public trading cruise lines will be burning a Billion dollars a month.

 

I convinced Viking won't stay out of bankruptcy before we get our refund.

Viking finally refunded our money, they way they did it was with no explanation.

All on the same credit card.

1. $500.00 

2. a week later another $4500.00 

3. a week later another $15,000.00

[OnTheJourney]

8 hours ago, tomworldwidewaftage said:

Viking finally refunded our money, they way they did it was with no explanation.

All on the same credit card.

1. $500.00 

2. a week later another $4500.00 

3. a week later another $15,000.00

 

Glad you got your money!  I just checked out your website...so very interesting. Pictures are fantastic!!  Prayers that you will both stay safe as you continue your fascinating journeys. 😇

[dnieman17]

viking is the pr  king of cruise lines  once you peel pack the layers it really is not a very good company.  I canceled

a Jan 2021 cruise LA to Sydney  of course no full refund. Option to lose 2000 or rebook, so I chose a Mississippi

River cruise in Sept of 2022.  They want full payment in DECEMBER of this year.   What a crock of xxxx.  I am going

to be out 2000 grand but I will never sail on Viking again.  Wont even go into their food or their supposed free excurisions.

There are many better options than Viking

[Cienfuegos]

NCL Holdings has issued a warning that there is doubt it will be able to continue as a going concern.  With little new money coming in, and lots of money going out the door, finances are getting squeezed.

 

https://www.cnbc.com/2020/05/05/norwegian-cruise-line-says-theres-substantial-doubt-about-its-ability-to-continue-as-a-going-concern.html

[Captain_Morgan]

Will NCL be the first domino to fall i wonder?  As a publicly traded company whose stock is down this morning as expected on that kind of news it doesn't bode well for the rest whether public or private given the costs remain and if a group of companies as diverse as NCL Holdings is staring down the barrel I don't think the future is bright for the rest...

[CILCIANRQTS]

Good call, flashfearless!!

$600million at 14%. 😳🤞

[OnTheJourney]

LOL...yeah, great investment if you don't mind losing some sleep. So what's the rating on that one.... D-  ???

[_alan_]

5 hours ago, CILCIANRQTS said:

Good call, flashfearless!!

$600million at 14%. 😳🤞

 

Now, how do I get in on that action.  

[_alan_]

I should find out today how these are going to be priced.  If the 10 year treasury is at 0.66% and Viking has to pay 14% to issue debt - well you can see what the market thinks of their credit worthiness. And offer the ships as collateral.  

[Cienfuegos]

There's a huge demand for almost any kind of yield in today's market, with overall rates so low.  And a belief by some investors that credit quality doesn't matter much.

 

In reality, I suspect Viking will refund and replace these securities as quickly as it is able to do so, and treat the 14% cost for a year or two as a necessary but unfortunate cost of doing business.  Just like it will treat the 45% of customers who rolled their deposits forward into FCVs as necessary cash flow. And give them a premium experience in 2021, etc.

 

With this interest rate, it wouldn't surprise me in the least if the offer was over subscribed with more buyers than available securities. Which could lower the interest rate, or increase the cash to Viking, depending on the distribution agreements.

 

(To be clear, I have not read the offering, and there's no investment advice in my comments. I'm offering general thoughts on how the debt issue may benefit Viking, and enable it to get past this unfortunate obstacle in their growth.)

 

 

[Clay Clayton]

Mr Hagen states in his latest video on Viking TV that they have obtained additional financing.  

[Captain_Morgan]

18 hours ago, Clay Clayton said:

Mr Hagen states in his latest video on Viking TV that they have obtained additional financing.  

 

But at what cost i wonder...

[_alan_]

19 minutes ago, Captain_Morgan said:

 

But at what cost i wonder...

 

They're doing a junk bond at 14%

[Captain_Morgan]

21 minutes ago, flashfearless said:

 

They're doing a junk bond at 14%

 

Next question....were you able to get in on that action? 😏

[_alan_]

58 minutes ago, Captain_Morgan said:

 

Next question....were you able to get in on that action? 😏

 

Not sure I have the faith in Viking to risk it.  Although perhaps on a VO ship might be the safest place to be right now unless you're on the space station