How much more debt can cruise lines incur?

[beerman2]

NCL has just taken on  another 1.2B in debt. When/ how will it end? Bankruptcy/Reorganization?

 

The scenario gets muddier yet!

[firefly333]

Do you really think anyone here can answer that question? 

[sfaaa]

It's up to the creditors and lenders.

[xDisconnections]

Until nobody is willing to lend or they have to declare bankruptcy? 

[beerman2]

1 hour ago, firefly333 said:

Do you really think anyone here can answer that question? 

Relax it's an open ended question. No I'm not stupid enough for ANYONE on CC to have the supreme answer, it's for opinions.

Edited September 2, 2020 by beerman2

[Stick93]

4 minutes ago, beerman2 said:

Relax it's an open ended question. No I'm not stupid enough for ANYONE on CC to have the supreme answer, it's for opinions.

We were sure you were coming her for hard facts and expert analysis.  But now that we can give opinions - the cruise ones will last as long  as they can. They will have to do something drastic when they run out of money and nobody will lend them more. This is just my opinion. 

[beerman2]

1 minute ago, Stick93 said:

We were sure you were coming her for hard facts and expert analysis.  But now that we can give opinions - the cruise ones will last as long  as they can. They will have to do something drastic when they run out of money and nobody will lend them more. This is just my opinion. 

The closest to an expert on here is Chengkp75, the rest are basically opinions. Post #2 might be exactly what they are positioning for and seems highly likely.

 

What purveyors in their right mind are willing to sell product to cruiselines knowing full well the money might not be there.

 

This is all food for thought , nothing more nothing less. Some just need to take it to a different level.

[CCLcruiser91]

As of May 2020, NCL had 18 months of cash:

https://www.reuters.com/article/us-norwegian-liquidity-ceo-exclusive/exclusive-norwegian-cruise-line-has-enough-cash-for-18-months-of-no-revenue-ceo-idUSKBN22J2PN

[Stick93]

Just now, beerman2 said:

The closest to an expert on here is Chengkp75, the rest are basically opinions. Post #2 might be exactly what they are positioning for and seems highly likely.

 

What purveyors in their right mind are willing to sell product to cruiselines knowing full well the money might not be there.

 

This is all food for thought , nothing more nothing less. Some just need to take it to a different level.

You are probably correct and truth is unless you have inside knowledge of what’s going on it all seems a bit wacky right now. There are only a few here with good sources, but anyone who really knows stays away from the tough questions that will sway ordinary folks from stopping bookings and moving on from an industry in free fall. They could be revived and some may not make it, but time will tell us more than anyone can speculate. 

[john91498]

1 hour ago, sfaaa said:

It's up to the creditors and lenders.

 

This true. Although, Carnival serured about 8 billion in credit back in June.

[FSHLOT]

I thought someone started a thread a while back stating that CCL had billions stock piled and can go for a long time. 

 

Not so sure about that now.

[skridge]

56 minutes ago, beerman2 said:

The closest to an expert on here is Chengkp75, the rest are basically opinions. Post #2 might be exactly what they are positioning for and seems highly likely.

 

What purveyors in their right mind are willing to sell product to cruiselines knowing full well the money might not be there.

 

This is all food for thought , nothing more nothing less. Some just need to take it to a different level.

The difference between the Cruise lines and Sears and JC Penny is there is not another huge cruise line, Amazon, driving all the other cruise lines out of business.  Whenever this virus is contained the cruise lines will be able to go back to a huge demand for cruising because people have been sitting at home for probably a year or more.  The real question is will the cruise lines be able to wait out the virus with cash on hand.  You have some who say your ridiculous for even bringing up the possibility of Carnival running out of money.  Others take a more realistic approach.  We shall see who is right in the end.  I hope all the Cruise lines stay afloat.  

[ontheweb]

1 hour ago, beerman2 said:

The closest to an expert on here is Chengkp75, the rest are basically opinions. Post #2 might be exactly what they are positioning for and seems highly likely.

 

And his area of expertise is not finances.

[john91498]

4 minutes ago, ontheweb said:

And his area of expertise is not finances.

 

That's a good point...

[naxer]

For the fun of board conversation and speculation...

I think the cruise lines will make it through.  There's a lot of money out there for speculation since nothing can be made in savings.  The cruise lines fill a niche and know how to make money--it's one of the better areas to speculate in.  The assets are all there and in good shape, and they're using this time to scrap less profitable ships.   The business model is a proven winner--they get them on and they get them spending.  Once the plague has passed, and it will one way or another, within weeks they'll be liquid again.    

[BlerkOne]

$100 trillion dollars. Or until they make the payments.

[tinleypark andy]

Carniwegian Cruise Line.

[Heather1972]

3 hours ago, tinleypark andy said:

Carniwegian Cruise Line.

lol Royal Carniwegian

[bigrednole]

So far, most have not had to use any of it yet. They have secured it so they don't have to file bankruptcy. For simplicity, lets assume NCL can survive on its own cash reserves until Dec 31, 2020 and took $10B in loans start on July 1, 2020. Dates and amount are used for simplicity. They have a $100M cash run rate per month above what they are bringing in. The loans are at 10% APR. I know, lots of assumptions here but cruising gets back to full swing on July 1, 2021. This is when they start making more than they are spending (profitable). They used $0.6B of the overall $10B in loans. They pay back the $9.4B they didn't use, get $1B in interest, and have to payback a total of $1.6B ($1B in interest and $0.6B in what they used) over say 5 years. That is $320M annually from an industry that made $1.1B in profit in 2019. $800M is still sizable and why they can sustain.

 

I may be wrong in my understanding, but this is about how it flows in my mind. 

[drsel]

I don't see why they will borrow 10 billion at a time.

they need to borrow only how much they require every month

 

 

[navybankerteacher]

There obviously has to be some limit: they may run out of collateral to put up to secure additional borrowing; and they may run out of future lenders.  There may also be some covenants in their existing debt agreements which will prevent future borrowings — and if there are no such covenants at this time, it will become increasingly likely that future potential lenders may become reluctant to “pack more sand down a rat hole”.

 

At some point the owners (stockholders) of one corporation  may come to the conclusion that further borrowings (which will have priority over their interests) will simply dilute their claims down to nothing - and they might see that their best interests will be served by liquidation - before there are no other players to buy up the assets.

[whogo]

19 hours ago, Dwight1 said:

When/ how will it end?

That is the big question. Cruise lines can not survive forever by selling cruises that don't sail. Can they survive until December 2021 without sailing? July 2022? There will be money to be made when cruising resumes, but the current cruise lines may not be around to see it.

[iancal]

Perhaps when debt exceeds shareholder equity.  Or when interest payments equal or exceed pre tax profit.  Or when when lenders refuse to provide future credit extensions to current debt repayment commitments.

Edited September 3, 2020 by iancal

[neverbeenhere]

In the end, they can borrow as much as WE are willing to pay for.

[Hlitner]

1 hour ago, drsel said:

I don't see why they will borrow 10 billion at a time.

they need to borrow only how much they require every month

 

 

It is actually pretty straight forward in the world of International high finance.  This is not like a small business going to a bank and getting a $10 Billion line of credit.  Getting access to that kind of money means structuring a complex financial package (this is what investment banks do for their clients) which involve a combination of different kinds of bonds, stock deals, lines of credit, etc.   The cost of these restructuring deals is high so you cannot simply go to the well again and again.  These deals are so big that they involve syndicates of investment banks backed by various financial instruments.  Also keep in mind that in order to attract serious investors (such as Public Investment Fund (PIF) which represents Saudi interests) the cruise corporations must have a longer term business plan.   We have a family member who makes his living working on such big deals and an awful lot of money changes hands to make it happen.   The big winners (short term) are the investment banks/syndicates that make their money up front.

 

When all this happened last Spring we posted that CCL, RCI and Norwegian Holdings all sold their souls to get the necessary financing to survive.  Since these deals involved an unknown degree of risk the companies had to agree to less then favorable terms (for the cruise corporations).  I think the good news is that some very serious (and savvy) players thought it was worth the risk to finance the industry.  The bad news is that if the industry survives they will need a lot of revenue to cover their financial obligations.  I also thought a big downer for many is that these deals involved an awful lot of convertible financial instruments which can later be turned into stock (which only happens if the stock does well).  In a sense this waters down the stock for all stockholders.

 

Some have speculated that the long term big winner will be MSC.  They are in a unique position since they are a family owned company with huge assets (they are also one of the largest Container Ship companies in the world) and continuing income from their other holdings.  MSC has lots of new builds under option (they planned to build about 2 new ships per year) including an entirely new luxury cruise division.  

 

Hank

 

Hank