How Safe are Deposits... Held in Escrow?

[bizinsider]

I don't know the answer to the question - are deposits held in escrow? We have fully paid for a trip a year out in exchange for some discounts. Pre-pandemic, that would have been a no-brainer. Now? It's something to rethink. 

 

Obviously, if Carnival got into a tight spot it could sell assets, notably Seabourn. If it was sold, I suspect all future deposits would go along with the sale.

 

On the other hand, as Crystal passengers found out, nothing should be taken for granted.

 

So back to my original question ... does anybody here know if deposits or fully paid future cruises are held in escrow?

 

Thanks!

[Hlitner]

1 hour ago, bizinsider said:

I don't know the answer to the question - are deposits held in escrow? We have fully paid for a trip a year out in exchange for some discounts. Pre-pandemic, that would have been a no-brainer. Now? It's something to rethink. 

 

Obviously, if Carnival got into a tight spot it could sell assets, notably Seabourn. If it was sold, I suspect all future deposits would go along with the sale.

 

On the other hand, as Crystal passengers found out, nothing should be taken for granted.

 

So back to my original question ... does anybody here know if deposits or fully paid future cruises are held in escrow?

 

Thanks!

I do not know how safe the deposits are (in the case of bankruptcy) but think you are generally protected by your major credit cards.  We have previously had two cruise lines (Regency and Renaissance) go bankrupt while they held some of our funds.  We simply made a quick call to our credit card company and had the money credited back to our account on either the same day or, in one case, in a few days.   

 

Hank

[saminina]

This has nothing to do with your question, but.....

Last week I cancelled three $500 future cruise deposits.  Credit appeared on credit card within three days.  Very impressed with the agent and speed of credit.

[cruiseej]

Based on what happened with Crystal, I would say that cruise deposits/prepayments are likely not legally protected in escrow accounts. But I agree that is Carnival is to sell Seabourn, all the booking payments will carry forward to the new owners. If Seabourn or Carnival files for a reorganization bankruptcy, it's likely that some of the big creditors might take a hit, but cruise bookings would like be honored. If Seabourn or Carnival were to go under completely,  then our payments would likely go with them.

 

We recently booked a cruise for next year, and have until August 31 to decide whether to pay in full for the 10% discount offered with the "Sail Away Event", so this is a question I've been thinking about. To quote Dirty Harry: "You've got to ask yourself one question: 'Do I feel lucky?' " 😉

[Guest ldtr]

No cruise deposits are not held in escrow. They are basically an accounting entry, with monies received available to the company. For example at the start of the Covid shutdown the entire Carnival Corporation lines had about 7 billion in deposits and money received for cruises not yet taken, and less than 3 billion in cash. Not a problem during normal operations, since new cash was always coming it. But it did mean that they had to raise a lot of cash when the shutdown occurred.  

 

Other cruise companies had similar numbers.

[labonnevie]

7 hours ago, Hlitner said:

I do not know how safe the deposits are (in the case of bankruptcy) but think you are generally protected by your major credit cards.  We have previously had two cruise lines (Regency and Renaissance) go bankrupt while they held some of our funds.  We simply made a quick call to our credit card company and had the money credited back to our account on either the same day or, in one case, in a few days.   

 

Hank

You were fortunate, today this is not always true. 
Travel insurance currently provided by the Chase Sapphire card, while otherwise exceptional, specifically excludes “financial insolvency of the cardholder’s travel agency, tour operator or travel supplier”. 
Perhaps AMEX has a different policy, I don’t know. 

[Hlitner]

40 minutes ago, labonnevie said:

You were fortunate, today this is not always true. 
Travel insurance currently provided by the Chase Sapphire card, while otherwise exceptional, specifically excludes “financial insolvency of the cardholder’s travel agency, tour operator or travel supplier”. 
Perhaps AMEX has a different policy, I don’t know. 

I am not talking about travel insurance.  What I am talking about is called the Consumer Credit Protection Act (CCPA) which goes back to the 1960s (and only applies to Americans) and the Federal Fair Credit Billing Act (FCBA).   I am not a lawyer so will not preach law.  But essentially in the USA we have a series of Federal (and some State) Laws that give a lot of protection to folks that purchase things with credit cards that are not delivered!   There are various limitations but if a company goes bankrupt or fails to deliver what has been purchased (such as a cruise) the consumer has quite a few rights.  The first step, as a consumer, is to contact your credit card company and put the item under "dispute."  

 

As a general rule the major card companies (AMEX, MC and Visa) will make customers whole if a company goes bankrupt and fails to deliver what has been promised.  The reality is that putting an item under "dispute" is a lot easier than filing a claim under an insurance policy (including that issued by Chase).  So, for example, when Flybe Airlines (one of the larger UK domestic carriers) went bankrupt in 2020 (with some of my money) I simply called Chase, put the item (i.e. airline tickets) under dispute, and had the money credited back to my Chase account that same day!   The rules that govern "disputes" are completely different and separate from the Chase Travel Insurance.

 

Hank

[bizinsider]

I believe our situation is somewhat different. We have entirely paid for a cruise 1+ year out. We had transferred payment forward on a cruise we had paid for and cancelled due to family circumstances. In return we were able to stick with the original price plus a discount for the use of our cash.

 

We used the credit card recourse to get our deposit back after Crystal ran into trouble. At the time I distinctly recall that there was a time limit after the cash had been paid for the credit card companies to act. 

 

Regardless, we're checking with our agent on escrow. If there is no escrow, we may bag it. Very tough call.

[bizinsider]

I'll add...

 

The real issue here is that a discount for paying in full is likely like getting interest on a loan, which suggests you are like a lender which translates into being a potential creditor. That's my ultimate concern, especially after reading this today...

 

Then again, one way to raise cash it sell assets.

 

---

Morgan Stanley analyst Jamie Rollo has remained cautious on the Underweight-rated Carnival Corp (NYSE: CCL) shares after another “chunky forecast cut.”

The analyst slashed the price target to a new Street-low of $7.00 per share from $13.00 to reflect the lowered FY22e EBITDA guidance and mirroring “weaker than expected occupancies, weakening pricing, elevated unit costs and higher fuel costs.”

The analyst also slashed the 2H22 forecast for revenue by 15% on pressures led by a later-than-expected return to a 100% resumption.

 

Rollo also introduced a new bear case of $0 in case a new major demand shock is to materialize. 

“If the high yield market closes, and/or if there is a demand shock that causes trip cancellations or weak bookings (and hence customer deposit outflows), liquidity could quickly shrink. Even then, leverage looks unsustainably high we think, with net debt remaining >$30bn for the foreseeable future,nearly triple its pre Covid level. We think this needs to come down to under 4xFY23, to ~$20bn or so, which implies a ~$12bn equity raise. This is similar to CCL's market cap, so could require a material,and therefore likely very dilutive, discount. If its equity value drops much further, it could become very challenging to raise this much,” the analyst concluded.

By Senad Karaahmetovic

[saminina]

Yes, and the sooner CCL can unload Seabourn, the better off for all concerned.

[cruiseej]

5 hours ago, bizinsider said:

The real issue here is that a discount for paying in full is likely like getting interest on a loan

 

So if I pay for a late-May 2023 cruise in late August 2022, that's a 9 month "loan" with 10% interest, or 13.3% annualized interest. In the current market environment, that's a pretty good return rate for a short-term loan — so that would point towards prepaying for the cruise. Unless you think the cruise line will go bankrupt in the next 9 months and take your payment with it — in which case it's clearly not worth prepaying for the cruise in advance. So… what are the odds Carnival will go bankrupt and be dissolved in the next 9 months? 

 

(I'm not sure I understand the analyst who suggests a bear case for CCL is $0. Aren't the assets — mainly the ships — going to always be worth something more than zero?)

[bizinsider]

I agree 5% or 10% produces a great rate of return (mine was 5%, struck back when rates were zero.) Just remember, high yield is high yield for a reason!

 

think the most bearish case is whether they have the ability to cover their interest coupled with the potential need to raise even more cash if thinks get... rocky. So, for example, if there's an "event" in China with Taiwan, or Russia invades Europe or this new variant of Omicron causes greater problems... who knows? I think that's his far outside most bearish case.

 

[Guest ldtr]

1 hour ago, cruiseej said:

 

So if I pay for a late-May 2023 cruise in late August 2022, that's a 9 month "loan" with 10% interest, or 13.3% annualized interest. In the current market environment, that's a pretty good return rate for a short-term loan — so that would point towards prepaying for the cruise. Unless you think the cruise line will go bankrupt in the next 9 months and take your payment with it — in which case it's clearly not worth prepaying for the cruise in advance. So… what are the odds Carnival will go bankrupt and be dissolved in the next 9 months? 

 

(I'm not sure I understand the analyst who suggests a bear case for CCL is $0. Aren't the assets — mainly the ships — going to always be worth something more than zero?)

CCL existing debt level is more than the value of the ships. 

 

keep in mind that even if CCL did declare BK (still aow probability event), it would most likely be a reorganization, similar to what the major airlines have done over the years, not a liquidation like Crystal.

 

In which case the stock would go to zero. New stock would be issued, with most going to the current debt holders, replacing the debt.  The customers would remain whole. No impact to deposits or bookings.

 

In the end the current shareholders would get wiped out, but the cruise line would end up with a clean balance sheet and business would go one.

 

 

[Xerxes10]

22 hours ago, labonnevie said:

You were fortunate, today this is not always true. 
Travel insurance currently provided by the Chase Sapphire card, while otherwise exceptional, specifically excludes “financial insolvency of the cardholder’s travel agency, tour operator or travel supplier”. 
Perhaps AMEX has a different policy, I don’t know. 

AMEX refunded the deposit we had with Crystal very promptly.

[bizinsider]

This update - our agent says she was told by Seabourn that our "paid in full, plus payment for booked excursions" is held in escrow.

[Guest ldtr]

1 hour ago, bizinsider said:

This update - our agent says she was told by Seabourn that our "paid in full, plus payment for booked excursions" is held in escrow.

believe if you want to but none of the sec filings mention any of CCL cruise lines using escrow accounts for booking  An escrow account would mean an account held by a third party which could not be touched by the cruise line until the cruise occurred.

 

Not much chance of that actually being reality.

 

 

[bizinsider]

I have to agree. I checked the filings as well and zero mention. 

[Covepointcruiser]

If you used a credit card for the deposits or for the full cruise fare there is no problem.

[Av8tor]

On 7/1/2022 at 2:16 PM, Covepointcruiser said:

If you used a credit card for the deposits or for the full cruise fare there is no problem.

Not necessarily...  There is a max time limit from the date of the charge to file a charge dispute.  Past that date, which may vary from one CC company to the next, the company does not have to credit the amount back.  Some may and others may not, YMMV.

 

If you buy commercial trip insurance (NOT from the cruise line) soon after making the payment/deposit, some plans will protect you from travel supplier insolvency.  You have to check the plans to see if that coverage is included and when it must be purchased.

[skybluewaters]

17 hours ago, Av8tor said:

There is a max time limit from the date of the charge to file a charge dispute.  Past that date, which may vary from one CC company to the next, the company does not have to credit the amount back

 

For services to be delivered in the future -- such as cruises -- that time limit is 540 days.  But that is the time from the original payment.  If you have rolled money over from one cruise to another (for example after canceling a cruise and rescheduling another), the original date applies. 

[Hlitner]

A few things about bankruptcies and credit cards.  This is not a part of the Chase Travel Insurance policy because it is covered under several Federal Laws.  Are those laws giving us 100% protection?  No, because they do have time provisions.  However, some of the better cards (AMEX is a great example) will generally review each dispute and often decide in the card holders favor.  We have experienced just that with both AMEX and Chase Sapphire Reserve.   In fact, our most recent dispute (filed with Chase) involved the bankruptcy of Flybe Airlines (a major UK domestic carrier) that went under in 2020.  Chase could have probably declined our dispute on the grounds that it was an EU Issue and the Federal protection does not extend to transactions done outside the USA (we booked directly with the airline though their UK site).  But Chase actually agreed with our dispute (while on the initial call) and immediately credited back our money.  That is simply good PR and a reasonable resolution given the competitive situation between Chase Sapphire Reserve and AMEX Platinum.   Would this dispute have also been upheld on a lesser card?   I have no idea.

 

These days there is no way I would pay for a cruise more than a year in advance because it is just lousy financial policy and it might cause issues if we later had to do a credit card charge back dispute,   As to our various Future Cruise Credits that have been given to us by several cruise lines (because of their own cancellations) we do realize that would be wiped out if a company went belly up.  But that is not money we paid (we have very little real money in the game) but mostly FCCs granted by the cruise line's as part of their incentive policies.  Our HAL Asian cruise has actually been rolled over for 3 years but I think we  actually have less than $1000 of our money tied up (it has been going on so long I have lost track).

 

I will add that I do not think it is likely that CCL will simply disappear (like Crystal).  In the case of CCL, if they would go bankrupt (which I think would only happen if they cannot make a scheduled debt service payment) they would almost certainly enter into a Chapter 11 bankruptcy which gives them the ability to reorganize and work out a deal with creditors.  In such a situation they would likely honor cruise deposits and even FCCs since a vital part of reorganization would be to stroke their customer base.

 

By the way, the Crystal bankruptcy settlement is quite interesting.  When Manfried Lefebvre d"Ovido bought Crystal (out of bankruptcy) he also bought their name and customer lists.  He is a real pro and understands that a lot of the "Goodwill" of a cruise line is tied up in their previous customer base/list.  I would not be surprised if he somehow finds a way to make passenger folks whole (or partially whole) who lost money in that bankruptcy.  If he does help bail out the previous customers it will go a long way to building new brand loyalty which is very important with the luxury cruise lines.

 

Hank

 

 

[janieb1962]

This got me thinking about whether to pay in full I don’t know what escrow is, but here in UK our payments are covered by ATOL.ORG.UK

even if they stopped trading as they are part of carnival who hold the atol licence