Are Major Cruise Line Bankruptcies Back on the Table?

[mnocket]

It looked like they were climbing out of the weeds. They survived Covid and restrictions are becoming a thing of the past.  They were able to raise enough capital to survive until things got back to "normal".  Now we hear from CCL ..... "Carnival (CCL) missed EPS and EBITDA estimates with its report and the update on advance bookings for Q4 fell below the historical normal range, which was unexpected just a few weeks ago. The cumulative advance bookings for the quarter were also noted to be at lower prices."   And the market responded harshly - CCL -19%, NCLH -14%,  RCL -10%.  For reference, CCL is now BELOW its COVID low!

 

It seems the anticipated surge in bookings is fading.  Their reopening pricing power is no more.  Labor constraints persist.  Perhaps most importantly, rising interest rates and poor financial progress will make refinancing their existing debt VERY expensive.  Given all this, one has to ask....   SHOULD WE BE EXPECTING MAJOR CRUISE LINE REORGANIZATIONS AND BANKRUPCIES IN 2023?  I'm starting to think it's more likely than not.

Edited September 30, 2022 by mnocket

[XBGuy]

I'm inclined to agree with you--especially, CCL  The only question seems to be what kind of bankruptcy.  I guess reorganization would be the most likely first step.

[klfrodo]

I wouldn't be shocked to wake up and hear that Carnival Corp. has suspended operations for reorganization purposes.

 

This is good reason to book thru a TA rather than directly with the cruiseline.

This is the definition of 3rd party default according to TripInsuranceStore

 

What most people don’t know or understand is that the Financial Default coverage is for the Third Party. If you book a cruise directly with the cruise line, you are not covered for Supplier Financial Default because there is no intermediary to be the Second Party. If you booked with a travel agent who, in turn, made your cruise’s travel arrangements, the travel agent is the Second Party and the cruise line is the Third Party.

Edited September 30, 2022 by klfrodo

[navybankerteacher]

7 minutes ago, klfrodo said:

I wouldn't be shocked to wake up and hear that Carnival Corp. has suspended operations for reorganization purposes.

Suspension of operations is highly unlikely. The purpose of reorganizations in bankruptcy is to give the debtor an opportunity to restructure its debt - likely at high cost to the equity owners and involve some write-offs for junior debt.  Suspension of operations   would jeopardize prospects for ANY successful reorganization.

[rkacruiser]

The report from CCL is very disappointing and concerning as to what will happen next,  As one who owns RCL and CCL, and still believe in them, I am not selling.  Yet.  Whatever I would sell, maybe an exception would be my RCL shares, would be a loss.  

 

There has been discussion that some of the brands that CCL, and to a lesser extent RCL, own may get sold, spun-off, or disposed of in some way.  I am sorry to say, but, I think the likelihood of that happening has increased today.  

[mnocket]

1 hour ago, navybankerteacher said:

Suspension of operations is highly unlikely. The purpose of reorganizations in bankruptcy is to give the debtor an opportunity to restructure its debt - likely at high cost to the equity owners and involve some write-offs for junior debt.  Suspension of operations   would jeopardize prospects for ANY successful reorganization.

Unlikely, but not impossible.  People lost megabucks on Crystal bookings.

Edited September 30, 2022 by mnocket

[mnocket]

1 hour ago, klfrodo said:

What most people don’t know or understand is that the Financial Default coverage is for the Third Party. If you book a cruise directly with the cruise line, you are not covered

I had no idea this was the case.  Is it true for all/most policies?

[mnocket]

23 minutes ago, rkacruiser said:

I am not selling.  Yet.

Neither am I, but they are on a short leash.  If we get more negative news from other lines I'll bail. I rode a couple stocks to zero during the tech bubble - lesson learned.

Edited September 30, 2022 by mnocket

[mnocket]

Closing prices...

 

CCL Down 23.25%

NCLH Down 18.04%

RCL Down 13.14%

 

We got ourselves a bloodbath! 

[klfrodo]

6 minutes ago, mnocket said:

I had no idea this was the case.  Is it true for all/most policies?

Here's is a link from TripInsuranceStore

 

Third Party Travel Supplier Financial Default (tripinsurancestore.com)

[Joebucks]

Not good. The rising interest rates don't appear to be helping either. They are almost certainly going to have to unload more ships or brands. 

 

"Shares of Carnival fell below their pandemic lows Friday after the cruising company posted third-quarter earnings that revealed higher costs associated with inflation, supply chain disruptions and the maintenance of health and safety protocols."

 

Fortunately for them, we have a ton of cruise business experts on this forum. They are obviously losing money because there isn't baby pools full of unlimited bacon and pizza is not available at 4am AS ADVERTISED!!

 

Our government did this more than Carnival did.

Edited September 30, 2022 by Joebucks

[mnocket]

7 minutes ago, klfrodo said:

Here's is a link from TripInsuranceStore

 

Third Party Travel Supplier Financial Default (tripinsurancestore.com)

Thanks.  However there seems to be another side to this coin.  If you book through a TA, any money you paid to the TA that they hadn't passed along to the provider would also not be covered (i.e. it's between you and the TA. There is no 3rd party).

 

fwiw I'd also read that it's important to confirm that the TA will use your credit card (not theirs) to make payment to the provider.

[Hlitner]

We have warned (on CC) for nearly two years that the US based cruise corportations, RCI, CCL and NCLH are all facing major financial challenges.  A lot to the early bookings were smoke and mirrors since many were primarily financed by Future Cruise Credits given out during the COVID shutdowns and some later cancellations.  While future bookings looked strong, the revenue was often coming out of accounts payable (a liability) rather than from new revenue.  And then the cruise lines got hit with a near perfect storm of rising fuel prices, rapidly rising food prices, the Omicron variant, airline crisis, and labor shortages.  And now we have rapidly rising interest rates at a time when the RCI, CCL and NCLH will need to refinance some existing debt and borrow additional funds to deal with a cash crunch.  

 

The one major cruise line that is in good financial shape is MSC!  That company is essentially a closely held family corporation (Aponte family) who also owns the largest container ship line in the world which is generating a huge profit.  While their cruise line has also faced many finanical challenges, they are easily able to finance that cruise line from their other profits and, in fact, are in the process of not only expanding MSC but also starting a new luxury cruise line (Explora Journeys) with 6 new ships.

 

So what will happen with CCL, RCI, and NCLH.  I have no clue.  My assumption is that both RCI and CCL will survive although bankruptcy is not as farfetched as many would believe.  But even bankruptcy would likely become some kind of Chapter 11 action (reorganization).   I have not spent any time looking at the NCLH financials although I know they have some of the usual cautions (about future events) in their financial reports.

 

Hank

[rkacruiser]

36 minutes ago, Joebucks said:

Fortunately for them, we have a ton of cruise business experts on this forum.

 

🤣🤣🤣

 

54 minutes ago, mnocket said:

Neither am I, but they are on a short leash.

 

Not an unwise position, I think.  If I sold both of my pots of CCL today, I would take a loss that would carry over for several years on my 1040s.    I remain "above water" on RCL simply because I did buy it just above its lows during the last major drop in cruise industry prices.  

 

I am going to keep an open mind as to what to do.  It does seem to me that corporate CCL has to do more than what has been done to return to profitability.  

 

 

[Joebucks]

2 hours ago, Hlitner said:

We have warned (on CC) for nearly two years that the US based cruise corportations, RCI, CCL and NCLH are all facing major financial challenges.  A lot to the early bookings were smoke and mirrors since many were primarily financed by Future Cruise Credits given out during the COVID shutdowns and some later cancellations.  While future bookings looked strong, the revenue was often coming out of accounts payable (a liability) rather than from new revenue.  And then the cruise lines got hit with a near perfect storm of rising fuel prices, rapidly rising food prices, the Omicron variant, airline crisis, and labor shortages.  And now we have rapidly rising interest rates at a time when the RCI, CCL and NCLH will need to refinance some existing debt and borrow additional funds to deal with a cash crunch.  

 

I disagree that their sales are "smoke and mirrors". While they didn't hit revenue, it grew 8x year over year. I think you over-estimate how much of their booking is cruise credits. Most large corporations are struggling in revenue. The whole market is tumbling. Revenue is not their over-arching problem (but more would obviously help). Large corporations with cash reserves can dip their revenue and even have a few bad quarters without major concern. The primary problem is the crippling debt they were forced to take on from unfairly being shutdown. In trying to pay that down, the conditions got even more challenging as the costs of everything surged, including the interest rates on those debts. 

[navybankerteacher]

Of course ongoing strong sales will be necessary for cruise lines to survive - but given the fact that inflation is depleting  the recreational travel budgets, and unavoidable fare increases, plus possible job losses in the (almost certain) coming recession are also likely to limit future sales,

 

Cruising will survive, but the stockholders of more than one major player are likely to lose their equity in chapter 11 reorganizations

[ontheweb]

14 hours ago, mnocket said:

Thanks.  However there seems to be another side to this coin.  If you book through a TA, any money you paid to the TA that they hadn't passed along to the provider would also not be covered (i.e. it's between you and the TA. There is no 3rd party).

 

fwiw I'd also read that it's important to confirm that the TA will use your credit card (not theirs) to make payment to the provider.

Yes, always check that the credit card payment is directly to the cruise line.

[babs135]

Does this 3rd party apply to people in the UK?

[Honolulu Blue]

18 hours ago, mnocket said:

SHOULD WE BE EXPECTING MAJOR CRUISE LINE REORGANIZATIONS AND BANKRUPCIES IN 2023?  I'm starting to think it's more likely than not.

 

17 hours ago, XBGuy said:

I'm inclined to agree with you--especially, CCL  The only question seems to be what kind of bankruptcy.  I guess reorganization would be the most likely first step.

 

16 hours ago, klfrodo said:

I wouldn't be shocked to wake up and hear that Carnival Corp. has suspended operations for reorganization purposes.

OK, let's structure this as a bet:

 

BY DECEMBER 31, 2023, WILL CARNIVAL CORPORATION, ROYAL CARIBBEAN GROUP, OR NORWEGIAN CRUISE LINE HOLDINGS DECLARE BANKRUPTCY?

 

YES +100

NO +100

 

I think the "NO" bet here would be the easiest money I'll ever make (talk to me privately if you want to be on the losing end 😛).  Even at +200/-200, the no side is where you want to be, IMHO.  I think there's maybe a 10-20% chance that any of them go busto by then.  I'll briefly explain why:

 

• All the big, publicly held cruise lines are more or less in the same boat (pun not intended) - highly levered, running close to breakeven on a cash flow basis, holding lots of cash
• COVID-19 restrictions that have depressed passenger loads are almost gone
• Other than the cash on hand, the most valuable asset the cruise lines hold are the ships.  And we all know how much they're worth when they have to be scrapped.
• I think their ability to borrow more $$$ or issue more shares isn't completely exhausted.  At some interest rate, there are institutions that will buy anything.

 

Note that I'm not saying that the cruise line stocks or bonds are a good bet.  Both are highly speculative.  But I think the best way out for the cruise lines is to generate as much cash as possible and not worry too much about their bonds or their share price.

[Mary229]

The new CEO of CCL is a lawyer by training.  I assumed when he was appointed he would be tasked with consolidation and de-acquisitions.  I would expect CCL to decommission the remaining fuel-Inefficient vessels.  I found the Costa ships moving over to the US interesting.  
 

There are many Geo-political and Econ-political headwinds for the cruise lines and us.  As famously said “hold on to your hat”

[Mary229]

12 hours ago, Joebucks said:

disagree that their sales are "smoke and mirrors". While they didn't hit revenue, it grew 8x year over year. I think you over-estimate how much of their booking is cruise credits

I agree, watching the stock market free fall and the BOE’s emergency actions clearly indicate many were caught off guard.   

[cruisemom42]

So from the news it would appear that CCL, RCL, and NCLH are -- to say the least -- facing difficult times.

 

I have a question about where Viking stands in all this. Do they, like MSC, have deep pockets?  I've often wondered how the company managed to build an entire fleet of oceangoing vessels in quite a short period of time... How was that financed?

[klfrodo]

2 hours ago, babs135 said:

Does this 3rd party apply to people in the UK?

I have zero knowledge about insurance regulations in the UK. It's taken me 15 years to learn just enough to be dangerous regarding travel insurance here in the US. 😉

Edited October 1, 2022 by klfrodo

[mnocket]

6 hours ago, Honolulu Blue said:

 

 

OK, let's structure this as a bet:

 

BY DECEMBER 31, 2023, WILL CARNIVAL CORPORATION, ROYAL CARIBBEAN GROUP, OR NORWEGIAN CRUISE LINE HOLDINGS DECLARE BANKRUPTCY?

 

YES +100

NO +100

 

I think the "NO" bet here would be the easiest money I'll ever make (talk to me privately if you want to be on the losing end 😛).  Even at +200/-200, the no side is where you want to be, IMHO.  I think there's maybe a 10-20% chance that any of them go busto by then.  I'll briefly explain why:

 

• All the big, publicly held cruise lines are more or less in the same boat (pun not intended) - highly levered, running close to breakeven on a cash flow basis, holding lots of cash
• COVID-19 restrictions that have depressed passenger loads are almost gone
• Other than the cash on hand, the most valuable asset the cruise lines hold are the ships.  And we all know how much they're worth when they have to be scrapped.
• I think their ability to borrow more $$$ or issue more shares isn't completely exhausted.  At some interest rate, there are institutions that will buy anything.

 

Note that I'm not saying that the cruise line stocks or bonds are a good bet.  Both are highly speculative.  But I think the best way out for the cruise lines is to generate as much cash as possible and not worry too much about their bonds or their share price.

This is what makes markets work.  You need buyers and sellers.  Some believe a company/sector is on the rise and others believe it's in decline.  I don't personally find your arguments compelling, but I'll place my bets in the stock market - not with private parties. fwiw  I still own some cruise line stocks, but any more news like CCL's and I'll sell them all.  My gut tells me Virgin is among the most likely to close down, but I haven't done a financial deep dive because I don't own their stock.

Edited October 1, 2022 by mnocket

[Honolulu Blue]

1 hour ago, mnocket said:

This is what makes markets work.  You need buyers and sellers.  Some believe a company/sector is on the rise and others believe it's in decline.  I don't personally find your arguments compelling, but I'll place my bets in the stock market - not with private parties. fwiw  I still own some cruise line stocks, but any more news like CCL's and I'll sell them all.  My gut tells me Virgin is among the most likely to close down, but I haven't done a financial deep dive because I don't own their stock.

Yes, this is indeed how markets work.  BTW, if you really believe your favorite cruise line is heading for reorg, then you should dump your shares right now and short it to zero.  

 

P.S.  I don't think Virgin Voyages is publicly held, so there's no easy way to buy it (or short it).  I could be wrong.  Disney IS publicly held, but the cruise line is a small part of their total operations.