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Rating Action:

MOODY'S CONFIRMS CARNIVAL'S A3 LONG-TERM RATING; UPGRADES CARNIVAL plc's LONG-TERM RATING TO A3; OUTLOOK STABLE

03 Feb 2004
MOODY'S CONFIRMS CARNIVAL'S A3 LONG-TERM RATING; UPGRADES CARNIVAL plc's LONG-TERM RATING TO A3; OUTLOOK STABLE

Approximately $7.4 Billion of Debt Affected.

New York, February 03, 2004 -- Moody's Investors Service confirmed the A3 long-term and Prime-2 short-term ratings of Carnival Corporation (Corp), and upgraded the long-term debt of Carnival plc (formerly P&O Princess Cruises plc) to A3. This completes the review of each company's ratings that commenced on April 14, 2003.

This rating action reflects: 1. the reduction in effective subordination in the capital structure of the combined entities; 2. the implementation of appropriate cross guarantees from plc and POPCIL (P&O Princess Cruises International Limited) to Corp's existing bondholders and from Corp to plc's existing bondholders; and 3. Moody's expectation that the combined entity's credit statistics will improve in 2004 and 2005.

Specifically, plc has obtained the release of collateral from various lenders covering approximately $675 million of debt at POPCIL, and appropriate cross guarantees between Corp, plc and POPCIL have been put in place. The ratings consider Moody's view that with the implementation of the cross guarantees, the combination of plc and Corp results in a unified economic entity with substantial scale, leading market share, and complementary well-known brands. The only debt that will not benefit from cross guarantees is some subsidiary debt of Corp and a small amount of secured debt at plc. Moody's notes that about 31% of the combined companies' total debt is either effectively or structurally senior to the unsecured debt of Corp and plc and that total secured and subsidiary debt in the capital structure is likely to increase slightly in 2004 as committed secured debt facilities are drawn to finance ship deliveries. The combined entity currently has approximately $1.2 billion in debt at subsidiaries, and about $1.0 billion of secured debt. This high level of effective and structural subordination is acceptable given that a substantial portion of assets are held directly by Corp, as well as our expectation that the company will finance itself primarily with unsecured debt (other than existing secured debt commitments) in the future.

Carnival's relatively conservative financial management, and experienced management team are considered to be credit positives. Carnival is weakly positioned in the current rating category, but given the improving economic outlook and improving demand and pricing trends in the industry, the rating outlook is stable. However, Carnival's ratings and/or rating outlook remain vulnerable to downward pressure given the company's position as a net borrower in 2004 and Moody's is concerned that demand and pricing may not keep pace with capacity expansion as the year progresses which could cause credit statistics to weaken quickly. Thus, Carnival's ratings or rating outlook could be adversely impacted if net bookings fail to keep pace with capacity additions at prices above 2003 levels or if credit statistics (particularly retained cash flow to debt) do not improve in 2004 and 2005. Cruise pricing on a per available lower berth day basis remains well below the peak levels achieved in 1999, and capacity expansion, sustainability of the economic recovery, and geopolitical risks continue to be significant risk factors. Moody's notes that on a combined entity basis, 2003 pro-forma retained cash flow to total adjusted debt is estimated to be around 25%, and EBIT to interest to be about 6.5x. Credit statistics are expected to improve in 2004 as growth in earnings due to capacity additions should outpace increases in debt. Together Carnival and plc have 12 ships on order for delivery through 2006.

The company has sufficient liquidity in the form of committed revolving credit facilities to meet their cash needs. Corp maintains a $1.4 billion revolving credit facility that matures in June 2006, and plc has committed lines of credit of $710 million that mature in September 2005, and undrawn committed secured financing facilities of about $750 million. There are no significant debt maturities in 2003 or 2004; however, Corp's convertible debt issues are puttable in 2005, 2006, and 2008.

A dual listed company structure allows the two companies to effectively merge while remaining as separate legal and publicly listed entities. This was accomplished through a series of agreements that equalized the voting and economic interests of shareholders of each company, and established corporate governance procedures. Pursuant to the DLC documentation, debt issued in the future by either plc or Corp will be automatically guaranteed by the other and POPCIL. Additionally, in an effort to align more closely the business, management and geography of Corp and plc's business units, these entities are currently undergoing a legal restructuring of their respective business units. The reorganization may include POPCIL's transfer of substantially all of its assets to Corp and plc, and as a result the deed of guaranty by POPCIL will automatically terminate in accordance with its terms. This reorganization is expected to be substantially complete by the end of the second quarter. Moody's views this potential reorganization as a slight positive since more assets will be held at the plc and Corp entities thereby improving the position of the unsecured creditors of these entities.

Ratings confirmed:

Carnival Corporation (guaranteed by plc, and POPCIL)

- Commercial paper at Prime-2.

- Senior unsecured notes, debentures, and convertible notes at A3.

- Senior unsecured shelf registration at (P)A3.

- Subordinated shelf registration at (P)Baa1.

- Preferred stock shelf registration at (P)Baa2.

Costa Finance S.A.

- Senior unsecured Euro notes, guaranteed by Carnival Corporation at A3.

Ratings upgraded:

Carnival plc (guaranteed by POPCIL, and Corp)

- Senior unsecured notes to A3 from Baa3.

Carnival Corporation and plc, headquartered in Miami, Florida, and its subsidiaries operate 12 cruise brands in North America, Europe and Australia under the names, Carnival Cruise Lines, Holland America Line, Princess Cruises, Seabourn Cruise Line, Windstar Cruises, AIDA, Costa Cruises, Cunard Line, Ocean Village, P&O Cruises, Swan Hellenic, and P&O Cruises Australia. During the year ended November 30, 2002, Carnival's reported revenues were approximately $6.7 billion which included plc from the date of the combination.

New York
Tom Marshella
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Peggy Holloway
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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