New York, June 23, 2020 -- Moody's Investors Service, ("Moody's") assigned
a Baa3 rating to Carnival Corporation's planned senior secured term
loan B (together with Carnival plc, "Carnival"). At the same
time, Moody's downgraded the company's senior unsecured
rating to Ba2 from Ba1. Carnival's other ratings are unchanged,
including its Ba1 Corporate Family Rating, Ba1-PD Probability
of Default Rating, and SGL-2 Speculative Grade Liquidity
rating. The outlook remains negative.
The proceeds of the planned $1.5 billion senior secured
term loan will be used to bolster the company's liquidity. "The
downgrade of Carnival's unsecured rating reflects the incremental
$1.5 billion of secured debt ahead of it in the capital
structure, which along with the company's March issuance of
$4 billion of senior secured notes, would account for approximately
25% of the company's total debt," stated Pete
Trombetta, Moody's lodging and cruise analyst.
Downgrades:
..Issuer: Carnival Corporation
....Senior Unsecured Shelf, Downgraded
to (P)Ba2 from (P)Ba1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba2 (LGD4) from Ba1 (LGD4)
..Issuer: Carnival plc
....Senior Unsecured Shelf, Downgraded
to (P)Ba2 from (P)Ba1
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Ba2 (LGD4)from Ba1 (LGD4)
Assignments:
..Issuer: Carnival Corporation
....Senior Secured Term Loan B, Assigned
Baa3 (LGD2)
RATINGS RATIONALE
Carnival's credit profile is supported by its position as the largest
worldwide cruise line in terms of revenues, fleet size and number
of passengers carried, with significant geographic and brand diversification.
Carnival also benefits from our view that over the long run, the
value proposition of a cruise vacation relative to land-based destinations
as well as a group of loyal cruise customers supports a base level of
demand once health safety concerns have been effectively addressed.
In the short run, Carnival's credit profile will be dominated by
the length of time that cruise operations continue to be highly disrupted
and the resulting impact on the company's cash consumption, liquidity
and credit metrics. The normal ongoing credit risks include Carnival's
near term very high leverage, which we forecast will exceed 4.0x
for at least the next two years, the highly seasonal and capital
intensive nature of cruise companies, competition with all other
vacation options, and the cruise industry's exposure to economic
and industry cycles as well as weather related incidents and geopolitical
events.
The rapid spread of the coronavirus outbreak and deteriorating global
economic outlook are creating a severe and extensive credit shock across
many sectors, regions and markets. The combined credit effects
of these developments are unprecedented. The cruise sector has
been one of the sectors most significantly affected by the shock given
its sensitivity to consumer demand and sentiment. More specifically,
Carnival's exposure to increased travel restrictions has left it vulnerable
to shifts in market sentiment in these unprecedented operating conditions
and the company remains vulnerable to the continued uncertainty around
the potential recovery from the outbreak. We regard the coronavirus
outbreak as a social risk under our ESG framework, given the substantial
implications for public health and safety. Today's action reflects
the impact on Carnival from the breadth and severity of the shock,
and the broad deterioration in credit quality it has triggered.
The negative outlook reflects Carnival's high leverage and the uncertainty
around pace and level of the recovery in demand that will enable the company
to de-lever to below 4.5x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to a downgrade include indications over the coming
months that 2021 demand recovery may be weaker than expected resulting
in lower profitability or an expectation that debt/EBITDA will remain
above 4.5x or EBITA/interest expense was stabilized below 3.0x.
Ratings could also be downgraded if the level of free cash flow deficits
deepen in 2020 or should liquidity deteriorate for any reason.
The outlook could be revised to stable if operations resume and demand
shows good recovery trends in 2021 resulting in leverage approaching 4.5x.
Given the negative outlook an upgrade is unlikely over the near term.
However, ratings could eventually be upgraded if the company can
maintain debt/EBITDA below 3.5x, and EBITA/interest expense
above 5.0x. A ratings upgrade would also require a financial
policy and capital structure that supports the credit profile required
of an investment grade rating through inevitable industry downturns.
Carnival Corporation and Carnival plc own the world's largest passenger
cruise fleet operating under multiple brands including Carnival Cruise
Line, Holland America, Princess Cruises, AIDA Cruises,
Costa Cruises, and P&O Cruises, among others. Carnival
Corporation and Carnival plc operate as a dual listed company.
Headquartered in Miami, Florida, US and Southampton,
United Kingdom. Annual net revenues for fiscal 2019 were approximately
$16 billion.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy
for Designating and Assigning Unsolicited Credit Ratings available on
its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
At least one ESG consideration was material to the credit rating action(s)
announced and described above.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
Further information on the EU endorsement status and on the Moody's
office that issued the credit rating is available on www.moodys.com.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Peter Trombetta
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Margaret Taylor
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
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