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Rating Action:

Moody's confirms NCL Corporation's B2 CFR; outlook negative

15 Apr 2021

New York, April 15, 2021 -- Moody's Investors Service ("Moody's") confirmed the ratings of NCL Corporation Ltd. (along with NCL Finance, Ltd. "NCL") including its B2 corporate family rating, B2-PD probability of default rating, B1 senior secured bank facility and senior secured note rating, and Caa1 senior unsecured rating. At the same time, Moody's downgraded the company's speculative grade liquidity rating to SGL-3 from SGL-2. The outlook is negative. This concludes the review for downgrade that was initiated on February 10, 2021 for NCL Corporation Ltd. and March 2, 2021 for NCL Finance, Ltd.

"The confirmation of NCL's ratings reflects Moody's view that the growing number of vaccinated individuals in the US, coupled with good booking trends, will enable NCL to begin its recovery from more than a year of suspended operations and generate positive earnings in 2022," stated Pete Trombetta, Moody's lodging and cruise analyst. Moody's current assumptions include negative earnings in 2021 with only modest cruising returning in the second half of the year. However, success in controlling any potential confirmed COVID-19 cases on board these early cruises should help the company -- and the industry -- receive approval from various health agencies, including the Centers for Disease Control and Prevention, to ramp up operations in 2022. NCL's metrics will remain weak over the next two years -- including leverage of over 8x -- as a result of a slow ramp up in operations and the material amount of debt the company had to raise to survive this extended period of suspended operations. Over time Moody's expect demand and pricing will return, enabling the company to de-lever to a range more appropriate for the B2 rating. Moody's views the pace of vaccine distribution in the US as a social consideration under its ESG framework. The lower speculative grade liquidty rating of SGL-3 reflects Moody's revised forecast of material cash burn in 2021 with some recovery in 2022. Moody's notes that NCL has had access to the credit and equity markets over the past year, and could likely raise additional liquidity if necessary to address 2022 maturities.

Downgrades:

..Issuer: NCL Corporation Ltd.

.... Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2

Confirmations:

..Issuer: NCL Corporation Ltd.

.... Corporate Family Rating,Confirmed at B2

.... Probability of Default Rating, Confirmed at B2-PD

....Senior Secured Bank Credit Facility, Confirmed at B1 (LGD3)

....Senior Secured Regular Bond/Debenture, Confirmed at B1 (LGD3)

....Senior Unsecured Regular Bond/Debenture, Confirmed at Caa1 (LGD5)

..Issuer: NCL Finance, Ltd.

....Senior Unsecured Regular Bond/Debenture, Confirmed at Caa1 (LGD5)

Outlook Actions:

..Issuer: NCL Corporation Ltd.

....Outlook, Changed To Negative From Rating Under Review

..Issuer: NCL Finance, Ltd.

....Outlook, Changed To Negative From Rating Under Review

RATINGS RATIONALE

NCL's credit profile is supported by its adequate liquidity which will enable the company to survive this extended period of suspended operations, and Moody's 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. The company also benefits from its market position as the third largest ocean cruise operator worldwide, its well-known brand names -- Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises, as well as the historic strong performance of its new ships in terms of pricing and bookings relative to its other ships which enables the company to compete against larger rivals across all its price points.

In the short run, NCL's credit profile will be dominated by the length of time that cruise operations remain suspended, the path forward to resuming operations and the resulting impact on the company's cash consumption and its liquidity profile. The normal ongoing credit risks include its current exceptionally high leverage, the highly seasonal and capital intensive nature of cruise companies and the cruise industry's exposure to economic and industry cycles, weather incidents and geopolitical events.

The negative outlook reflects NCL's weak credit metrics, the continued uncertainty around the resumption of US cruise operations and the pace and level of recovery in demand that will enable the company to reduce leverage.

NCL has adequate liquidity represented by its cash balances of $3.3 billion at the end of 2020. Assuming a continuation of its first quarter cash burn of approximately $570 million, this cash balance is sufficient to cover another year of suspended operations. The company has no access to additional sources of committed external liquidity as it has fully drawn its committed $875 million revolver due 2024. The company has negotiated amendments to its credit facilities that suspends the testing of certain financial covenants through December 31, 2022. The company is subject to a minimum liquidity threshold of $200 million through that same period. Most of NCL's assets are encumbered either to ship level debt, the revolving credit facilities and term loans, or secured notes. Also considered is that while we view cruise ships as valuable long-term assets, we do not believe the company could sell ships quickly to raise cash, if necessary.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The outlook could be revised to stable if cruise operations resume in the US with occupancy levels, booking trends and pricing that would support positive free cash flow generation, the ability to repay debt and earnings growth trajectory that supports credit metrics returning to levels more in line with its current rating. Ratings could be upgraded if leverage is maintained below 5.5x with EBITA/interest expense sustained above 2.0x. Ratings could be downgraded if the company's liquidity weakened in any way, including a monthly cash burn rate higher than currently expected without a corresponding increase in cash deposits received. The ratings could also be downgraded if any signs emerge that the ramp up in operations will not enable the company to generate EBITDA of at least 50% of 2019 levels in 2022 or if it appears that leverage will remain above 6.5x over the longer term.

NCL Corporation Ltd., headquartered in Miami, FL, is a wholly owned subsidiary of Norwegian Cruise Line Holdings Ltd. Norwegian operates 28 cruise ships with approximately 59,000 berths under three brand names; Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises. Net revenues were about $800 million for the fiscal year ended December 31, 2020.

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_1243406.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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
Vice President - Senior 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
Client Service: 1 212 553 1653

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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