New York, August 24, 2020 -- Moody's Investors Service, ("Moody's") downgraded
the ratings of Carnival Corporation and Carnival plc (together "Carnival")
including its Corporate Family Rating to B1 from Ba1, Probability
of Default Rating to B1-PD from Ba1-PD, senior secured
rating to Ba2 from Baa3, senior secured second lien rating to B1
from Ba1, and senior unsecured rating to B2 from Ba2. The
company's Speculative Grade Liquidity rating of SGL-2 remains unchanged.
The outlook is negative. This concludes the review for downgrade
that was initiated on July 14, 2020.
"The downgrade reflects Moody's expectation that Carnival's
metrics will remain weak over at least the next two years with debt/EBITDA
well above 6.5x and EBITA/interest expense below 2.0x,"
stated Pete Trombetta, Moody's lodging and cruise analyst.
"The downgrade also reflects our assumption that Carnival's
available capacity will be modest in the first half of 2021 as the industry
puts in place acceptable guidelines that satisfy the requirements for
the Centers for Disease Control and Prevention (CDC) to lift its no sail
order put in place in March," added Trombetta. Carnival's
liquidity, including about $8.8 billion (pro forma
for its recent second lien debt issuance), provides the company
sufficient runway to get through this period of unprecedented earnings
pressure.
The rapid spread of the coronavirus outbreak, deteriorating global
economic outlook, and high asset price volatility have created an
unprecedented credit shock across a range of sectors and regions.
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 deterioration
in credit quality it has triggered, given its exposure to travel
restrictions in the US, which has left it vulnerable to shifts in
market demand and sentiment in these unprecedented operating conditions.
Downgrades:
..Issuer: Carnival Corporation
.... Probability of Default Rating,
Downgraded to B1-PD from Ba1-PD
.... Corporate Family Rating, Downgraded
to B1 from Ba1
....Senior Unsecured Shelf, Downgraded
to (P)B2 from (P)Ba2
....Senior Secured Bank Credit Facility,
Downgraded to Ba2 (LGD2) from Baa3 (LGD2)
....Senior Secured 2nd Lien Regular Bond/Debenture,
Downgraded to B1 (LGD3) from Ba1 (LGD3)
....Senior Secured 1st Lien Regular Bond/Debenture,
Downgraded to Ba2 (LGD2) from Baa3 (LGD2)
....Senior Unsecured Regular Bond/Debenture,
Downgraded to B2 (LGD5) from Ba2 (LGD5)
..Issuer: Carnival plc
....Senior Unsecured Shelf, Downgraded
to (P)B2 from (P)Ba2
....Senior Secured Regular Bond/Debenture,
Downgraded to Ba2 (LGD2) from Baa3 (LGD2)
....Senior Unsecured Regular Bond/Debenture,
Downgraded to B2 (LGD5) from Ba2 (LGD5)
..Issuer: Long Beach (City of) CA
....Senior Secured Revenue Bonds, Downgraded
to Ba2 (LGD2) from Baa3 (LGD2)
Outlook Actions:
..Issuer: Carnival Corporation
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Carnival plc
....Outlook, Changed To Negative From
Rating Under Review
RATINGS RATIONALE
Carnival's credit profile is supported by its good liquidity given its
significant cash balances 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 position
as the largest worldwide cruise line in terms of revenues, fleet
size and number of passengers carried, with significant geographic
and brand diversification. 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,
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. At the end of the second quarter 2020,
Carnival's debt/EBITDA had weakened to 8.2x and EBITA/interest
expense was 1.2x. Moody's expects Carnival's leverage and
coverage metrics to continue to weaken over the next twelve months at
which point they will begin a slow recovery.
The negative outlook reflects Carnival's very high leverage and
the uncertainty around the pace and level of recovery in demand that will
enable the company to reduce leverage to below 5.5x.
Carnival's liquidity is good. Moody's expects the company's
cash balances, about $8.8 billion (pro forma for its
recent second lien debt issuance), to be sufficient to cover the
company's cash needs over the next 12 to 18 months. Carnival
has entered into several amendments that have waived its required covenant
compliance under several export agreements and bank agreements through
2021. The company's $3.0 billion revolver is
fully drawn. The company's ability to access alternate forms
of liquidity are deemed to be modest in the current operating environment.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded further in the near term if the company's
liquidity weakened in any way or if the recovery in cruising activity
is delayed beyond our base assumptions which include a resumption of US
cruising in the first half of 2021 with capacity days reaching at least
65% of their 2019 levels and occupancy reaching at least 70%
by the second quarter with continued improvement from there. The
ratings could also be downgraded if there are indications that the company
is not on a path to restoring leverage to a sustainable level.
The outlook could be revised to stable if the impacts from the spread
of the coronavirus stabilizes and cruise operations resume at a level
that enables the company to maintain debt/EBITDA below 5.5x.
Ratings could be upgraded if the company is able to maintain leverage
below 4.5x with EBITA/interest expense of at least 3.0x.
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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