New York, March 31, 2020 -- Moody's Investors Service, ("Moody's") downgraded
the ratings of Carnival Corporation and Carnival plc (together,
"Carnival") including its senior unsecured ratings to Baa3
from Baa1 and short term rating for commercial paper to Prime-3
from Prime-2. At the same time, Moody's assigned
a Baa2 rating to the company's planned $3.0 billion
senior secured note issuance. The ratings are on review for downgrade.
"The downgrade to Baa3 reflects the unprecedented impact the global
spread of the coronavirus (COVID-19) is having on the cruise industry,
including the suspension of all sailing operations for Carnival's
brands for at least 30 days," stated Pete Trombetta,
Moody's lodging and cruise analyst. "Our base case
assumption is that cruise operations in the US will be suspended through
June 30, resulting in highly negative free cash flow, and
that there will be a slow recovery when sailings resume. We expect
that earnings will improve in 2021 and that bookings will be weak compared
to 2019, which will result in Carnival's debt/EBITDA approximating
4.5x as of year-end 2021," added Trombetta.
On March 13 Carnival announced that each of its brands had suspended operations
for at least a month because of the spread of the coronavirus, and
recently announced several of its brands have extended the suspension
by another 30 days. Because of increased travel restrictions,
and the number of cities that are limiting group gatherings in public
places, Moody's anticipates that cruise lines will have to
extend the suspension through the end of June.
Downgrades:
..Issuer: Carnival Corporation
....Senior Unsecured Shelf, Downgraded
to (P)Baa3 from (P)Baa1; Remains Under Review for further Downgrade
....Senior Unsecured Commercial Paper,
Downgraded to P-3 from P-2; Remains Under Review for
further Downgrade
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa3 from Baa1; Remains Under Review for further Downgrade
..Issuer: Carnival plc
....Senior Unsecured Shelf, Downgraded
to (P)Baa3 from (P)Baa1; Remains Under Review for further Downgrade
....Senior Unsecured Commercial Paper,
Downgraded to P-3 from P-2; Remains Under Review for
further Downgrade
....Senior Unsecured Regular Bond/Debenture,
Downgraded to Baa3 from Baa1; Remains Under Review for further Downgrade
..Issuer: Long Beach (City of) CA
....Senior Secured Revenue Bonds, Downgraded
to Baa2 from Baa1; Remains Under Review for further Downgrade
Assignments:
..Issuer: Carnival Corporation
....Senior Secured Regular Bond/Debenture,
Assigned Baa2; Placed Under Review for Downgrade
RATINGS RATIONALE
The rapid and widening spread of the coronavirus outbreak, deteriorating
global economic outlook, and asset price declines 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 outbreak continuing to spread.
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.
Carnival's credit profile derives support 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. Carnival also benefits from our view that,
under normal circumstances over the long-run, industrywide
capacity will increase but capacity expansion will remain at a rational
level as a result of supply constraints. In addition, we
currently expect that when the coronavirus outbreak is eventually brought
under control and people gradually become comfortable with traveling again,
travel interest will revive sufficiently to match the expected supply
increases in the cruise sector. Cruises offer a favorable value
proposition relative to land-based vacations.
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 impacts on the company's cash consumption and
its liquidity profile. The normal ongoing credit risks include
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 review will focus on Carnival's ability to reduce expenses,
its success in limiting customer deposit outflows, and its ability
to take other actions to preserve liquidity during this period of significant
earnings decline. The review will also consider the possibility
of operations being suspended beyond June 30, and the potential
impact on the industry over the next two years, including the pace
at which customers will resume cruising again. Our current assumption
is that cruise operations will be suspended through June 30, with
diminished occupancy and net yield in the third quarter and fourth quarter.
We forecast that earnings will recover in 2021, but not back to
the levels of 2019. If its proposed fund raising actions are completed
Carnival will have a substantial cash balance of about $9 billion
-- including proceeds from a $3.0 billion senior secured
note issuance, $1.75 billion senior unsecured convertible
note issuance and $1.25 billion of common equity.
Moody's will assess the potential severity and duration of the drop in
earnings, and the effects on the company's key ratios and liquidity.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that could lead to a downgrade include operations being suspended
for longer than our base case assumption or updated expectations for a
weaker recovery, resulting in debt/EBITDA remaining above 4.5x
at the end of 2021 or an expectation that debt/EBITDA will remain above
3.75 longer term. Factors that could lead to a ratings confirmation
include operations ramping up in early July and signs of good demand trends
for the second half of 2020 and 2021, leading to an expectation
that the company's finances will stabilize in the near term and
that debt/EBITDA will approach 3.75x over the medium term.
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 outcome
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
Client Service: 1 212 553 1653
