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Rating Action:

Moody's downgrades Carnival's unsecured rating to Ba1, assigns Ba1 CFR, outlook is negative

18 May 2020

New York, May 18, 2020 -- Moody's Investors Service, ("Moody's") downgraded the ratings of Carnival Corporation and Carnival plc (together, "Carnival") including its senior unsecured rating to Ba1 from Baa3, senior secured rating to Baa3 from Baa2, and short term commercial paper rating to non-Prime from P-3. Concurrently, Moody's assigned a Ba1 Corporate Family Rating, Ba1-PD Probability of Default Rating, and a Speculative Grade Liquidity Rating of SGL-2. The Baa3 secured rating includes Carnival's 2027 notes that transitioned from unsecured to secured with the closing of the recent debt raise. The outlook is negative. This concludes the review for downgrade that was initiated on March 11, 2020.

"The downgrades reflect the risks Carnival faces as its operations continue to be suspended and Moody's expectation of a slow recovery resulting in financial metrics that are not indicative of an investment grade rating for the foreseeable future," stated Pete Trombetta, Moody's lodging and cruise analyst. "Moody's current assumption is that cruise operations will continue to be suspended in the US beyond the current July 24 no-cruise order issued by the Centers for Disease Control and Prevention (CDC) and available capacity will be modest for the remainder of 2020 and into early 2021 as the risk of fully restarting operations before proper safety protocols are in place far exceed the potential benefits," added Trombetta. When cruise operations do resume, Moody's assumption is that deployed cruise ships will have limits on the occupancy for each ship while social distancing rules remain in place which will lead to lower ship-level profitability during this period.

Downgrades:

..Issuer: Carnival Corporation

....Senior Unsecured Shelf, Downgraded to (P)Ba1 from (P)Baa3, Previously on Review for Downgrade

....Senior Secured Regular Bond/Debenture, Downgraded to Baa3 (LGD2) from Baa2, Previously on Review for Downgrade

....Senior Unsecured Commercial Paper, Downgraded to NP from P-3, Previously on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 (LGD4) from Baa3, Previously on Review for Downgrade

..Issuer: Carnival plc

....Senior Unsecured Shelf , Downgraded to (P)Ba1 from (P)Baa3, Previously on Review for Downgrade

....Senior Unsecured Commercial Paper, Downgraded to NP from P-3, Previously on Review for Downgrade

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba1 (LGD4) from Baa3, Previously on Review for Downgrade

..Issuer: Long Beach (City of) CA

....Senior Secured Revenue Bonds, Downgraded to Baa3 (LGD2) from Baa2, Previously on Review for Downgrade

Assignments:

..Issuer: Carnival Corporation

.... Probability of Default Rating, Assigned Ba1-PD

.... Speculative Grade Liquidity Rating, Assigned SGL-2

.... Corporate Family Rating, Assigned Ba1

Rating Confirmations:

..Issuer: Carnival plc

....Senior Secured Regular Bond/Debenture (Previously Senior Unsecured), Confirmed Baa3 (LGD2 assigned), Previously on Review for Downgrade

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

The rapid 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 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.

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 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. Independent of any change to the Corporate Family Rating, the unsecured rating could be downgraded if the company were to issue additional secured debt. 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 216 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
Client Service: 1 212 553 1653

No Related Data.
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