New York, August 24, 2020 -- Moody's Investors Service, ("Moody's") downgraded
the ratings of Royal Caribbean Cruises Ltd. ("Royal Caribbean")
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, 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 Royal Caribbean's
metrics will remain weak over at least the next two years with debt/EBITDA
of above 6.5x and EBITA/interest expense below 3.0x,"
stated Pete Trombetta, Moody's lodging and cruise analyst.
"The downgrade also reflects our assumption that Royal Caribbean'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. Royal
Caribbean's liquidity, which includes cash balances of about
$4.2 billion at June 30, 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 Royal Caribbean 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: Royal Caribbean Cruises Ltd.
.... Probability of Default Rating,
Downgraded to B1-PD from Ba1-PD
.... Corporate Family Rating, Downgraded
to B1 from Ba1
....Senior Secured Regular Bond/Debenture,
Downgraded to Ba2 (LGD2) from Baa3 (LGD2)
....Senior Unsecured Regular Bond/Debenture,
Downgraded to B2 (LGD4) from Ba2 (LGD4)
..Issuer: Silversea Cruise Finance Ltd.
....Senior Secured Regular Bond/Debenture,
Downgraded to Ba2 (LGD2) from Baa3 (LGD2)
Outlook Actions:
..Issuer: Royal Caribbean Cruises Ltd.
....Outlook, Changed To Negative From
Rating Under Review
..Issuer: Silversea Cruise Finance Ltd.
....Outlook, Changed To Negative From
Rating Under Review
RATINGS RATIONALE
Royal Caribbean's credit profile is supported by its good liquidity and
solid market position as the second largest global ocean cruise operator
based upon capacity and revenue which acknowledges the strength of its
brands. Royal Caribbean is well diversified by geography,
brand, and market segment. In the short run, Royal
Caribbean'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. However
over the long run, the value proposition of a cruise vacation as
well as a group of loyal cruise customers supports a base level of demand
once health safety concerns have been effectively addressed. The
normal ongoing credit risks include the company's 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. For the LTM period ended
June 30, 2020, Royal Caribbean's debt/EBITDA has weakened
to 12.5x and EBITA/interest was 0.4x. Moody's expects
these metrics to continue to weaken over the next twelve months before
beginning to recover in the second half of 2021.
The negative outlook reflects Royal Caribbean's high leverage and
the uncertainty around the pace and level of recovery in demand that will
enable the company to de-lever to below 5.5x.
Royal Caribbean's liquidity is good. Moody's expects
the company's cash balances, which totaled about $4.2
billion at June 30, are sufficient to cover the company's
cash needs over the next 12 to 18 months. The company has entered
into agreements to amend all of its export credit facilities and certain
of its non-export credit facilities to waive compliance with its
financial covenants through the fourth quarter of 2021 and is only subject
to a minimum liquidity covenant of $500 million --
the minimum liquidity requirement decreases to $350 million when
the company raises additional capital. The company's combined
$3.5 billion revolver commitments are fully utilized.
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.
Royal Caribbean (operating under the name Royal Caribbean Group) is a
global vacation company that operates four wholly-owned cruise
brands, including Royal Caribbean International, Celebrity
Cruises, Azamara and Silversea. The company's brands operate
a combined 63 ships. Net revenue for fiscal 2019 was $8.7
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
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rating and, if applicable, the related rating outlook or rating
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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
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am Main 60322, Germany, in accordance with Art.4 paragraph
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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.
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