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Rating Action:

Moody's upgrades Royal Caribbean to Baa2, assigns a P-2 CP rating

18 Jun 2018

New York, June 18, 2018 -- Moody's Investors Service ("Moody's") upgraded Royal Caribbean Cruises Ltd.'s senior unsecured rating to Baa2 from Baa3 and assigned a P-2 rating to the company's planned $1.15 billion commercial paper program. The rating outlook is stable.

"The upgrade to Baa2 reflects Moody's expectation that Royal Caribbean will benefit from strong booking trends, increased onboard spending and the introduction of new ships which will enable the company to maintain leverage below 3.5x," stated Pete Trombetta, Moody's lead lodging and cruise analyst. "The upgrade also reflects the company's improved liquidity position, including reduced outstandings under its committed revolving credit facilities," added Trombetta. The P-2 commercial paper rating reflects RCL's adequate liquidity, supported by its strong free cash flow generation which is sufficient to cover debt maturities over the next 24 months. Constraining the company's liquidity profile is the large cash outflows related to new ship deliveries which cause spikes in capital expenditures throughout the year. RCL also has a $1.4 billion revolver due 2020 and a $1.2 billion revolver due in 2022 (combined outstandings of about $700 million at March 31, 2018). The revolvers do not require a material adverse change representation at borrowing, but do contain financial covenants which we expect will maintain ample headroom.

Upgrades:

..Issuer: Royal Caribbean Cruises Ltd.

....Senior Unsecured Regular Bond/Debenture, Upgraded to Baa2 from Baa3

Outlook Actions:

..Issuer: Royal Caribbean Cruises Ltd.

....Outlook, Remains Stable

Assignments:

..Issuer: Royal Caribbean Cruises Ltd.

....Senior Unsecured Commercial Paper, Assigned P-2

RATINGS RATIONALE

Royal Caribbean Cruises Ltd.'s (RCL) credit profile benefits from its solid market position as the second largest global ocean cruise operator based upon capacity and revenue which acknowledges the strength of its brands. RCL is well diversified by geography, brand, and market segment. We expect RCL's debt/EBITDA will remain in line with its stated leverage target of between 3.0x and 3.5x. We anticipate that RCL will borrow to fund share repurchases and new ship deliveries but only to the extent that leverage remains in line with its target. The company, along with all cruise lines, benefits from capacity expansion that will remain at a rational level as a result of supply constraints and that the value proposition of a cruise vacation will support continued penetration of the vacation market by cruise operators. Key credit risks include the highly seasonal and capital intensive nature of cruise companies and the cruise industry's moderate exposure to economic and industry cycles.

The stable outlook acknowledges that we expect RCL to maintain leverage below 3.5x over the next 12 to 18 months with EBITA/interest improving to above 6.0x as it absorbs the Silversea transaction and refinances that company's high priced debt.

RCL has an adequate liquidity profile reflecting Moody's expectation that its internal cash flow, cash balances, committed ship loans, and revolving credit facilities, will cover maintenance capital spending, ship progress payments, dividends, and mandatory debt amortization of its ship loans. We estimate that RCL will generate sufficient free cash flow in 2018 to cover its mandatory ship loan amortization payments and debt service needs. Although not presently of significant concern, RCL's cash flows would decline if the degree of exemption from tax on U.S. source income were to decline. RCL maintains access to a $1.4 billion committed revolver that expires in 2020 as well as a $1.2 billion revolver that expires in August 2022. RCL paid down its revolver outstandings in 2017 and at March 31, 2018 had about $2.0 billion of availability under its revolvers. As an alternate source of liquidity, RCL's ships that are unencumbered could be used to raise cash through new secured borrowings. However, we do not assume that this will occur. Additionally, while unencumbered ships could be sold, the secondary market for cruise ships is limited.

RCL is planning a $1.15 billion commercial paper program (rated Prime-2) that will be used for general corporate purposes and is fully backed by the company's revolving credit facilities. Moody's anticipates RCL will maintain sufficient availability under its $2.6 billion of revolver commitments to cover the commercial paper program and about 25% of borrowings for general purposes. The revolver allows for same day availability and contains no material adverse change representation at time of borrowing. The company's revolving credit facilities are subject to two financial covenants, fixed charge coverage of at least 1.25x and net debt/capital of less than 62.5%, with good headroom.

Ratings could be upgraded should RCL reduce and maintain debt/EBITDA below 2.5x and improve EBITA/interest expense above 8.0x. Ratings could be downgraded if debt/EBITDA increased to above 3.5x or EBITA/interest was sustained below 6.0x. Any deterioration in liquidity could also cause rating pressure.

RCL is a global vacation company that, post-closing of the Silversea transaction, operates seven brands (including three through joint ventures) -- the largest being Royal Caribbean International (RCI) and Celebrity Cruises. The seven brands operate a combined 59 cruise ships with an aggregate capacity of about 133,000 berths. We estiamte annual net revenues, pro forma for the Silversea transaction, are about $7.6 billion.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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

Janice Hofferber, CFA
MD - Corporate Finance
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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