Carnival Cruise Line is in the market looking for $4bn of funding to shore up their balance sheet. With the current restrictions in place regarding sailing, the business is in desperate need of liquidity to stay afloat. The company initially came to market with a multi-tranche deal, selling notes in both US dollars and euros, making this the first euro high yield new issue since the market downturn at the beginning of March. The euro leg of the deal was dropped before books were set to close and the dollar bond sale was bumped up from $3 billion to $4 billion. This move highlights the continued weakness in European high yield and the hesitance from companies to issue debt in this market.

Just one month ago Carnival was rated A- but has since been downgraded to BBB- as the coronavirus restricts the business from operating. Subsequent to this new deal the business will have enough liquidity to survive until November. However, this funding comes at a cost. Despite the investment grade rating, investors are expecting an attractive compensation on the notes, of over 11%. The new bonds which are only three years in length are secured on the majority of the company’s fleet as well as other assets, with a combined book value of $28bn. Optically this suggests that that debt is extremely well covered should the business run of out of liquidity. With only 0.6x turns of leverage through these notes, should the business not navigate out of these choppy waters, we believe bond holders would be well covered on any emergence from Chapter 11.

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