KEY
POINTS
- Norwegian Cruise Line said there is “substantial
doubt” about its ability to continue as a “going concern” as the coronavirus
pandemic wreaks havoc on the industry.
- The company also announced it expects to report
a loss for the quarter ended March 31 and on the year.
- Separately, the company announced Tuesday
morning that L Catterton, a private equity fund, invested $400 million in NCL
Corporation, a subsidiary of Norwegian.
Norwegian Cruise
Line warned on Tuesday that it may have to seek bankruptcy protection, saying
there’s “substantial doubt” about its ability to continue as a “going concern”
as the coronavirus pandemic wreaks havoc on the industry.
Shares of the
company fell more than 19% in early trading on the news.
In a
securities filing, Norwegian said it was in compliance with all of its debt
agreements as of March 31, but it couldn’t guarantee that it may need to seek
waivers from its lenders. If it cannot amend its credit agreements, the company
said it is at risk of default, which would trigger immediate repayment of most
of its debt and derivatives contracts. That puts it at risk of bankruptcy.
The company
also announced that L Catterton, a private equity fund, invested $400 million
in NCL Corp., a subsidiary of Norwegian. Under the agreement, L Catterton will
be entitled to nominate one member to the board.
“We are
pleased to execute this agreement with L Catterton, the largest and most global
consumer-focused private equity firm in the world,” CEO of Norwegian Frank Del
Rio said in a statement.
The company
hopes to raise another $1.6 billion from issuing a mix of stock and bonds. The
L Catterton investment is contingent on the company raising at least $1 billion
from other investors.
The
coronavirus outbreak, “including its effect on the ability or desire of people
to travel (including on cruises), is expected to continue to impact our
results, operations, outlook, plans, goals, growth, reputation, cash flows,
liquidity, demand for voyages and share price,” the filing said. “These factors
have raised substantial doubt about the company’s ability to continue as a
going concern.”
It said if
it’s not able to maintain enough liquidity, “our business and financial
condition could be adversely affected and it may be necessary for us to
reorganize our company in its entirety, including through bankruptcy proceedings, and our shareholders
may lose their investment in our ordinary shares.”
The company
also announced it expects to report a loss for the quarter ended March 31 and
on the year.
The
coronavirus pandemic has brought the global travel industry, and the cruise
industry in particular, to a standstill across the world. Norwegian, the
smallest of the three major publicly traded cruise companies, said it had
roughly $6 billion in long-term debt obligations as of Dec. 31.
In March, the
company fully drew down an $875 million revolving credit facility and a
separate $675 million revolving credit line. The latter matures on March 4,
2021.
In early
March, as the virus spread rapidly among some cruise passengers, the State Department
warned Americans against traveling by cruise ship. On March 14, the Centers for
Disease Control and Prevention issued a no-sail order for cruise ships,
extending it on April 9 until July 24.
“This is the
first time that we have completely suspended cruise voyages, and as a result of
these unprecedented circumstances, we are not able to predict the full impact
of such a suspension on our company,” Norwegian said.
The company
is preparing to provide cash refunds for passengers whose cruises were canceled.
While the company is also offering 125% future cruise credits, it said
“approximately half of the guests who have had their voyages cancelled and who
have contacted us have requested cash refunds.”
Even if
guests accept the credit, the company warned of diminished future revenue when
the company can resume sailing.
“We cannot
predict when any of our ships will begin to sail again or when ports will
reopen to our ships,” it said. “Moreover, even once travel advisories and
restrictions are lifted, demand for cruises may remain weak for a significant
length of time and we cannot predict if and when each brand will return to
pre-outbreak demand or pricing.”
The company
also said it is cutting capital expenditures by $515 million and has furloughed
20% of its shoreside staff.
The news
comes after competitor Carnival Corp., the world’s largest cruise company,
announced Monday that its Carnival Cruise Line will resume some North American
sailings on Aug. 1.
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