Royal Caribbean (NYSE: RCL) is the world’s second-largest cruise operator with 23% of global passenger market share. Royal Caribbean Cruises has an active fleet of 25 ships across 8 different tiers and another 6 ships pending delivery soon. The travel and entertainment sectors have been the worst affected sectors of the global COVID-19 pandemic.
To curb the spread of the coronavirus, countries, and governments all across the world have imposed lockdowns and travel bans. In March, the entire cruise industry was brought to a standstill as the CDC(Center for Disease Control) put in effect a no sail order till the 24thof July. The ban on sailing was harsh news for cruise line operators due to the exceptionally high operating costs of the business and the debt on their balance sheets. Royal Caribbean management expects cash burn during the shutdown period to be a mammoth $150 million a month.(Telegraph)
The outbreak of the virus has the potential to put a permanent dent in the cruise business as social distancing becomes a more widespread practice and it is a practice that cannot be incorporated into the cruise business model. The company has been forced to fire 26% of its workforce so far this year. As of Thursday, the stock is trading 74% down YTD at a price hovering around $34 at a P/E multiple of 3.86.
The company announced a new $3.3 billion collateralized debt offering on Thursday after management stated an expected operating loss for the quarter to be $453 million due to the pandemic. The debt offering is secured by 28 ships being placed as collateral (MarketWatch). The company’s fleet had a total book value of about $22.7 billion at the end of last quarter. The company will be using the proceeds from the offering to cover it’s $2.35 billion senior secured debt owed to Morgan Stanley, the remaining amount will also go towards repayment of debts. (Yahoo Finance)
The company issued it’s preliminary earnings guidance this week, stating an expected $1.44 billion loss for the Q1. Of the expected $1.44 billion loss, roughly $450 million are operating losses while the rest are asset value write-downs on their fleet. The report also stated an expected cash burn of $250 million to $275 million a month in the event of an extension of the no-sail order.