Royal Caribbean Group and Norwegian Cruise Line Holdings were put on watch for a credit-ratings downgrade amid concerns about their recent extensions of U.S. cruise suspensions into February and March.
S&P Global Ratings said it has placed Royal Caribbean Group (ticker: RCL) on credit watch negative following the suspension of cruises. It did the same for NCL, a subsidiary of Norwegian Cruise Line Holdings (NCLH) that holds debt.
In a press release this week, the rating firm said Royal Caribbean’s listing “reflects the heightened likelihood that we will lower our rating within the next few months, given a high degree of uncertainty as to Royal’s recovery path and its ability to substantially improve leverage in 2022 from what will likely be unsustainable levels in 2021.”
Royal Caribbean declined to comment on the action.
As most of its ships sit idle, Royal Caribbean, like its peers, has been burning through hundreds of millions of dollars of cash every month. In late October, the company estimated that its monthly cash burn was averaging about $250 million to $290 million “during a prolonged suspension of operations.”
As of Sept. 30, the company’s long-term debt was about $17.6 billion, more than double the $8.4 billion at the end of 2019—a reflection of the efforts Royal Caribbean has made to raise capital to stay afloat.
As has been the case all with the large cruise operators, most of Royal Caribbean’s commercial operations have been suspended since mid-March due to the pandemic. It has had a limited number of sailings outside U.S. waters. The company confirmed on Wednesday that a passenger aboard a cruise out of Singapore had contracted Covid-19.
Chris Woronka, an equity analyst at Deutsche Bank who covers the cruise companies, says that the cash burn is a big concern for the industry, even when more ships start to sail.
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