New York, September 14, 2022 — Moody’s Investors Service (“Moody’s”) has affirmed the ratings of NCL Corporation Ltd. (“NCL”), including its corporate family rating (CFR) at B2, probability of default (PDR) rating at B2 – PD, senior secured rating and senior secured bank credit facility rating at B1 and its senior unsecured rating at Caa1. The company’s speculative liquidity rating, SGL-3, remains unchanged. The outlook is negative.
“This assertion reflects Moody’s view that NCL’s pricing discipline and significant capacity increase over the coming years positions the company well to benefit from strong booking trends and significantly reduce the effect leverage in 2023 and beyond,” said Pete Trombetta, vice president and principal analyst at Moody’s. In the second quarter of 2022, NCL’s net revenue per cruise-passenger day was 11% higher than the same quarter in 2019. This will drive occupancy improvements from late competitors discounting for fill vessels in the near term and will again contribute to negative EBITDA in 2022. However, booking trends indicate that 2023 will see load factors close to 2019 levels and at higher prices, which will allow the business to generate at least pre-pandemic EBITDA levels.
The negative outlook reflects continued uncertainty around the pace of deleveraging, particularly in light of rising interest rates and significant capital expenditure on new vessels over the next 18 months, which will limit capacity company to reduce its debt balance. The negative outlook also reflects some upcoming refinancing needs. While the company’s liquidity is currently adequate, its fully drawn $1.5 billion term loan and $875 million revolver will come into effect in January 2023.
Statement:
..Issuer: NCL Corporation Ltd.
…. Classification of the family of companies, confirmed B2
…. Probability of default rating, confirmed B2-PD
….Senior secured bank credit facility, confirmed B1 (LGD3)
….B1 Senior Secured Regular Bond/Debenture, Confirmed (LGD3)
….Senior Regular Unsecured Bond/Debenture, Confirmed Caa1 (LGD6) of (LGD5)
..Issuer: NCL Finance, Ltd.
….Senior Regular Unsecured Bond/Debenture, Confirmed Caa1 (LGD6) of (LGD5)
Outlook Actions:
..Issuer: NCL Corporation Ltd.
….Outlook, remains negative
..Issuer: NCL Finance, Ltd.
….Outlook, remains negative
RATINGS RATIONALE
NCL’s credit profile benefits from its market position as the world’s third largest ocean cruise operator and its well-known brands – Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. The credit profile also reflects the Company’s adequate liquidity which will support the Company’s cash requirements over the next 12 months. NCL also benefits from Moody’s view that, over the long term, the value proposition of a vacation cruise relative to land destinations as well as a group of loyal cruise customers supports a baseline level of demand. NCL’s credit profile is constrained by its very low credit metrics, including leverage that will exceed its 6.5x downgrade factor through 2023 (including Moody’s standard adjustments). The company’s adjusted EBITDA will turn positive in the second half of 2022, but free cash flow for debt reduction will be modest through 2024. Ongoing normal credit risks include the highly seasonal and debt-intensive nature of capital of cruise lines, competition with all other vacation options. and the exposure of the cruise industry to economic and industry cycles as well as weather incidents and geopolitical events.
NCL’s liquidity is adequate, reflecting its cash balances of approximately $1.9 billion as of June 30, 2022 and a funding commitment of $1.0 billion available through March 2023. The company has no access to additional sources of committed external cash as it has fully drawn its $875 million committed revolver. maturing January 2024. The Company has negotiated amendments to its credit facilities which suspend the testing of certain financial covenants until December 31, 2022. Effective March 31, 2023, the Company will be subject to a total net debt ratio on total capitalization (as defined) from less than 0.86 to 1.00, from 0.85 to 1.00 on June 30, 2023 and from 0.83 to 1.00 at the end of each fiscal quarter afterwards. Free liquidity must also be equal to or greater than $200 million. Moody’s expects the company to have sufficient cushion over the next 12 months. Most of NCL’s assets are encumbered with either ship-level debt or revolving credit facilities and term loans or secured notes. Although cruise ships are valuable long-term assets, Moody’s believes it would be difficult for the company to quickly sell ships to raise cash, if needed.
FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS
Ratings could be upgraded if leverage is kept below 5.5x with EBITA/interest expense kept above 2.0x. The ratings could be downgraded if the company’s liquidity weakens in any way, including due to a slower-than-expected earnings recovery, which could increase refinancing risk. Ratings could also be downgraded if it appears that debt/EBITDA will remain above 6.5x in the longer term, or if the company cannot generate positive free cash flow.
NCL Corporation Ltd., headquartered in Miami, Florida, is a wholly owned subsidiary of Norwegian Cruise Line Holdings Ltd. Norwegian operates 29 cruise ships with approximately 62,000 berths under three brands; Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises. Net revenue was approximately $1.7 billion for the last 12 months ended June 30, 2022.
The main methodology used in these ratings is that of business and consumer services published in November 2021 and available on https://ratings.moodys.com/api/rmc-documents/356424. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.
REGULATORY INFORMATION
For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.
For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to the jurisdiction: Ancillary services, Disclosures to the rated entity, Disclosures to be provided by the rated entity.
The ratings have been communicated to the rated entity or its designated agent(s) and issued without modification resulting from such communication.
These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.
The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.
The worldwide credit rating on this credit rating announcement was issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.
The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.
Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.
Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.
Pierre Trombetta
Vice President – Senior Analyst
Corporate Finance Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653
Jessica Gladstone, CFA
Associate General Manager
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653
Release Office:
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653
Comments are closed.