Norwegian Cruise Line Update

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On Monday April 27th, Norwegian provided updates on their current financial situation and the current outlook for the remainder of 2020 and 2021

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Prior to the outbreak, 2020 bookings were showing growth of 7% across the NCL, Regent and Oceania brands which are owned by Norwegian.

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Since the first announced cancellation of cruises, advanced bookings for the rest of 2020 were "meaningfully lower than the prior year with pricing down low-single digits" as stated by Norwegian.

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This statement while not positive, could have been worse. Pricing down "low-single digits", means pricing has only dropped a few percentage points since this virus has impacted sailings.  Bookings would logically be down given some of the public relations issues with cruising in the short term and does not come as a surprise. One thing that was unexpected in the earnings update was their request for you to 'hit the like button'. I know, surprised as you are. But we are living in strange times.

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Moving on...For 2021, bookings are currently flat. Which means most guests booked for next year are taking a wait and see approach. This is a good sign I believe that people have not been scared enough to cancel mid and long range future plans on cruise ships.

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However, we believe pricing will most likely need to come down by the teen percentages at least to boost sales when cruising resumes.

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While repeat cruises may be likely to return to cruising at the first opportunity. The average sailing in recent years which has fueled the cruise industry growth is mainly first time or special occasion cruisers. It's those first time cruisers that will need to be lured back.

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Bare with me a moment while we bust through some important numbers, I promise to keep it quick and easy. And this is not all doom and gloom.

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NCL reported they had $1.8 billion in advance deposits for upcoming cruises, with about half of cancelled cruise guests requesting refunds vs a Future Cruise Credit.

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Lets look at what that means for NCL's financials. At of March 31st, NCL only has $1.4 billion in cash or cash equivalents remaining. This already takes in to account the money raised since the beginning of the pandemic. As a recap, NCL secured a $675 million dollar line of credit in early March as well as depleting the remainder of an existing $875 million dollar revolving credit line on March 12th. This leaves Norwegian with a total debt liability of $8.6 billion at the end of March. Their monthly expenses after cost reductions are projected to be between $110 and $150 million per month.

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Norwegian is actively looking for additional liquidity and has tapped Goldman Sachs to assist in finding options. One challenge is Norwegian's low remaining equity.  With less than 30% of equity remaining to sell, the ability to raise money without diluting existing share holders is a challenge. Given the amount of debt they currently have it will also be hard to get new debt issued with reasonable interest rates.

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NCL could be a good looking target to be taken private by a private equity firm. With over a $trillion dollars in private equity currently in funds that is un-invested.

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If a private equity firm is looking to get into the cruise line business at a discount, now might be the time. They would also have the capital to likely be able reorganize the existing debt with more favorable terms given they would be removing the risk of default.

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Here are the actions NCL has taken to reduce expenditures and make their money last longer until cruising resumes.

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A majority of ships have began the process of transitioning to cold layup which reduces fuel costs, payroll, port fees, insurance overhead, etc.

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A heavy reduction in most marketing expenses for the next few months.

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A reduced work week for corporate employees with a 20% reduction in salaries.

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Paused 401k match for employees

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A company wide hiring freeze

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Suspended all travel for US based employees

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As well, all new builds and retrofit operations that can be reduced or deferred are being pursued which could save up to $515 million in capital expenditures in the near term.

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The Pride of America loan term of $230 million can be extended by one year until 2022.A 12 month debt holiday of approximately $386 million from Germany's export credit agency. This would defer payments and is not an additional loan.

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While Norwegian may not be in the best position to raise additional capital compared to their rivals, they also have lower expenses in comparison. Currently all cruise lines are in the same 'ship' so to speak. They need cruising to resume sooner than later in some capacity to weather out this storm,

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Norwegian Cruise Line currently has suspended sailings until July 1st.If you like one of suggested videos shown on your screen, give it a shot. It might be just what you are looking for.

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Until the next cruise, stay safe everyone.

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