(Bloomberg) -- Cruise line operator Carnival Corp. sold a larger-than-expected $4 billion of new secured bonds as part of an effort to raise over $6 billion from debt and stock sales to shore up liquidity amid turmoil caused by the coronavirus pandemic.
It increased the three-year bond offering from the $3 billion originally targeted and cut the coupon to 11.5% from about 12.5% earlier, as order books swelled to around $17 billion, according to people familiar with the matter. The debt priced at a discount of 99 cents on the dollar, giving it a yield of just under 12%, said the people, who asked not to be identified discussing a private matter.
The financing was the biggest test yet of investor willingness to fund industries ravaged by the Covid-19 outbreak. Carnival has investment-grade ratings, but the bond sale is being managed by junk-bond syndicate desks and is one of the highest coupons ever offered even at the reduced interest rate. The vast majority of orders are from high-yield accounts, and about $2.6 billion came from incoming queries from investors, one of the people said.
Investors have piled into new debt from America's safest companies, but they've largely shunned riskier firms, especially those the virus has shuttered. While Carnival's bonds are secured by a first-priority claim on the company's assets such as its vessels and intellectual property, investors still can't be sure when the company will sail again after a series of virus outbreaks at sea. Carnival still has ships at sea bearing sick passengers that are seeking to dock.
Read more: Carnival begs for docks for virus-beset ships after weeks at sea
The company's shares recorded their worst one-day drop on record on Wednesday, dropping by more than 33% to end trading at $8.80, its lowest close since 1993.
Among other changes, the company's share sale was reduced to $500 million from $1.25 billion, according to separate people with knowledge of the situation. It's also raised $1.75 billion convertible notes to improve its liquidity position. Combined with the $3 billion the company drew on its bank credit lines last month, the bond and stock sales will give the company over $9 billion of additional liquidity.
Carnival estimates it has liquidity needs of about $1 billion a month, according to a statement Tuesday. That includes ship and administrative operating costs of $200 million to $300 million. According to the company, it has to pay about $2 million to $3 million a month for a so-called warm ship layup, in which the ships are essentially decommissioned but kept ready to re-enter service relatively quickly. Longer-term ship layups cost about $1 million a month, it said.
Carnival had initially approached bond investors on both sides of the Atlantic to sell $3 billion of notes in dollars and euros, but dropped the euro tranche which was marketed with a coupon of about 11.5%. JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. led the dollar bond.
Carnival earlier this year hosted one of the most dramatic coronavirus episodes aboard its Princess Cruises-branded Diamond Princess, off Yokohama, Japan. The Diamond Princess had more than 700 Covid-19 cases, the biggest outbreak outside mainland China for a while.
The company urged Florida's Broward County to accept on humanitarian grounds two Holland America Line ships, one bearing sick passengers, as they sailed for Fort Lauderdale with nowhere else to turn, Bloomberg reported Tuesday.
©2020 Bloomberg L.P.
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