Royal Caribbean Boosts Junk-Bond Sale to $1 Billion, Cuts Yield

(Bloomberg) -- Royal Caribbean Cruises Ltd. raised $1 billion through a junk-bond sale Tuesday as the company took advantage of a recovery in travel companies' stocks and bonds to ease its huge debt load.

The cruise operator, which has about $21 billion of debt, will use proceeds to repay maturities due this year, according to a statement Tuesday. The deal follows offerings in 2021 that helped reduce its overall borrowing costs by paying off billions of dollars of debt issued earlier in the pandemic at expensive rates to help get it through travel shutdowns.

Bank of America Corp. managed the sale of the unsecured notes due 2027, which were originally meant to be $700 million in size and were initially being offered in the high-5% range, according to a person familiar with the matter, who asked not to be identified as the discussions are private.

The deal was later boosted from $700 million and priced to yield 5.375%, though that's still higher than the average 4.6% yield for similarly-rated debt, according to Bloomberg index data.

The new issue comes as the cruise industry faces renewed pressure as Omicron spreads across the world, with the Centers for Disease Control and Prevention telling people last month to avoid the ships.

But the industry has maintained that it's been unfairly singled out among other forms of travel and leisure, with companies noting that they offer a controlled environment where vaccination and testing status can be verified before boarding and contact tracing can be conducted through on-board cameras.

“What we are continuing to see is that investors are looking at Royal Caribbean as a turnaround story, so they see it as an opportunity,” according to Jody Lurie, Bloomberg Intelligence credit analyst.

“You're seeing momentum in the ‘return to sailing' and dedicated cruisers are cruising even with Omicron in the background,” she said.

James Dunn, an analyst at research firm CreditSights, is also constructive about the outlook for the cruise sector, writing in a note that he expects a more robust summer 2022 sailing season than last year.

“RCL has seen an uptick in cancellations for near-term cruises, but cancellations have not been to the extent observed during the Delta spike,” Dunn wrote.

Profit Eyed

In a statement Dec. 30, Royal Caribbean said it has transported 1.1 million cruisers since it restarted operations in June 2021 with 1,745 testing positive for Covid-19 and 41 needing hospitalization. The company missed profit and sales estimates in the third quarter, according to results reported Oct. 29, but told investors it expected to generate positive cash flow by spring and be profitable for the full year 2022. It also had liquidity of about $4.1 billion.

The company last tapped the bond market in August, raising $1 billion to partly refinance costly debt sold in 2020 that priced with a yield of 11.5%. Those most recently sold notes, which mature in 2028, yield about 5.2% suggesting a premium of about 0.325 percentage point on the new deal, according to Bloomberg calculations.

The company didn't include more detail on which repayments it will target, but its bonds maturing in November this year jumped about 1 cent on the dollar to more than 102 cents after the new issue was announced, according to Trace data. Royal Caribbean's shares closed 1.92% higher at $82.38 in New York.