Carnival pays high price for $6.25bn rescue fundraising
By Sean Farrell
Date: Thursday 02 Apr 2020
(Sharecast News) - Carnival has raised $6.25bn (£5bn) to stay afloat during the coronavirus crisis but the world's largest cruise operator is paying a high price for the funds.
The FTSE 100 company is borrowing $4bn from investors paying 11.5% interest a year. The amount of the bond offering was increased from $3bn due to high demand despite doubts about the future of cruise holidays. Carnival had to use its ships as collateral to attract investors to the bond sale.
Carnival also issued $1.75bn of convertible notes at 5.75% interest a year and raise $500m in equity at $8 a share, reduced from an earlier target of $1.25bn. Buyers of Carnival's bonds, due in 2023, were largely investors in junk-grade debt, Reuters reported.
The company's shares fell 7% to 724.92p at 09:48 BST. The shares were priced at more than £36 at the start of 2020.
Carnival has shelved all cruise holidays during the coronavirus crisis after governments imposed strict restrictions on travel and interaction between individuals. Several passengers have died on Carnival ships and some of its vessels remain at sea unable to disembark passengers.
Russ Mould, investment director at AJ Bell, said: "Under normal circumstances, you wouldn't expect one of the largest leisure companies in the world to issue debt at such high interest rates, but it goes to show how desperate Carnival now is."
Mould said with costs of $1bn a month Carnival could need more money in late 2020 if conditions do not return to normal by the autumn. "Investors brave enough to back the fundraising might think they are getting a bargain, yet Carnival is ploughing through cash at a high rate," he said.
Announcing the fundraising the company, whose brands include P&O, Princess and Cunard, said it could not predict its future prospects after an unprecedented shutdown of its business. People aged over 70, who are most at risk from Covid-19, make up a large proportion of passengers on cruise ships, which can act as incubators for a range of viruses.
The company announced the emergency actions, which also included scrapping its dividend and share buybacks, on Monday. It said the fundraising and other measures would keep it within its debt covenants for the next 12 months.
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