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Moody's upgrades RCL, assigns prime rating to commercial paper program

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Moody's Investors Service upgraded Royal Caribbean Cruises Ltd.'s senior unsecured debt rating to Baa2 from Baa3 and assigned a P-2 rating to the company's planned $1.15bn commercial paper program. The rating outlook is stable.

Baa2 is a notch above the lowest investment-grade rating, Baa3. And a P-2 rating indicates the company has a strong ability to replay short-term debt obligations. It is the middle rating on Moody's prime scale, between P1 (a superior ability to replay short-term debt) and P3 (an acceptable ability to repay short-term debt).

Strong booking trends

'The upgrade to Baa2 reflects Moody's expectation that Royal Caribbean will benefit from strong booking trends, increased on-board spending and the introduction of new ships which will enable the company to maintain leverage below 3.5x,' said Pete Trombetta, Moody's lead lodging and cruise analyst.

'The upgrade also reflects the company's improved liquidity position, including reduced outstandings under its committed revolving credit facilities,' Trombetta added.

Adequate liquidity

The P-2 commercial paper rating reflects RCL's adequate liquidity, supported by its strong free cash flow generation, which is sufficient to cover debt maturities over the next 24 months. Moody's noted the company's liquidity profile is constrained by the large cash outflows related to new ship deliveries, which cause spikes in capital expenditures throughout the year.

RCL also has a $1.4bn revolver due 2020 and a $1.2bn revolver due in 2022 (with combined outstandings of about $700m as of March 31).

The ratings agency said the revolvers do not require a material adverse change representation at borrowing, but do contain financial covenants which Moody's expects will 'maintain ample headroom.'