Moody's lifts Royal Caribbean to investment grade

The agency said the upgrade acknowledges RCL's continued strong earnings growth, which has led to improved operating margins and credit metrics. Earnings growth is expected to remain strong as a result of the full year impact of capacity expansion in 2016, planned newbuild deliveries and a strong booked position.

Moody's expects the cruise operator's debt to EBITDA to remain stronger than 3.75x and EBITA to interest expense to remain above 4x.

'Royal Caribbean is committed to maintain credit metrics at levels appropriate for the Baa3 rating,' Moody's svp Maggie Taylor said. 'While we anticipate they will resume share repurchases, we expect they will only be financed with debt to the extent that debt to EBITDA remains below their 3.5x stated leverage target.'

Moody's anticipates RCL will borrow to fund share repurchases and ship deliveries but only to the extent that leverage remains in line with its 3x to 3.5x  target. The agency said the rating considers that while industry-wide capacity will increase, this expansion will 'remain at a rational level due to supply constraints.'