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Moody's rates Norwegian's proposed $500m loan, raises corporate outlook to 'stable'

Moody's rates Norwegian's proposed $500m loan, raises corporate outlook to 'stable'
Moody's Investors Service rated Norwegian Cruise Line's proposed $500m term loan B at Ba2, or speculative and subject to substantial credit risk, and affirmed the company's Ba3 corporate rating and raised the outlook to 'stable' from 'negative' on positives expected from the Prestige Cruises International acquisition.

The proposed $500m term loan B along with a proposed $450m increase in the size of Norwegian's existing $633m term loan A, a senior unsecured debt offering or bridge loan, and an equity issuance of 20.3m shares will be used to finance the $3bn Prestige acquisition.

At the deal's closing, expected in November, Prestige's existing debt, excluding its newbuild debt, will be repaid and all the existing ratings of Oceania Cruises and Regent Seven Seas Cruises will be withdrawn. Prestige has one ship on order, Seven Seas Explorer, at Fincantieri's Sestri Ponente. The construction is financed by Italy's export credit agency, SACE.

Moody's changed the corporate family outlook to 'stable' on the belief that Norwegian's earnings growth over the next 12 to 18 months supports a quick reduction in leverage following the acquisition. The ratings agency expects earnings will grow so debt to EBITDA will fall below 5.25 times by the end of 2015.

The affirmation of Norwegian's Ba3 corporate rating reflects Moody's positive view of the Prestige acquisition given the combined company's larger scale, greater operating leverage and diversification into the premium and luxury segments.  

Although Norwegian will remain the distant third largest cruise company, its net revenues will increase about 39% to approximately $3bn, Moody's said, and its fleet will grow from 13 ships to 21. The ratings agency added that Norwegian's well-known brand and youthful fleet enable it to compete against larger rivals Carnival Corp. and Royal Caribbean.

Plus, Prestige will reduce Norwegian's reliance on what Moody's called the 'heavily saturated Caribbean market.'