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S&P: Ratings unchanged by Concordia but demand could suffer

Standard & Poor’s Ratings Services on Sunday said that its ratings on Carnival Corp. (BBB+/Stable/A-2), Royal Caribbean Cruises Ltd. (BB/Stable/--) and NCL Corp. Ltd. (B+/Stable/--) are currently unaffected by the Costa Concordia tragedy. However, the agency cautioned that wave season demand could suffer.

Carnival Corp.’s operating performance in 2012 will be negatively impacted by the loss of Costa Concordia from its fleet, as well as any costs associated with the event, S&P said. These include investigation into the cause, amending or refunding future itineraries and any investment associated with restoring the reputation of the Costa brand.

The ratings agency added there is potential for bookings across other cruise brands to be impacted.

‘The timing of this event could weaken 2012 booking trends given the fact that it occurred early in the wave season, the two-to-three month period in which a substantial portion of cruise business is booked,’ S&P said.

Prior to the Costa Concordia incident, the ratings agency’s outlook for the cruise sector in 2012 was for minimal growth in net revenue yields and a slight decline in operating costs including fuel. This outlook reflects S&P’s economists’ expectations for modest economic growth in the US and the UK, and for a mild recession in first half of 2012 in the eurozone.

The ratings agency said it has now also considered a scenario where there is some level of price discounting across the sector in response to weaker than anticipated wave season demand stemming from the Costa Concordia event.

Specifically, S&P considered a scenario where net revenue yields are negatively impacted by 3% in 2012 compared to its current expectation for low-single digit growth for each cruise operator. Under this scenario, lease and port commitment adjusted debt to EBITDA for Carnival, Royal Caribbean and NCL, would increase to near S&P’s maximum thresholds but remain in line with current ratings on each company.

These thresholds are 3x for Carnival at its current BBB+ rating, 5.5x for Royal Caribbean at its current BB rating and 6x for NCL at its current B+ rating.

S&P said it will continue to closely monitor booking trends following the Costa Concordia event and consider incorporating a more conservative set of assumptions in its ratings, if necessary.

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