Carnival Corp. commences public stock and private notes offerings

For the stock offering, the corporation intends to grant the underwriters an option to purchase up to $187.5m of additional shares. The net proceeds will be used for general corporate purposes.

BofA Securities, Goldman Sachs & Co. LLC and JPMorgan are acting as joint book-running managers.

Dividend payments suspended

The company also said it would suspend dividend. This would equate to about $1.1bn for the remainder of the year, according to a note from brokerage William Blair.

Senior convertible notes offerings

In tandem, Carnival commenced private offerings to eligible purchasers of $3bn aggregate principal amount of first-priority senior secured notes due 2023 and $1.75bn aggregate principal amount of senior convertible notes due 2023 (or up to $2.0125bn aggregate principal amount if the initial purchasers exercise in full their option to purchase additional convertible notes).

The corporation intends to grant the initial purchasers of the convertible notes an option to purchase, during a 13-day period beginning when the convertible notes are issued, up to an additional $262.5m aggregate principal amount of convertible notes.

The proceeds will be used for general corporate purposes.

Guarantees

Each series of notes will be guaranteed by Carnival plc and certain subsidiaries that own or operate the company's vessels and material intellectual property. Additionally, the secured notes and the related guarantees will be secured by a first-priority lien on the collateral, which includes pledges on the capital stock of each subsidiary guarantor, mortgages on a substantial majority of the vessels and related vessel collateral, material intellectual property and pledges over other vessel-related assets including inventory, computer software and casino equipment.

The notes will be convertible at the holder's option in certain circumstances. Upon conversion, the corporation intends to satisfy its conversion obligation by paying or delivering, at its election, cash, shares of its common stock or a combination of those.

Additional $6.45bn in liquidity

Reflecting the additional $6.45bn in liquidity from the notes and share offerings — assuming underwriters fully exercise their options— combined with the roughly $1.1bn in suspended dividends, Carnival’s liquidity position has increased to roughly $19.3bn, up from $11.7bn at the end of the first quarter, according to a note by William Blair analyst Sharon Zackfia.

As a result, Carnival management believes it has adequate liquidity through the end of fiscal 2020, she said.

Some CCL debt traded at 8% yield last week

In a note, Wells Fargo Securities anticipated lenders will waive any near-term financing related covenant violations from the additional debt. According to analyst Tim Conder, some of Carnival's debt traded with an 8% yield last week.

The brokerage believes CCL has now exhausted the majority of its asset base available to pledge as security through this offering and adding security to two existing facilities of approximately $400m, including Carnival plc's 7.875% notes due June 1, 2027.

Wells Fargo favors equity raises

'We would have liked to see a larger mix of CCL's capital raise skewed to equity as this would have kept some remaining “dry powder” in the form of debt, should additional needs arise,' Conder said. 'We hope RCL and NCLH consider “proactive” equity raises,' he added.

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