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As lines seek capital, Wells Fargo ventures only 25%-30% of cruise capacity to sail in second half

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In a note about Royal Caribbean reportedly looking to raise additional capital, Wells Fargo Securities ventured the 'likelihood' that the cruise industry will operate, best case, at 25% to 30% of fleet capacity in the second half of 2020.

The brokerage said that is prompting RCL to 'prudently proactively explore additional capital.' Bloomberg reported the RCL item on Wednesday.

NCLH and Goldman Sachs

This follows a Reuters report last Friday that Norwegian Cruise Line Holdings had engaged Goldman Sachs to look at additional financing options that could include selling a stake via a private investment in public equity (PIPE). 

PIPE involves an institutional or other type of accredited investor buying stock directly from a public company at below the market price.

RCL's potential options

Addressing RCL specifically, Wells Fargo recounted that on March 23, the company entered into a $2.2bn, 364-day secured term loan that can be extended another 364 days at RCL's election. This meant the company had more than $3.6bn of liquidity with a cash burn of approximately $400m per month under a 'no sail' scenario through year's end, Wells Fargo analyst Tim Conder said.

Conder believes RCL had about $300m of secured borrowing capacity left, but left some asset base cushion for potential write-downs. He suggested additional RCL capital raise would likely take the form of limited secured bonds and convertible bonds, all potentially supplemented by private equity placement.

Possible COVID-19 second wave

As for the industry's return to service and the brokerage's forecast of a best-case only 25% to 30% of capacity sailing in the second half, Wells Fargo cited concerns about a potential second wave of COVID-19 in late summer, particularly fall/winter, along with the current US 'no sail' order that could extend into mid-July.