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NCLH gets $400m L Catterton investment, offers stock, private exchangeable notes, senior notes

Private equity giant L Catterton is buying up to $400m in exchangeable notes in an offering by Norwegian Cruise Line Holdings. NCLH also plans a stock offering and two private notes offerings in further actions to shore up liquidity.

$2.15bn capital raise with overallotments

In total, the planned $2bn capital raise — $2.15bn with overallotments — should give NCLH sufficient liquidity under a zero revenue and $110m to $150m monthly cash burn for the next 12 months plus and alleviate the 'going concern' qualification in the company's amended 10K filing, Wells Fargo Securities said in a note.

'Going concern' qualification

The amended filing mentions how the suspension of cruises, bookings decline, debt maturities and other obligations over the next year, and the fact that NCLH management’s plan to obtain additional financing has not yet been completed, have raised 'substantial doubt about the company’s ability to continue as a going concern.' This is because the company does not have sufficient liquidity to meet its obligations over the next 12 months, assuming no additional financing or other proactive measures.

However, numerous actions are under way to secure additional financing and cut costs.

L Catterton investment

A placement of up to $400m in exchangeable senior notes due 2026 was arranged with an affiliate of L Catterton.

'The industry has overcome numerous challenges in the past, and we expect that the industry will rebound and prosper with even further enhancements to their already rigorous health and safety protocols in place in the future,' said Scott Dahnke, global co-CEO of L Catterton. 'Within the industry, the three brands of Norwegian Cruise Line Holdings have carved out distinctive leadership positions in their respective markets, guided capably by Frank Del Rio and his exceptional management team. We couldn’t be more excited to support the team at Norwegian as they work through this suspension of travel and begin to commence operations after their voluntary suspension of voyages.'

These private exchangeable notes are at a rate of 7% for the first year, 4.5% payment-in-kind interest plus 3% per annum cash interest for the following four years and 7.5% in cash for the final year prior to maturity.

L Catterton will be entitled to nominate one member to the NCLH board so long as a minimum ownership threshold is met.

Goldman Sachs acted as placement agent to NCLH.

$350m stock offering

NCLH commenced an underwritten public offering of $350m ordinary shares with an option for the underwriters to purchase up to $52.5m in additional shares.

Goldman Sachs, Barclays Capital, Citigroup Global Markets, JP Morgan Securities and Mizuho Securities USA are acting as joint book-running managers.

NCLH closed at $14.44 on Monday and opened at $12.75 today.

$650m exchangeable notes

NCLH is also proposing to sell $650m of exchangeable senior notes due 2024 in a private offering that would grant the initial purchasers the option to buy up to an additional $97.5m in exchangeable notes during a 13-day period. The exchangeable notes will be general senior unsecured obligations, guaranteed by NCLH.

$600m in senior notes

In addition, the company is proposing to sell $600m in senior secured notes due 2024 in a private offering to qualified institutional investors outside the US. These will be secured by shares of capital stock in certain subsidiary guarantors, two ships, material intellectual property and two private islands.

$515m in capex reductions identified

In further actions, NCLH outlined cost reduction and cash conservation measures, identifying approximately $515m of capital expenditure reductions. These include $345m of reductions in planned 2020 non-newbuild capex.

Newbuild payments under discussion

As well, the company is negotiating to further reduce capex for newbuild payments by approximately $170m, which does not take into account the impact on timing of payments in connection with potential delays. If these negotiations are successful, the next newbuild-related payments would not be until April 2021.

Ship operating expenses are reduced during the current fleet layup, and other actions include the significant reduction or deferral of marketing expenses, a furlough of 20% of shoreside employees through July and a shortened work week and commensurate 20% salary cut for remaining shoreside employees.

Possible prolonged delays in deliveries

NCLH has nine newbuilds on order, scheduled for delivery through 2027. The company expects the effects of COVID-19 on the shipyards will result in delays in deliveries, which 'may be prolonged.'

About half of those on canceled cruises have sought refunds

At March 31, the company had $1.8bn of advance ticket sales, including approximately $850m for previously announced voyage cancellations through June, where passengers have the option of a future cruise credit or a cash refund, and approximately $350m for voyages scheduled for the remainder of 2020.

Depending on the length of the suspension and acceptance of FCCs, NCLH may be required to provide cash refunds for a substantial portion of the balance, since customers on canceled sailings were automatically awarded FCCs and have the opportunity to request a refund instead. As of April 24, approximately half of those whose cruises were canceled had requested refunds.

Investigations and lawsuits

Between March 12 and April 30, three class action lawsuits were filed, alleging NCLH made false and misleading statements to the market and customers about COVID-19. In addition, in March the Florida attorney general launched an investigation of the company's marketing during the outbreak. Subsequently, notifications from other attorneys general and governmental agencies gave notice they are conducting similar investigations.

 

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