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Norwegian Cruise Line warns there is ‘substantial doubt’ about future business

DORAL —Norwegian Cruise Line Holdings said there is “substantial doubt” about the company’s ability to continue amid the COVID-19 pandemic and warned it may have to seek bankruptcy protection.

The world’s third largest cruise company, headquartered in Miami with service out of Port Tampa Bay, said in a securities filing Tuesday it expects to report net losses for the quarter ending on March 31, 2020 and the year. The company owns three cruise lines: Norwegian Cruise Line, Regent Seven Seas and Oceania Cruises.

“If we are not able to fulfill our liquidity needs through operating cash flows and/or borrowings under credit facilities or otherwise in the capital markets, our business and financial condition could be adversely affected and it may be necessary for us to reorganize our company in its entirety, including through bankruptcy proceedings, and our shareholders may lose their investment in our ordinary shares.” the filing said.

Shares were down as much as 18% in Tuesday trading. Norwegian has seen its market cap plummet from $12 billion at the end of 2019 to less than $3 billion today.

Also on Tuesday, the company announced a $400 million infusion into its Norwegian Cruise Line Corporation Ltd., one of its subsidiaries, from private equity firm L Catterton. The deal gives the firm, whose portfolio includes a host of consumer-focused brands like gym club Equinox, Uncle Julio’s Mexican eateries, and Cholula hot sauce, a seat on Norwegian’s board of directors.

The company also announced Tuesday that it is proposing to sell $650 million of its exchangeable senior notes due in 2024 in a private offering as senior unsecured obligations, and an additional $600 million in senior secured notes due 2024 in a private offering.

On March 13, the cruise industry shut down new cruises for 30 days, followed by a no-sail order from the U.S. Center for Disease Control and Prevention that has been extended until at least July 24. The pause means onboard revenue — which normally accounts for about one-third of income — has evaporated, and future cruise booking demand is weak. The company also said last month it had fully tapped a $1.55 billion credit facility from JPMorgan Chase, and that its bonds had been downgraded by ratings agencies Moody’s and S&P Global. The company said in an April 27 press release that it is burning through $110-$150 million per month as cruises remain halted.

To further shore up cash, the company said it has identified around $515 million of capital expenditure reductions, including furloughs for 20% of staff announced last week by chairman Frank Del Rio. Still, Tuesday’s filing said that may not be enough to get through the pandemic and beyond.

“We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a significant impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of such an outbreak,” the company’s Tuesday filing said.

As of March 31, 2020, the company had $1.8 billion in advanced ticket sales across its three brands. That included $850 million for cruises that have been canceled through June 30, 2020, and $350 million for the remainder of 2020. Around half of passengers who had their cruise canceled are opting for a refund over a future credit with the company, further limiting its cash holdings. Bookings for the rest of 2020 are “meaningfully lower” than for the previous year, the company said in a press release last month.

Cruises for the company’s three brands are currently canceled through June 30.

A Miami Herald investigation found that passengers and crew from at least six of the company’s 27 ships have tested positive for COVID-19. In recent weeks the company has been shifting crew between ships without testing them for the disease. A doctor on the Norwegian Gem died last week after treating crew with respiratory illnesses. Crew on the Norwegian Escape and Norwegian Epic, docked at PortMiami Tuesday, report crowded conditions in violation of CDC’s guidelines, which advise companies to keep crew in individual cabins, provide them with masks, and enforce social distancing.

Norwegian Cruise Line was Miami’s first cruise line, founded in 1966 by Knut Kloster Sr., a Norwegian shipping magnate, and Israeli businessman Ted Arison. The pair aimed to create a cruise vacation accessible to the middle class. Arison left in 1972 to form Carnival Cruise Line.

In 2000, it was acquired by Genting’s Star Cruises after fending off a takeover by Carnival Cruise Line. Genting later sold half the company to private equity firm Apollo Management in 2008. Both companies sold their shares of the company in 2018.

In 2013, the company went public. The next year, it paid more than $3 billion to acquire two new cruise lines: Oceania Cruises and Regent Seven Seas Cruises.

Though Norwegian has remained smaller than competitors Carnival Corporation and Royal Caribbean Cruises, it has pushed the industry into new frontiers.

Norwegian purchased a private island in the Bahamas to be used exclusively by its passengers in 1977, more than a decade before its competitors would do the same. In 2000, Norwegian revolutionized the formally rigid eating and entertainment schedules for passengers by offering “freestyle cruising,” in which passengers could eat when they wanted with whomever they wanted. Other companies soon followed.

In 2010, it introduced The Haven, an exclusive all-suite area with a private pool, dining and bar. The concept has since been widely copied.

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