Business Context and Reporting Period
Company: Norwegian Cruise Line Holdings Ltd. (Norwegian)
Filing Type: Form 8-K (Current Report)
Date: November 19, 2014
Event: Completion of the acquisition of Prestige Cruises International, Inc. ("Prestige") and related financing transactions.
Key Financial Metrics and Capital Structure
Acquisition Consideration:
- Cash: Approximately $1.109 billion.
- Equity: Approximately 20,296,880 Norwegian Ordinary Shares (valued at ~$670 million as of September 2, 2014).
- Contingent Payment: Up to $50 million in cash subject to milestone achievement.
- 5.25% Senior Notes due 2019: $680.0 million aggregate principal amount issued by NCL Corporation Ltd. (NCLC).
- New Term Loan A Facility: $700.0 million incremental borrowing under the Senior Secured Credit Facility.
- New Term Loan B Facility: $350.0 million senior secured term loan.
- Funding the purchase price and fees for the Prestige Acquisition.
- Refinancing credit facilities of Seven Seas Cruises S. DE R.L. (Regent) and Oceania Cruises, Inc.
- Discharging Regent's Second-Priority Senior Secured Notes due 2019.
- 5.25% Notes: Fixed 5.25% per annum, payable semiannually. Maturity: November 15, 2019.
- Term Loan A: LIBOR or Base Rate plus margin (initially 2.25% / 1.25%). Maturity: May 24, 2018.
- Term Loan B: LIBOR (floor 0.75%) or Base Rate plus margin (3.25% / 2.25%). Maturity: Seven years (subject to earlier maturity if Notes are not refinanced).
Material Changes vs. Prior Period
Corporate Structure: Prestige is now a wholly-owned, indirect subsidiary of Norwegian following the merger.
Debt Load: Significant increase in indebtedness due to the issuance of $1.73 billion in new debt instruments ($680M Notes + $700M Term A + $350M Term B) to fund the acquisition and refinance existing obligations.
Equity Dilution: Issuance of approximately 20.3 million new ordinary shares to Prestige shareholders.
Collateral: Expansion of collateral securing the Senior Secured Credit Facility to include vessels from Prestige (Insignia, Nautica, Regatta, Seven Seas Mariner, Seven Seas Voyager, Seven Seas Navigator).
Guidance, Outlook, Risks, and Unusual Items
Management Commentary & Outlook: The filing focuses on the execution of the transaction rather than forward-looking operational guidance. The acquisition is intended to expand Norwegian's portfolio with Prestige's brands (Regent Seven Seas Cruises and Oceania Cruises).
Risks and Covenants:
- Indenture Covenants: The 5.25% Notes indenture restricts NCLC's ability to incur additional debt, pay dividends, create liens, make investments, or engage in affiliate transactions without meeting specific conditions.
- Events of Default: Standard events of default are included which could accelerate repayment of the Notes.
- Shareholder Lock-up: An amendment to the Shareholders' Agreement prohibits certain shareholders from selling shares obtained in the acquisition until January 1, 2016.
- Contingent Consideration: Up to $50 million in additional cash may be payable to Prestige shareholders based on future milestones.
- Escrow: A portion of the aggregate consideration is held in escrow to secure indemnification obligations.
Key Facts for Investor Verification
- Acquisition Closing: Verify the final closing date (November 19, 2014) and the exact number of shares issued to Prestige shareholders.
- Debt Servicing: Review the pro forma financial statements (Exhibit 99.2) to assess the impact of the new $1.73 billion debt load on interest coverage ratios and liquidity.
- Contingent Liability: Monitor the achievement of milestones required to trigger the up to $50 million contingent cash payment.
- Executive Retention: Note the employment agreements for Frank J. Del Rio (CEO of Prestige) and Kunal S. Kamlani (President/COO of Prestige), including severance terms and transaction bonuses.
- Refinancing Status: Confirm the successful discharge of Regent's Second-Priority Senior Secured Notes due 2019 as stated in the use of proceeds.