Business Context and Reporting Period
This Form 8-K Current Report was filed by Norwegian Cruise Line Holdings Ltd. (NCLH) on July 16, 2020. The filing primarily addresses a significant capital raise and updates risk factors related to the ongoing COVID-19 pandemic. As of the filing date, the Company has voluntarily suspended all cruise voyages across its three brands, with the suspension extended through September 30, 2020, and select cancellations through October 2020 due to travel restrictions.
Key Financial Metrics and Capital Structure
The filing details a multi-component capital raise ("The Offerings") to address liquidity needs and refinance existing debt:
- Equity Offering: An underwritten public offering of $250 million of ordinary shares.
- Secured Notes Offering: A proposed private offering of $675 million senior secured notes due 2026.
- Exchangeable Notes Offering: A proposed private offering of $250 million aggregate principal amount of exchangeable senior notes due 2025.
- Use of Proceeds: Proceeds from the Secured and Exchangeable Notes are intended to repay NCLC's $675.0 million senior secured revolving credit facility. Equity proceeds are for general corporate purposes.
- Liquidity Reserves: The Company has agreed to provide a reserve of $70 million in cash and preliminarily agreed to provide second priority liens on certain ships with a collective equity value of $700 million (based on December 31, 2019 appraisals) to credit card processors.
- Credit Ratings: Moody's downgraded NCLC to Ba2 (from Ba1) in March 2020 and placed ratings on review for potential downgrade in July 2020. S&P Global downgraded the issuer rating to BB- (from BB+) in April 2020 and lowered the senior unsecured notes rating to B+ (from BB-) in May 2020.
The filing does not provide specific revenue, profit, or cash flow figures for the period; it states that the Company expects a net loss on both U.S. GAAP and adjusted bases for the year ending December 31, 2020.
Material Changes and Operational Impact
The Company is experiencing unprecedented operational disruptions due to the COVID-19 pandemic:
- Voyage Suspension: All 28 ships in the fleet were disembarked by March 28, 2020. Some crew members remain on board due to logistical challenges in repatriation.
- Revenue Impact: Significant lost revenue and increased costs due to reduced demand, guest compensation, itinerary modifications, and crew support expenses.
- Refund Obligations: Guests on cancelled sailings were awarded future cruise credits but may request cash refunds. The Company estimates cash refunds could be approximately 60% of the balance of advance ticket sales during the suspension.
- Legal and Regulatory: Three class action lawsuits were filed between March and April 2020 alleging false statements regarding COVID-19. The Florida Attorney General and other agencies have initiated investigations into the Company's marketing practices.
- Shipbuilding Delays: Nine newbuilds scheduled for delivery through 2027 are expected to face delays due to pandemic impacts on shipyards.
Outlook, Risks, and Management Commentary
Management emphasizes severe uncertainty regarding the timeline for resuming operations and the recovery of demand:
- Forecasting: The Company cannot predict when ships will sail again or when demand will return to pre-outbreak levels. It expects a net loss for 2020.
- Liquidity Risks: Increased demand for cash refunds and potential requirements to post additional collateral with credit card processors could materially impact liquidity. The Company may need to raise additional capital in the future.
- Debt Covenants: Indebtedness agreements contain covenants restricting dividends, additional debt, and asset sales. Failure to meet minimum liquidity requirements could trigger further collateral pledges.
- Health and Safety: Future operations may require costly implementation of enhanced health protocols, social distancing, and sanitization measures.
Investor Verification Checklist
- Verify the final closing status and terms of the $250 million Equity Offering and the $925 million combined Notes Offerings.
- Monitor the percentage of guests electing cash refunds versus future cruise credits, as this directly impacts cash outflows.
- Track updates on credit rating actions by Moody's and S&P Global, which affect borrowing costs and access to capital.
- Review the status of the Florida Attorney General investigation and the three pending class action lawsuits.
- Assess the timeline for the resumption of voyages and the impact of the CDC's "No Sail Order" on operational restart plans.
- Confirm the extent of delays for the nine newbuild ships and any associated financial penalties or renegotiations with shipyards.