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Carnival stock falls by a third, raises $6bn in bonds and stock at deep discount

Carnival (NYSE:CCL), the world’s largest cruise operator, said it raised $6.25bn by issuing new debt and equity on Wednesday, to keep its business going amid the coronavirus pandemic.

The firm has been forced to dock its cruise ships to comply with lockdown travel restrictions imposed by governments around the world, and offered investors a deeply discounted fundraising.

The stock fell by 33.2% to close at $8.80 in trading yesterday, and has slumped by 80% this year, as lockdown restrictions have hit the tourism industry hard. Major rivals such as Norwegian Cruise Lines, and Royal Caribbean have also seen their share prices slashed in 2020.

Carnival stock falls by...

Carnival priced $4bn in bonds maturing in 2023 – increased from the $3bn originally planned – with a yield at par value of 11.5%, it said in a statement. The group also had to use its ships as collateral to convince bond investors to part with their cash.

By comparison in October, Carnival paid a 1% yield when it borrowed €600m ($657.7m) in the European debt market.

The company also raised $1.75bn in convertible notes with a 5.75% coupon yesterday.

Carnival stock falls by...

Beyond the bond issues, Carnival also issued new equity, at $8 a share, to raise $500m, less than the $1.25bn it had targetted.

Russ Mould, investment director at broker AJ Bell said: “Under normal circumstances, you wouldn’t expect one of the largest leisure companies in the world to issue debt at such high interest rates, but it goes to show how desperate Carnival now is.”

He added: “Investors brave enough to back the fundraising might think they are getting a bargain, yet Carnival is ploughing through cash at a high rate. The prospectus for the fundraising says it needs $1 billion a month to cover operating costs, cash refunds of customer deposits, servicing debt and some other factors. That implies it needs life to return to normal by autumn otherwise it could be asking investors for even more money.”

The funds are expected to cover Carnival’s current financial obligations over the next 12 months.

Earlier this week, Carnival chief executive Arnold Donald said:  “Obviously the travel tourism industry broadly needs the help. This has been devastating for the travel industry. It’s certainly been devastating for cruise, as part of that.”

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Nicholas Say

Nicholas Say is originally from Ann Arbor, Michigan, and has a long-standing interest in the global financial markets. In addition to writing, Nicholas also enjoys making arsenal condiments.