You may have heard a little about Moody’s ratings scale in the mainstream news over the last few weeks, which has been due to some big companies getting downgraded. The investor’s service does not always paint a poor picture, and we have seen one cruise ship company increase in the latest ratings.
Moody’s has increased the grade liquidity rating for Royal Caribbean Cruises, and has now graded it “SGL-2”. In a recent announcement Moody’s said, “The upgrade of RCL’s Speculative Grade Liquidity rating reflects Moody’s expectation of good liquidity over the coming 12 months driven by improved free cash flow in fiscal 2012 and the extension of the company’s $875 million revolver to 2016. RCL’s free cash flow will increase due to lower spending for new ships until the fourth quarter of 2012 when it accepts delivery of the Reflection.
RCL’s internal cash flow, committed ship loans, and cash balances are expected to cover the company’s cash needs over the coming 12 months — including the company’s reinstated dividend which begins in the third quarter of 2011 and approximately $650 million of mandatory debt amortization. In July 2011, RCL amended and restated its $1.225 billion revolver, which was due to expire in June 2012. The revolver’s expiration has been extended to July 2016 and the commitment was reduced to $875 million. RCL also maintains a $525 million revolver that expires in 2014. Moody’s expects RCL will maintain adequate availability over the next 12 months.
We expect RCL will maintain ample headroom under its three maintenance covenants during that same period. RCL has financing commitments in place for all of the ships it currently has on order. As an alternate source of liquidity RCL’s ships are unencumbered and could be used to raise cash through new secured borrowings. However, we do not assume that this will occur. Additionally, while unencumbered ships could be sold, a highly liquid secondary market for cruise ships does not exist.
RCL’s Ba1 Corporate Family Rating continues to reflect RCL’s position as the second largest global cruise operator, its diversification by brand and market segment, improving leverage metrics and cost efficiency. The ratings also reflect anemic macro-economic conditions and geo-political unrest that could dampen the pace of price improvement and the capital intensive nature of the cruise industry”.
You can read more about the ratings scale on moodys.com, and view all of the ships for Royal Caribbean at royalcaribbean.co.uk/our-ships.