Why The Cruise Line Recovery Looked Premature

Cruise stocks were sinking on Tuesday after it was announced that Royal Caribbean Group (NYSE: RCL) would be raising capital. Some who were calling for the recovery in cruise stocks may be second-guessing themselves now that Royal Caribbean is looking for more cash.

Other cruise stocks like Carnival Corp. (NYSE: CCL) and Norwegian Cruise Line Holdings Ltd. (NYSE: NCLH) sank in response to this move by Royal Caribbean, potentially signaling that their financial standing may not be as strong as once thought. Again this may suppose the recovery in cruise liners has been premature.

According to Royal Caribbean’s capital raise, the company is commencing a private offering of senior convertible notes, which will come due in 2023, for a principal amount of $500 million. Additionally, the firm intends to grant the initial purchasers an option to purchase up to an additional $75 million principal amount of Convertible Notes.

The convertible notes will be convertible at the holder’s option in certain circumstances. Upon conversion, the company may satisfy its conversion obligation by paying or delivering, at its election, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock.

In terms of the net proceeds, Royal Caribbean expects to use a portion from the offering to repay its 2.65% senior notes that are due in 2020, with the remainder to be used for general corporate purposes.

Separately, the company is commencing a secondary public offering of $500 million shares of common stock, with an overallotment option for $75 million.

Royal Caribbean stock was last seen down over 11% at $61.77, with a 52-week range of $19.25 to $135.32. The consensus analyst price target is $59.23.

Carnival stock was recently trading down about 7% at $14.19, with a 52-week range of $7.80 to $51.94. The consensus analyst price target is $16.73.

Norwegian Cruise Line stock was last seen down about 7% at $16.86, with a 52-week range of $7.03 to $59.78. The consensus analyst price target is $17.88.

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