Just as CCL shares were starting to show small signs of life, the company has at least temporarily taken the wind out of sails via yet another change in the company's capital structure. On Wednesday after the market closed, CCL announced the sale of another $1 billion in stock, @ $9.95/share, the proceeds of which are to be used for "general corporate purposes", aka to pay down debt.
If you do the math that equates to an additional 102 million shares outstanding, which is small relative to the current share count, which stands at 1.14 billion. This new offering is just .7% higher than the current shares outstanding, so what's the big deal, given the minimal amount of dilution?
The big deal is two-fold - at least.
- First, the offer price of $9.95 was 10% below Wednesday's closing price of $9.85. That sent shares back into single digits on Thursday as CCL closed at $9.95.
- Second, it once again demonstrates that capital structure changes for CCL are not done yet. The company had already increased shares outstanding by 65%, and net debt by $17 billion since November of 2019. This simply is not the same company it was prior to the pandemic.
This move just reinforces the notion that CCL is not out of the woods yet. Shareholders need to remember that they are at the back of the line, behind debt holders if this thing were to go belly up, a truth that is too often ignored when enticed by a seemingly "cheap" stock price.
Why didn't CCL put the offering price of the new shares at or above the market price? That's because there would not be any takers, and beggars can't be choosers. Unfortunately, however small the dilution is here, shareholders lose again not just because of this offering, but the specter of additional future offerings.
I recommend reading the perspectives of fellow Real Money columnists Bruce Kamich, who takes a deep dive from a technical perspective, and Doug Kass, who was short CCL, at least as of July 29th. Between the three of us, we've probably used every sinking ship related metaphor available to describe the situation.