I've been looking for a bit of humor as the coronavirus crisis has taken many of us hostage and found some on Thursday.
Bored and with her 25th anniversary coming up, a friend of my wife decided to see if she could still fit into her wedding dress. She intended to wear it for her husband on that monumental day. The dress had been put away in a box right after their wedding and had been carefully preserved, unseen, in darkness since the big day.
When she opened it, much to her surprise, it was someone else's dress, someone much shorter. All the care that went into preserving it was for naught, but it gave her a laugh in trying times. In addition, someone else will get a big surprise if and when she goes to take a look at her own dress.
Now for something a bit more sobering I learned that is happening in the mortgage markets as I talked with a mortgage broker on Thursday. While rates are incredibly low, the markets themselves are in a bit of turmoil, and getting a loan or refinancing may be more difficult than you might imagine.
It seems no one is writing jumbo loans. In addition, minimum credit scores for FHA loans have increased. The broker's head was absolutely spinning as he was witness to more fallout from the spigot of normal economic life being turned off. Somehow, we've got to reopen what we can as soon as possible while keeping people safe, a tall order for sure.
Meanwhile, things in the cruise industry just got a bit more interesting as Carnival Corp. (CCL) took bold steps to raise capital. The company priced a secondary stock offering of 62.5 million shares at $8 a share in order to raise $500 million; that figure was down from an initial announcement of plans to raise $1.25 billion. In addition, Carnival priced $5.75 billion in debt, including $4 billion in 11.5% senior secured notes maturing in 2023 and $1.75 billion in senior convertible notes maturing the same year. Imagine that -- 3-year paper at 11.5%. But that's where we are in this environment.
The initial word that comes to mind here is "dilution," which will occur from the sale of the stock and potentially from the convertible notes, but that's the least of the Carnival's worries at this point. Like the other cruise lines, Carnival needs to resume service and entice passengers to come back against the backdrop of the two Holland America ships containing sick passengers that finally were able to dock Thursday in Florida. By the way, the new debt offering will put Carnival's total amount of debt due by 2023 at just under $14 billion. It should not be an issue for the company, assuming the industry gets back to normal soon.
Yet I still can hardly believe it; CCL was a $50 stock just three months ago, a healthy company that now can only fetch $8 a share for its stock and is paying 11.5% for 3-year paper in order to stay afloat.
