The day has finally arrived! We are leaving on a cruise today, just a quick, little six-day jaunt to New England and Canada. Very inexpensive, too.
We were supposed to be leaving today, but our cruise was cancelled weeks ago and we just got the refund. We took our cash back instead of the offer by Royal Caribbean Cruises (RCL) of a credit toward a future cruise equal to 125% of what we paid for our cancelled cruise. I am not afraid to get on a big ship with thousands of other passengers, but I am skeptical about when the cruise lines will start sailing again, and under what conditions.
Royal Caribbean is scheduled to restart some operations on June 12, according to the company website, although some ports still won't be open, and it will be interesting to see RCL actually resumes some operations on that day. The Centers for Disease Control and Prevention (CDC) currently has a no-cruise order in the U.S. through July 24.
Thursday, Royal Caribbean priced $3.32 billion of debt, including a private offering of $1 billion of 10.875% senior secured notes maturing June 1, 2023, and $2.32 billion of 11.5% senior secured notes due June 1, 2024. You read that right: three- and five-year paper yielding 10.875% and 11.5%, respectively. That's what things have come to.
The stock has been a moving target. It started February in the $120 range, hit an intraday low of $19.25 on March 18, and rebounding a bit to close at $35.15 on Thursday. But pay no heed to the currently reported 8.9% dividend seen on some financial websites, because dividends have been suspended due to agreements with lenders. As stockholders, we need to remember that we take the back seat in the capital structure.
Royal Caribbean's preliminary first-quarter results, released on Wednesday, revealed that the company has sufficient liquidity for at least 12 months but is burning cash at a rate of $250 million to $275 million per month. The problem is, we don't know enough about when the business will reopen and how consumers will react. Royal Caribbean did report on May 8 that 2021 bookings are within the "normal range," but of the $2.4 billion in customer deposits, $800 million was from credits of cancelled voyages.
Another cruise operator, Carnival Corp. (CCL) , announced on Monday that bookings surged 600% compared to the prior three days and 200% versus the same period last year. This came in the wake of Carnival's May 4 announcement that it intends on Aug. 1 to resume some cruises, including eight ships sailing from Miami and Port Canaveral in Florida and Galveston, Texas. Still, this information is not enough to hang your hat on.
While I am convinced that the cruise industry will survive, I'd still be very wary about taking an equity position in any of the operators. Just because an industry survives does not mean that shareholders can't be decimated. Indeed, I'd sooner take a cruise than buy a cruise line stock at this point. A great deal of debt has been added to balance sheets just to facilitate survival, dividends have been suspended, and again, shareholders are last in line at the table. None of this means that there's no possibility that cruise stocks can't rise from these levels, but there's just not enough margin of safety, for me, anyway.
Reopening successfully must also be done carefully and surgically; another ship or two out at sea with sick passengers would set back the return to normal operations even further.