We keep hearing the market's overvalued and doesn't deserve to be here. We've got only sporadic bankruptcies, mostly companies that have done ill-fated private equity deals, but for the most part the nightmares haven't come true and that's a huge part of this market's buoyancy.
Speaking of buoyancy, at the heart of this market's Lazarus-like style is none other than the cruise ships, those alleged Covid-19 petri dishes that should have been "Exhibit A" of Great Depression II but turned out to be success stories writ large because of calm and receptive stock and bond markets.
Today Royal Caribbean (RCL) announced a $3.3 billion offering of senior notes, out three and five years backed by 28 of its ships. It's a private deal. We don't know who the buyers are. The notes let the company repay a $2.35 billion 364 day term loan among other things. Given the Royal Caribbean is burning $250 to $275 million a month, this paper seems like a fool's game to buy.
But that's wrong. Why? Because people love cruises. We are seeing bookings for next year surge, they are ahead versus where they were at this time. Some reports show a 600% increase in near-term bookings, because the companies are giving away great deals to woo people back. It's obviously working.
CEO Richard Fain must thrilled; his line lives to sail again.
Royal Caribbean's the third of the big three to get its savior money. Last week Norwegian Cruise Lines (NCLH) , which has the safest Covid record, grabbed its loot. There was a cost: Norwegian sold 41.8 million shares at $11; it's stock was at $55 before the Covid nightmare. The company also had to raise $862 million via 6% exchangeable notes due 2024 with an exchange price of $13.75. The stock's slightly above $11 but you got a good deal if you flipped the stock as it traded up to $12.74 almost immediately. CEO Frank Del Rio told us on Mad Money that bookings were nicely ahead of last year at this time. My only thought when I heard that was about when cruise ships are allowed to ply their wares; it's obvious there's a love for them despite the Covid outbreaks.
Finally there is the company at the epicenter of the infection: Carnival (CCL) , whom many blame as a super spreading agglomeration of cruise ships.
Carnival had a daunting task. It needed $6 billion to stay afloat. It seemed impossible, until the Fed said it was going to buy corporate bonds and bond ETFs if the credit's okay.
After that, it was easy as, well, getting $4 billion in 11.5% first priority senior notes and a little bit more through an offering of $1.75 billion dollars in 5.75% convertible notes due 2023. It also sold 71.8 million shares at $8, quite a comeuppance from $50, where its stock was before one of Carnival's Princess Line's turned hospital ship. Thank you Federal Reserve for this and so many other deals that never would have happened if Chairman Powell let it be known that he would be the buyer of last resort.
We didn't know where that stock deal would be done; the stock was sinking like the Titanic. But the $8 price snared a giant buyer, the Saudi Wealth fund, which took a roughly 8% stake in the company on the deal. It's up 50% since doing so.
Now all of these deals pall to the $25 billion that Boeing (BA) pulled in from the private markets, saving about two million jobs in the process. That 's the most important fund raise of this horrendous era.
But the fact is that before you think that the market's hideously overvalued remember how much money there is for companies that you would have expected to fail but, instead, are already on the mend when you look at forward bookings which is, when you value these stocks, all that really matters.