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Carnival Becomes Latest Fallen Angel While Covid Halts Cruises

Skyler Rossi and Claire Boston

(Bloomberg) -- Carnival Corp. is the latest cruise line to lose its investment-grade credit ratings after S&P Global Ratings downgraded the company Tuesday.

S&P slashed the company’s long-term rating by three levels to BB-, from BBB-, saying the cruise line’s credit metrics are likely “to remain very weak through at least 2021” as it begins to slowly resume its operations. The cut from S&P hands the company a second high-yield credit rating, meaning its debt will leave investment-grade credit indexes.

Moody’s Investors Service cut the company to junk in May. In a statement Tuesday, it downgraded Carnival’s unsecured credit ratings by one notch to Ba2, the second-highest junk rank. It also rated Carnival’s planned term loan Baa3, the lowest investment-grade rating. S&P graded the new loan BB+, or one step lower.

Carnival’s recovery will be much slower in 2021 due to the fact the cruise line plans to return to normal operations in phases, S&P said. Additionally, the credit rater also expects it will take several months for Carnival to return all its ships to service as the virus deters previous demand.

“There remains a high level of uncertainty around when and how the company will resume its service and its ultimate recovery path,” analysts Ariel Silverberg and Melissa Long wrote in a report Tuesday.

On Friday, industry group Cruise Lines International Association said it would further suspend voyages from U.S. ports until Sept. 15, meaning the world’s biggest cruise lines will now be going at least six months without American customers.

Last month, Carnival had teased a return to the seas as soon as Aug. 1. But in the past several weeks, many parts of the U.S. have seen an uptick in Covid-19 cases, including Florida, home to the world’s largest cruise port. Carnival Cruise Line, Carnival’s namesake brand, recently said its North American operations will remain paused through Sept. 30.

Miami-based Carnival is now marketing around $1.5 billion of loans in European and U.S. credit markets as it seeks to shore up its liquidity while the coronavirus pandemic halts cruises. The latest round of financing follows a $4 billion bond sale in April.

The company had about $9.7 billion of long-term debt as of Feb. 29, according to a regulatory filing.

Carnival’s shares dropped about 2% after the close of regular trading in New York.

(Updates with S&P comment, additional details from fifth paragraph.)

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