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Long Beach (City of) CA -- Moody's confirms Carnival's B1 CFR; outlook negative

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Rating Action: Moody's confirms Carnival's B1 CFR; outlook negativeGlobal Credit Research - 15 Apr 2021New York, April 15, 2021 -- Moody's Investors Service, ("Moody's") confirmed the ratings of Carnival Corporation (combined herein with Carnival plc "Carnival") including its B1 corporate family rating, B1-PD probability of default, Ba2 senior secured bank credit facility and senior secured note rating, B1 senior secured second lien rating, and B2 senior unsecured rating. The company's speculative grade liquidity rating of SGL-2 is unchanged. The outlook is negative. This concludes the review for downgrade that was initiated on February 10, 2021."The confirmation of Carnival's ratings reflects Moody's view that the growing number of vaccinated individuals in the US and Carnival's ability to offer cruising in international markets, coupled with good booking trends, will enable the company to begin its recovery from more than a year of suspended operations and generate positive earnings in 2022," stated Pete Trombetta, Moody's lodging and cruise analyst. Moody's current assumptions include negative earnings in 2021 with only modest cruising returning in the second half of the year. However, success in controlling any potential confirmed COVID cases on board these early cruises should help the company -- and the industry -- receive approval from various health agencies, including the Centers for Disease Control and Prevention, to ramp up operations in 2022. Carnival's metrics will remain weak over the next two years -- including leverage of over 7x -- as a result of a slow ramp up in operations and the material amount of debt the company had to raise to survive this extended period of suspended operations. Over time we expect demand and pricing will return, enabling the company to de-lever to a range more appropriate for the B1 rating. Moody's views the pace of vaccine distribution in the US as a social consideration under its ESG framework.Confirmations:..Issuer: Carnival Corporation.... Corporate Family Rating, confirmed at B1.... Probability of Default Rating, confirmed at B1-PD....Senior Secured 1st Lien Bank Credit Facility, confirmed at Ba2 (LGD2)....Senior Secured 1st Lien Regular Bond/Debenture, confirmed at Ba2 (LGD2)....Senior Secured 2nd Lien Regular Bond/Debenture, confirmed at B1 (LGD3)....Senior Unsecured Regular Bond/Debenture, confirmed at B2 (LGD5)..Issuer: Carnival plc....Senior Secured 1st Lien Regular Bond/Debenture, confirmed at Ba2 (LGD2)....Senior Unsecured Regular Bond/Debenture, confirmed at B2 (LGD5)..Issuer: Long Beach (City of) CA....Senior Secured Revenue Bonds, confirmed at Ba2 (LGD2)Outlook Actions:..Issuer: Carnival Corporation....Outlook, Changed To Negative From Rating Under Review..Issuer: Carnival plc....Outlook, Changed To Negative From Rating Under ReviewRATINGS RATIONALECarnival's credit profile is supported by its good liquidity given its significant cash balances, its position as the largest worldwide cruise line in terms of revenues, fleet size and number of passengers carried, and its brand diversification. Carnival operates under nine brands which enables the company to operate in certain countries that may restrict cruising to locally-flagged vessels. Carnival also benefits from Moody's view that over the long run, the value proposition of a cruise vacation relative to land-based destinations as well as a group of loyal cruise customers supports a base level of demand once health safety concerns have been effectively addressed.In the short run, Carnival's credit profile will be dominated by the length of time that US cruise operations continue to be suspended, the path forward in resuming service and the resulting impact on the company's cash consumption, liquidity and credit metrics. The normal ongoing credit risks include Carnival's near term extremely high leverage, the highly seasonal and capital intensive nature of cruise companies, competition with all other vacation options, and the cruise industry's exposure to economic and industry cycles as well as weather related incidents and geopolitical events.The negative outlook reflects Carnival's very high leverage, the continued uncertainty around the resumption of US cruise operations and the pace and level of recovery in demand that will enable the company to significantly reduce leverage.Carnival has good liquidity reflected by cash balances of $11.5 billion at February 28, 2021. We expect the company's cash balances are sufficient to cover the company's cash needs over the next 12 months. The company also has access to $6.5 billion of committed export credit facilities to fund ship deliveries planned through 2025. In the first quarter of 2021 Carnival entered into an agreement with its revolver and bank loan lenders that delays testing of its interest coverage covenant to February 28, 2023 and amended the debt to capital covenant level to 75% from the November 30, 2021 testing date until the May 31, 2023 testing date, after which the level returns to 65% ratably to the May 31, 2024 testing date. The company's $3.0 billion revolver is fully drawn. The company's ability to access alternate forms of liquidity are deemed to be modest in the current operating environment. Carnival's revolving credit facility is comprised of the following: (a) a US $1.7 billion, EUR1.0 billion, and GBP150 million committed multi-currency revolving credit facility that expires in August 2024.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe outlook could be revised to stable if cruise operations resume in the US with occupancy levels, booking trends and pricing that would support positive free cash flow generation, the ability to repay debt and earnings growth trajectory that supports credit metrics returning to levels more in line with its current rating.Ratings could be upgraded if the company is able to maintain leverage below 4.5x with EBITA/interest expense of at least 3.0x. Ratings could be downgraded if the company's liquidity weakened in any way, including a monthly cash burn rate higher than currently expected without a corresponding increase in cash deposits received. The ratings could also be downgraded if any signs emerge that the ramp up in operations will not enable the company to generate EBITDA of at least 50% of 2019 levels in 2022 or if it appears that leverage will remain above 6.0x over the longer term.Carnival Corporation and Carnival plc own the world's largest passenger cruise fleet operating under multiple brands including Carnival Cruise Line, Holland America, Princess Cruises, AIDA Cruises, Costa Cruises, and P&O Cruises, among others. Carnival Corporation and Carnival plc operate as a dual listed company, headquartered in Miami, Florida, US and Southampton, United Kingdom. Annual net revenues for fiscal 2020 were approximately $4 billion.The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Peter Trombetta Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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