Royal Caribbean announced Wednesday that it has secured a binding commitment from Morgan Stanley for a $700 million term loan facility, in another move to cope with the financial fallout of the sailings halt.
According to the loan agreement Royal Caribbean (RCL) may draw on the facility at any time prior to August 12, 2021. Once drawn, the loan will bear interest at L + 3.75% and will mature 364 days from funding. Royal Caribbean has an option to increase the capacity of the facility by an additional $300 million from time to time subject to the receipt of additional or increased commitments and the issuance of guarantees from additional subsidiaries.
If drawn, the company expects to use the net proceeds for general corporate purposes. The facility will be guaranteed by RCI Holdings, a wholly owned subsidiary of the cruise operator that owns the equity interests in subsidiaries that own seven of the company’s vessels.
The loan announcement comes after the ailing cruise operator on Monday reported an adjusted $1.3 billion loss in the second quarter as its operations remain suspended. Royal Caribbean said it expects to burn $250 million to $290 million on average per month during a prolonged suspension of cruise operations. Looking ahead, the company said it is seeing “remarkable” bookings for its international cruises in 2021.
RCL shares dropped 4.5% to $56.03 in early afternoon trading trimming their 5-day gain to 14%. Year-to-date, the stock is down 58%.(See RCL stock analysis on TipRanks).
Deutsche Bank analyst Chris Woronka maintained a Hold rating on the stock with a $43 price target (23% downside potential), saying that he expects actual recovery to be drawn out.
“Our view is that even after such time as RCL resumes operations, the trajectory of bringing capacity back online profitably is likely to be frustratingly slow for some – particularly when viewed against what could be a swifter recovery in other areas of the travel & consumer discretionary verticals,” Woronka wrote in a note to investors. “None of this is to say that the stock can't or won't see further upside in the meantime – in fact, we believe it is more probable than not that it will overshoot (and perhaps is already in the process of doing so).”
Currently, the rest of the Street has a cautiously optimistic outlook on the stock. The Moderate Buy analyst consensus is based on 7 Buys versus 8 Holds, and 2 Sells. The $54.38 average price target implies downside potential of about 2.2% to current levels.
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