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Royal Caribbean Drops After $900 Million Note Offering

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(Bloomberg) -- Shares of Royal Caribbean Cruises Ltd. sank 7.5% Monday after the company launched a private offering for as much as $900 million in senior convertible notes to be used to buy back existing debt.

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News of the convertible notes offering sent peers Carnival Corp. and Norwegian Cruise Line Holding Ltd. lower as well. Last week, Carnival closed on an underwritten public stock offering that raised $1 billion to be used for a variety of purposes, including addressing 2023 debt maturities.

The cruise industry has been battered by Covid-related travel halts and restrictions since the pandemic began making headlines in early 2020. The US Centers for Disease Control and Prevention lifted its Covid-19 program for cruise ships as of July 18, sparking a multiday rally for cruise operators.

But Carnival’s stock offering, announced July 21, put a quick end to that optimism. And Royal Caribbean’s convertible offering is causing more pain. It had previously raised about $3.1 billion in three equity offerings during the Covid era.

Of course, Royal Caribbean doesn’t have much of a choice. The company is “in most urgent need” of additional equity if it can’t raise debt, Alex Brignall of Redburn told clients after Carnival’s stock offering announcement. He has a neutral rating on the stock.

See Traders See More Cruise Stock Sales After Carnival: ECM Watch

Royal Caribbean said in a statement that proceeds are intended to be used to repurchase some of its 2.875% convertible senior notes due Nov. 15, 2023, and 4.25% convertible senior notes due June 15, 2023. Replacing some near-term convertible bonds with new longer-term ones will be “non-dilutive to shareholders,” Chief Financial Officer Naftali Holtz said in the statement.

(Corrects to clarify Royal Caribbean raised $3.1 billion in three equity offerings in fourth paragraph)

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