Silversea Cruise Finance Ltd. -- Moody's confirms Royal Caribbean's B1 CFR; outlook negative

Rating Action: Moody's confirms Royal Caribbean's B1 CFR; outlook negativeGlobal Credit Research - 15 Apr 2021New York, April 15, 2021 -- Moody's Investors Service, ("Moody's") confirmed the ratings of Royal Caribbean Cruises Ltd. and Silversea Cruise Finance Ltd. (together, "Royal Caribbean") including its B1 corporate family rating, B1-PD probability of default rating, Ba2 senior secured rating, and B2 senior unsecured and senior unsecured guaranteed 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 Royal Caribbean's ratings reflects Moody's view that the growing number of vaccinated individuals in the US and the company's ability to offer cruising outside of the US, 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. Royal Caribbean's metrics will remain weak over the next two years -- including leverage of over 6.5x -- 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, Moody's expects 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: Royal Caribbean Cruises Ltd..... Corporate Family Rating, Confirmed at B1.... Probability of Default Rating, Confirmed at B1-PD....Senior Secured Regular Bond/Debenture, Confirmed at Ba2 (LGD2)....Gtd. Senior Unsecured and Senior Unsecured Regular Bond/Debenture, Confirmed at B2 (LGD4)..Issuer: Silversea Cruise Finance Ltd.....Gtd. Senior Secured Regular Bond/Debenture, Confirmed at Ba2 (LGD2)Outlook Actions:..Issuer: Royal Caribbean Cruises Ltd.....Outlook, Changed To Negative From Rating Under Review..Issuer: Silversea Cruise Finance Ltd.....Outlook, Changed To Negative From Rating Under ReviewRATINGS RATIONALERoyal Caribbean's credit profile is supported by its good liquidity which will enable the company to survive this extended period of suspended operations. The company also benefits from its solid market position as the second largest global ocean cruise operator based upon capacity and revenue which acknowledges the strength of its brands. Royal Caribbean is well diversified by geography, brand, and market segment. Moody's view is that over the long run, the value proposition of a cruise vacation 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, Royal Caribbean's credit profile will be dominated by the length of time that US cruise operations continue to be suspended, the path forward to resuming operations and the resulting impacts on the company's cash consumption and its liquidity profile. The normal ongoing credit risks include the company's current exceptionally high leverage, the highly seasonal and capital intensive nature of cruise companies and the cruise industry's exposure to economic and industry cycles, weather incidents and geopolitical events.The negative outlook reflects Royal Caribbean's weak credit metrics, 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 reduce its leverage.Royal Caribbean's liquidity is good. We expect the company's cash balances of about $3.7 billion at the end of 2020 is sufficient to cover the company's cash needs over at least the next 12 months. This does not include proceeds from the company's $1.5 billion note issuance and $1.5 billion equity issuance in March. The company has entered into agreements to amend all of its export credit facilities and certain of its non-export credit facilities to waive compliance with its financial covenants through the third quarter of 2022 and is only subject to a minimum liquidity covenant of $350 million. The company has fully drawn on its existing revolvers but has access to a $700 million 364 day commitment that expires in August 2022. The company's ability to access alternate forms of liquidity are deemed to be modest in the current operating environment.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.Royal Caribbean (operating under the name Royal Caribbean Group) is a global vacation company that operates three wholly-owned cruise brands, including Royal Caribbean International, Celebrity Cruises and Silversea. Net revenue for fiscal 2020 was $1.7 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. 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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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