Rating Action: Moody's rates Viking Cruises' planned secured notes B2, unsecured notes at Caa2
Global Credit Research - 27 Jan 2021
New York, January 27, 2021 -- Moody's Investors Service ("Moody's") assigned Viking Cruises Ltd's ("Viking") planned $350 million senior unsecured notes a Caa2 rating and Viking Ocean Cruises Ship VII Ltd. planned $350 million secured note issuance a B2 rating. There is no change to Viking's existing ratings including its B3 corporate family rating, B3-PD probability of default rating, existing B2 senior secured rating and existing Caa2 senior unsecured rating. The outlook remains negative.
Proceeds from the planned $350 million secured note issuance will be used in part as payment for the Viking Venus which is expected to be delivered in April 2021. The secured notes will be issued by Viking Ocean Cruises Ship VII Ltd, a subsidiary of Viking, and will have an unsecured guarantee from Viking. Proceeds from the $350 million unsecured note issuance will be used to bolster the company's liquidity position as its cruise operations remain suspended through at least the end of March 2021.
..Issuer: Viking Cruises Ltd
....Senior Unsecured Regular Bond/Debenture, Assigned Caa2 (LGD5)
..Issuer: Viking Ocean Cruises ship VII Ltd.
....Senior Secured Regular Bond/Debenture, Assigned B2 (LGD3)
..Issuer: Viking Ocean Cruises Ship VII Ltd.
....Outlook, Assigned Negative
Viking's credit profile continues to be dominated by the length of time that cruise operations will be highly disrupted and the resulting impacts on the company's cash consumption and its liquidity profile. The normal ongoing credit risks include Viking's high leverage which Moody's forecasts will exceed 7.0x at the end of 2022 assuming negative EBITDA in 2020 and 2021 with a recovery in 2022. The company's credit profile is also constrained by its limited diversification both in terms of geography and customer base and the cyclicality, seasonality and capital intensity inherent in the cruise industry. Governance risks, particularly financial strategy, specifically related to dividends, the absence of target leverage levels, and the lack of a committed revolver are also constraints. Viking's credit profile is supported by its well-recognized brand name in both the premium segment of the river cruising and ocean cruising markets. Viking has approximately a 50% market share of the North American sourced river cruise passengers for Europe, Russian and China. Since entering the ocean cruising market with its first ship in 2015, Viking has grown that segment such that it accounts for about 40% of Viking's revenue. Under normal conditions, Viking's credit profile is also enhanced by its good forward booking visibility and short lead time to build new river vessels which allows Viking to adjust river cruise capacity to demand trends. Viking's historical willingness to bring in new equity partners provides credit support. In 2016 and 2020 when Viking needed to boost liquidity, TPG Capital and Canada Pension Plan Investment Board (each with board representation) committed to contribute capital. On a combined basis, after closing of the additional investment, they will own a little more than 40% stake in the company.
Viking has good liquidity including our estimate of cash balances of about $810 million at the end of 2020. Subsequent additions to those cash balances include the planned note issuance, aforementioned equity infusion, and about $165 million of proceeds from the sale of the Viking Sun to a joint venture in China. Moody's expect this level of cash is sufficient to cover the company's cash needs during this time of suspended operations and through 2021. Viking does not have access to a committed revolving credit facility. Also considered is that while we view cruise ships as valuable long-term assets, we do not believe the company could sell ships quickly to raise cash, if necessary.
The negative outlook reflects Viking's very high leverage and the uncertainty around the pace and level of recovery in demand that will enable the company to de-lever to around 6.5x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to a downgrade include weaker than expected liquidity, updated expectations for cruising operations being suspended beyond April 2021 or if there are indications that the company is not on a path to restoring leverage to a sustainable level. Factors that could lead to the outlook being revised to stable include signs of good demand trends for 2021, leading to an expectation that the company's finances will stabilize in the near term and that debt/EBITDA will improve to below 6.5x over the medium term. Ratings could be upgraded should operating performance recover to levels that would support debt/EBITDA sustained at or below 5.5x while maintaining at least adequate liquidity.
Viking operated a fleet of 72 river cruise vessels and six ocean cruise ships as of December 31, 2019. Its river cruises operate in over 30 countries largely in Continental Europe. Historically, about 85% of its total river and ocean customers are sourced from North America. TPG Capital and Canada Pension Plan Investment Board own a minority interest (about 40% on a combined basis) in Viking Holdings Ltd, parent company of Viking Cruises. The remaining ownership is indirectly held under a trust in which Torstein Hagen has a life interest. Net cruise revenues were about $2.1 billion for the fiscal year 2019.
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.
For 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.
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Peter Trombetta Vice President - Senior Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Margaret Taylor Associate Managing Director Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653
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