Carter sells $1. 5 B junk bond to push out maturities

- Carnival Corp. is selling $1.5 billion in new junk bonds to refinance debt and push out maturities, just over a week after it boosted the size of a leveraged loan deal that helped the company slash its borrowing costs.

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The 7.5 year private notes are expected to price later in the day with discussions for a yield in the area of 6%, according to people with knowledge of the matter who asked not to be identified discussing a public transaction. Proceeds will be used to pay recurring principal payments on debt during 2022 and for general corporate purposes, the people added.

The cruise operator is focused on clearing the runway of near-term debt maturities as it works to return all ships to water, said Bloomberg analyst Jody Lurie. Management guided for positive free cash flow in the fourth quarter with a return to higher net profit (FX) by mid-next year.

Lurie: Carnival is clearing any stumbling blocks out of the way to normalcy, said Carnival.

While the Miami-based company said it expects to return its full fleet to seas by early 2022, it is still burning through cash as voyages resume. Carnival s long-term debt stood at $28 billion at the end of the third quarter in the Philippines, up from $9.7 billion at the end of 2019.

The deal follows a $2.3 billion loan sale earlier this month, which was raised from $1.5 billion and helped the cruise ship operator replace expensive 11.5% debt issued near the outset of the pandemic. The new loan carried a low cost of financing – close to 4%

Carnival has already trimmed over $250 million in interest expense via loan refinancings this year, according to Bloomberg Intelligence calculations. Its ability to refinance cheaply shows both the optimism of investors for cruise industry and the lack of opportunities in a market still buoyed by liquidity.

Today s deal would make Carnival second biggest bank in total junk bond revenue according to Bloomberg.

If the company is indeed able to generate positive operations and return to pre-pandemic cash flow next year, it will attract factors comparable to those of competitor Royal Caribbean Cruises Ltd. s who currently trade slightly tighter, Lurie said.

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