The whipsaw for cruise-line stocks continued on Tuesday, but this time stocks are trading higher. Carnival Corp. (NYSE:CCL) rose as much as 13.7% mid-day, Royal Caribbean Cruises (NYSE:RCL) was up 19.8%, and Norwegian Cruise Line Holdings (NYSE:NCLH) rose 16.1%. Each stock fell off as the day wore on, with shares up a more modest 0.9%, 4.9%, and 3.2% respectively at 3:30 p.m. EDT.
Cruise stocks are reacting to even the slightest bit of news these days, and today it was news that Carnival is trying to get another $6 billion in debt and equity that sent the entire industry higher.
Carnival announced on Tuesday that it intends to offer $1.25 billion in stock, $1.75 billion in senior convertible notes due in 2023, and another $3 billion in first-priority senior secured notes due in 2023 to investors. The company has also granted underwriters the option to purchase up to $187.5 million in additional shares, making the total haul up to $3.19 billion before fees.
A huge stock and debt offering may not seem like good news for a company, but in Carnival's case the money may actually hold off bankruptcy. I recently detailed that the company could run out of money in 2020 if it didn't do something drastic, and this is indeed a drastic move.
The reason other cruise-line stocks have followed is that investors are assuming they'll also be able to raise capital when they need it. Given the success of Carnival's proposed offerings and the market's reaction, it wouldn't be surprising to see competitors tap markets as well.
Raising money will give cruise-line companies more runway to absorb losses during the COVID-19 pandemic, but it doesn't change the unknowns about the business. Operations will be shut down for the foreseeable future, and even when they reopen, it's unclear how much demand will return.
Even the terms of this offering are telling about what investors think about the cruise-line industry right now. Since $3 billion of debt is "first-priority senior secured," these investors jump the front of the line in the case of a bankruptcy. The other portion of the debt is convertible into cash or stock in the future. Those are the kinds of terms investors are demanding, and they aren't a low cost of capital. But that's the cost of raising money when the goal is just to survive. I still think it's best to look for great stock deals elsewhere right now.