Seeking to raise billions by issuing new stock and securing fresh debt, Carnival (NYSE:CCL) landed some big investors by baiting the hook on its bond offering with a 12.5% coupon rate, according to Bloomberg. That record-setting yield attracted so much interest that the cruise line operator decided to raise its bond offering from $3 billion to $4 billion.
Originally, the company planned to issue bonds denominated in both dollars and euros to appeal to American and European bond investors. However, a massive influx of dollar orders -- the total order book hit $17 billion -- caused Carnival to drop the euro bond sale, issue the additional dollar notes, and cut the dollar coupon rate to a still impressive 11.5%. That's the same rate the euro bonds would have come with.
Cruise lines, whose vessels are sometimes described as floating petri dishes, have been particularly hard hit by the pullback in travel caused by the COVID-19 pandemic. Carnival, like most of its peers, has put a hold on new cruises for now, though some of its vessels are still at sea with passengers on board.
Carnival says that it needs $1 billion monthly to continue operating, even if it's not catering to passengers. It costs $2 million to $3 million per month to maintain a temporarily decommissioned ship in a high state of readiness to be brought back into service. It could reduce that cost to $1 million a month per vessel, but that would make the process of getting those 100-plus ships back into service once conditions allow for it more difficult and time-consuming.