What happened 

A day after what seemed like a big recovery, cruise line stocks continued their skid on Wednesday. Shares of Carnival (CCL -0.81%) closed down 33.1%, Royal Caribbean Cruises (RCL -0.16%) ended the day down 19.8%, and Norwegian Cruise Line Holdings (NCLH -1.11%) lost 12.8%. 

Tuesday's bump in shares came as Carnival announced a $3 billion bond offering as part of an effort to raise $6 billion in total. But when details about the offering came out, the market began viewing it very differently. 

Cruise ship on open water at sunset.

Image source: Getty Images.

So what

Carnival's $6 billion in planned fundraising announced Tuesday included selling $1.25 billion in stock, $1.75 billion of senior convertible notes due in 2023, and $3 billion of first-priority senior notes due in 2023. The first-priority senior notes were priced early on Wednesday, and there was more demand than the company expected. So management increased the offering to $4 billion, and it will be entirely in U.S. dollars, rather than being split between euros and dollars. Carnival also reduced the stock offered to $750 million, making the total raised $6.5 billion. 

The catch is that the debt comes with a 11.5% coupon, an incredibly high interest rate for a large company. The double-digit rate, and the priority that it comes with, shows that Carnival didn't have many options for raising cash. 

At the same time as the debt sale, Moody's downgraded the ratings of Carnival, Royal Caribbean, and Norwegian Cruise Line debt and gave them either a review for potential downgrade or said that the outlook was negative. Debt ratings are often what investors use to help price debt, so if ratings are falling, then the cost of raising money is likely going up. And we saw that in practice with the 11.5% coupon for Carnival. 

Now what

The future is looking bleak for the cruise industry, and when investors start demanding double-digit interest rates for very senior debt, it's not a good sign. The COVID-19 pandemic will keep ships from sailing for the foreseeable future. And even when voyages continue, a decline in consumer discretionary spending may put cruise vacations at the back of people's minds. 

Volatility continues to be the name of the game for cruise line stocks, and they are still trending lower. Carnival is buying itself time, and I would expect others to do the same, but that might not be enough if the COVID-19 pandemic isn't contained soon. This still isn't an industry I would expect to make a quick recovery.