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Why Royal Caribbean's Shares Soared 45% in April

By Royston Yang – Updated May 4, 2020 at 8:26AM

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Cost-cutting and more financing options provide the cruise company with a viable lifeline.

What happened

Shares of Royal Caribbean (RCL -6.87%) shot up 45% in April, according to data provided by S&P Global Market Intelligence.

Though this sharp rise pared some of the stock's losses for the year, the shares of the cruise company are still down a whopping 65% year to date.

Cruise Ship Sailing on Sea in Evening

Image source: Getty Images.

So what

The cruise industry has been battered by bad news since the outbreak of the COVID-19 pandemic, with medical experts warning people not to go on cruise ships and countries shutting off borders to curb the spread of the virus. Royal Caribbean has extended its cruise suspension by canceling all sailings through June 11.

But there are signs that things may not be as bad as they seem. On April 8, the company amended export-credit backed loan facilities relating to two of their vessels, Anthem of the Seas and Spectrum of the Seas. This move was to incorporate a 12-month debt-holiday initiative offered by the official export credit agency of Germany to assist cruise-line borrowers. On April 21, another vessel, Quantum of the Seas, had its loan facility amended with the same debt holiday. These measures will help ease the cash flow burden for Royal Caribbean as it navigates this unprecedented crisis.

The company has also announced that it will lay off or furlough 26% of its workforce in the U.S. This will affect nearly 1,300 of the company's more than 5,000 employees in this country. Though drastic, the move will help save more cash. Royal Caribbean is also rumored to be in talks with Morgan Stanley to raise new financing and is said to be discussing a package that may include the issuance of convertible bonds or equity. The target is to raise as much as $600 million to help get through the pandemic.

Now what

Royal Caribbean has weathered many crises in the past. Though the current one seems like the single biggest challenge to hit the industry in decades, the slew of measures undertaken by the company to raise cash, shore up its balance sheet, and slash costs may help it to survive.

The question now is whether business will return to normal even after the pandemic is contained, or if it will take an extended period for people to step onto a cruise ship again. Whichever is the case, it seems that Royal Caribbean's finances have been bolstered and that the company should still be around to take advantage of the recovery.

Royston Yang has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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