What happened

Shares of Norwegian Cruise Line Holdings (NASDAQ:NCLH) fell in morning trading on Tuesday after the company filed a report updating investors on liquidity. As of 11:10 a.m. EST, shares are down 20% and still falling.

The headline takeaway is that Norwegian needs money, and money is getting harder to come by.

A cruise ship off a coast.

Image source: Getty Images.

So what

The COVID-19 pandemic docked cruise ships around the world, including Norwegian's. The company suspended all cruises starting in March, and had hoped to resume after June 30. However, the Center for Disease Control's no-sail order extends the cruise shutdown to at least July 24. The target date to resume operations keeps getting pushed back, and in the meantime Norwegian has no income and plenty of expenses.

Norwegian completely withdrew $1.55 billion from its credit facility early on, but it might need more money depending on how long the coronavirus situation drags on. Unfortunately for the company, both Moody's and S&P Global have downgraded Norwegian's credit rating, making fresh funding harder to come by and less favorable.

Because of this, Norwegian has few options, but it's taking what it can. In a separate filing today, the company said it's offering new shares to raise $350 million, diluting shareholder value. Additionally, it's proposing a $650 million offering of exchangeable notes (also dilutive to shareholders) and proposing a $600 million offering of senior secured notes. 

That's $1.6 billion in fresh liquidity, a realistic indication of just how challenging this time is for Norwegian and other cruise line operators.

Part of the ongoing liquidity problem stems from Norwegian's responsibility to customers whose cruises have been canceled. Cruisers were incentivized to shun cash refunds in favor of future cruise credits. But the company said around half of customers have asked for a cash refund to date. And if cruise cancellations continue, more could request refunds, which would result in a massive outflow of cash. Consider that there's currently $1.8 billion in advance ticket sales.

Now what

Deeper in the filing, Norwegian also addressed the issue of goodwill -- intangible assets. Since goodwill is intangible, all companies must periodically evaluate whether their goodwill value on paper matches the current reality. Because Norwegian's business has suffered, it's forced to reevaluate goodwill. The assessment is ongoing and could change, but as of right now the company expects to write off $1.5 billion to $1.7 billion.

This affects net income, but fortunately doesn't impair cash flow and won't contribute to Norwegian's liquidity problems. Still, that's an enormous write-off for a company with only a $2.5 billion market capitalization.

Value investors circling the wagons on Norwegian's stock need to understand this is an unprecedented storm for cruise lines. Any recovery will likely take years, not months. Today's announcements from Norwegian underscore this.