The stock market posted solid gains on Tuesday morning, with investors once again expressing an upbeat attitude about the prospects for a long-term economic recovery in the U.S. despite the ongoing novel coronavirus pandemic. Market participants have high hopes that reopening business in several states won't result in new COVID-19 cases, despite worries from health officials that such moves might be premature. As of 11 a.m. EDT, the Dow Jones Industrial Average (^DJI 0.23%) was up 337 points to 24,086. The S&P 500 (^GSPC 0.36%) gained 44 points to 2,887, and the Nasdaq Composite (^IXIC 0.00%) climbed 150 points to 8,860.
Unfortunately, the good news didn't extend to every stock in the market. The cruise line industry has taken an especially hard hit from the COVID-19 outbreak, sending shares of cruise operators sharply lower. Today, Norwegian Cruise Line Holdings (NCLH -9.55%) gave investors another piece of bad news that cast doubt on whether the operator will be able to make it through the current crisis without resorting to extreme measures.
Norwegian to investors: Gimme some money
Shares of Norwegian fell 19% Tuesday morning as investors responded to the company's latest actions to try to boost its chances of survival. Even though most of those following Norwegian agree that it needed to make these key moves, some language it used raised the specter of scary outcomes if it can't successfully navigate through rough waters.
Norwegian is looking to raise capital in three ways:
- It wants to sell $650 million in exchangeable four-year senior notes in a private offering.
- It also wants to raise $600 million by selling senior secured four-year notes.
- Finally, it wants to sell $350 million in stock in a secondary public offering.
That all seems straightforward, and it's consistent with what other cruise line operators have done. Both Carnival (CCL -6.82%) and Royal Caribbean Cruises (RCL -7.19%) have tapped the financial markets for much-needed capital. With the companies burning through cash to pay fixed expenses even as their cruise ships sit in port, the need for liquidity has been obvious. Moreover, in many cases, cruise stocks actually gained ground when they sought to raise capital.
However, astute investors who actually read the prospectus for the offerings focused much of their attention on two scary words in the following statement (emphasis added):
The suspension of cruise voyages and decline in advanced bookings, as well as debt maturities and other obligations over the next year, have raised substantial doubt about the Company's ability to continue as a going concern.
In particular, Norwegian highlighted that it doesn't currently have enough liquidity to meet its financial obligations over the next 12 months if it can't get new financing or take other measures to address its money issues. Because of that, it felt the need to go back and make revisions to its 2019 annual report to mention the going concern risk. That's something Carnival and Royal Caribbean haven't done, which is one reason why their shares were down only 5% to 6% on the day.
What Norwegian has to do
Norwegian is doing what it should to try to raise capital and make it through the tough period during which it can't run its cruise ships. Just about every investor in cruise stocks understands the existential fight that the companies are in, so there was nothing shocking about the information in Norwegian's disclosures. Nevertheless, words matter in investing, and having to state openly its going concern worries was another milestone that cruise ship stock investors didn't want to see happen.