Norwegian Cruise Line (NCLH -0.77%) has raised money from a number of sources, but that cash may not see it through the coronavirus pandemic. The company released a detailed picture of its financial standing in a document filed on May 5 with the SEC.
It's not a fully bleak outlook, but the filing presents both sides of the picture. The company has taken significant steps to not default on its obligations, but has acknowledged in the 8-K filing that its efforts might not be enough:
The factors described above, in particular the suspension of cruise voyages and decline in advanced bookings, as well as debt maturities and other obligations over the next year, and the fact that management's plan to obtain additional financing has not yet been completed, have raised substantial doubt about the Company's ability to continue as a going concern, as the Company does not have sufficient liquidity to meet its obligations over the next twelve months, assuming no additional financing or other proactive measures.
That's not to say a bankruptcy filing is imminent. A lot depends on when the company can return to operating and how quickly customers come back. It's hard, however, to find a silver lining in any of this for investors.
All cruises remain canceled. Image source: Getty Images.
Norwegian is fighting for survival
The cruise line has not been sitting pat and letting its ships sink. It has made a number of moves to try to stay afloat. These include:
- Negotiating longer terms on some of its debt to provide $358 million in added liquidity through March 31, 2021.
- Putting a deal in place to amend the credit facilities secured by its Pride of America and Norwegian Epic ships subject to the cruise line raising $1 billion in added equity by June 30, 2020.
- Deferring $145 million to be repaid 25% per year beginning in May 2021.
- Completing a private placement of up to $400 million "in aggregate principal amount of exchangeable senior notes due 2026 to an affiliate of L Catterton."
- Plans to sell up to $402.5 million in added shares.
- Proposing to sell $650 million aggregate principal amount of its exchangeable senior notes due in 2024.
These are all, in theory, strong moves. The L Catterton investment includes a seat on the board. It also comes at a somewhat steep price of 7% interest in the first year, as well as "4.5% per annum payment-in-kind interest plus 3% per annum cash interest for the following four years post-issuance and 7.5% in cash for the final year prior to maturity," according to a press release.
These moves could help the company avoid filing for bankruptcy. They may not be enough, and Norwegian made that very clear in its SEC filing. It basically said that if it can pull off all of the needed moves, it will survive, but that may not be what happens.
"There can be no assurance, however, that the company will be able to complete any such financing transaction, raise sufficient additional capital, finalize additional amortization deferrals or that revenues will increase rapidly enough to offset operating losses that will provide with sufficient liquidity to satisfy its obligations over the next twelve months or maintain minimum levels of liquidity as required by certain of our debt agreements," the company's management wrote.
Dark skies ahead
These are disclosures that Norwegian legally has to make. It's not a promise of bankruptcy, but it's a warning that one could happen.
Investing in any cruise line right now is very risky. No matter what any individual company says, it remains uncertain when cruising will return. That's a very big financial risk for companies that have heavy ongoing costs and no money coming in.
Norwegian is the first cruise line that has had to raise this warning flag. It may not be the last.
