What happened 

Shares of Carnival (NYSE:CCL) fell as much as 5.1% on Thursday after the company announced an exchange of equity for debt with investors. At 12:50 p.m. EDT today, shares were down 2.8%. 

So what

Carnival announced that it registered a direct offering of 99.2 million shares of common stock that will go to holders of $885.6 million of 5.75% convertible senior notes due in 2023. The deal won't result in any cash proceeds for Carnival but does reduce the company's debt load. 

Cruise ship near a beach on a sunny day.

Image source: Getty Images.

After the transaction is complete, management said it expects there to still be $1.1 billion of the notes outstanding, but the cash needed to pay them off when due will be cut nearly in half. 

This follows Carnival saying it will join the rest of the cruise industry by pausing all voyages until at least Oct. 31. This isn't the first time Carnival has pushed off restarting its business, and it may not be the last.

Now what

Exchanging stock for debt reduces Carnival's risk long term, but it also dilutes existing shareholders. That means when operations get back to normal, the upside for current shareholders is low, which is why shares are trading lower today.

This may be the right long-term move for Carnival's business, but it'll also hurt the share price in the short term and may make investors hesitant to bid up shares if more dilution comes along as Carnival burns through cash.  

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