The cruise line with the weakest cash position is arming itself with needed liquidity. Fresh from reporting a rough quarterly report -- but backed by a buoyant share price after a double shot of encouraging vaccine news -- Norwegian Cruise Line Holdings (NYSE:NCLH) is filing for a stock sale.
The country's third-largest cruise line operator is offering 40 million shares. The proceeds are being earmarked for "general corporate purposes," but this is ultimately about buying itself more time. The move will raise more than $800 million at current prices, and that will go a long way for Norwegian Cruise Line.
Sailing into the future
We don't know if cruises will resume early in 2021 or at some point later in the year. Norwegian Cruise Line can't afford to guess. It also can't afford to dismiss the market's current good fortune. Norwegian Cruise Line stock has soared 30% in the past seven trading days, hitting its highest level on Tuesday since early June.
The cruise line industry has had a rough year, but Norwegian Cruise Line, Carnival (NYSE:CCL) (NYSE:CUK) and Royal Caribbean (NYSE:RCL) have been soaring since early last week following news of one and now two potentially viable pandemic-snuffing vaccines.
If you're Norwegian Cruise Line you're not going to look a gift five-month high in the mouth. Norwegian had $2 billion in net liquidity at the end of September. Its cash-burn rate was down to $150 million a month in the third quarter, but that will bump up to $175 million a month in the current quarter -- and even higher if it has to prep its boats to start sailing early next year. Norwegian Cruise Line also has roughly $800 million in debt that matures in the year ahead, and refinancing will be more challenging if it's running low on funds because the cruise industry either isn't sailing or is doing so with heavy losses.
Carnival and Royal Caribbean have raised a lot more money during the disruption than Norwegian Cruise Line. They are naturally burning through more greenbacks as larger enterprises, but you don't want to be the distant bronze medalist when it comes to liquidity if this industry interruption lingers or consumers are slow to embrace a return to the high seas. Norwegian Cruise Line stock is still trading a lot lower than where it was when the year began, but it's still one of the riskiest consumer discretionary stocks out there until we get visibility on a path to profitability.
All three players are on the clock. Any new stock offering is going to be seen by the market as dilutive -- explaining why shares of Norwegian Cruise Line shares dipped in late trading on Tuesday on the filing news -- but this is undeniably what the cruise line operator needs right now. Money is time. Money is the power to make difficult decisions instead of having them made for you. Money is more important in the long run than the downticks in the short run.