What happened
Embattled cruise line stock Norwegian Cruise Line Holdings (NYSE:NCLH) suffered a steep sell-off in shares Tuesday morning. The stock is recovering in early afternoon trading, but is still down about 2% as of 12:50 p.m. EST.
So what
It's not hard to figure out why. This morning, Norwegian Cruise Line announced plans to sell $500 million aggregate principal amount of its senior notes due 2026. Or in basic English: Norwegian Cruise is taking out a loan, and adding $500 million to its debt load to help tide it over through the pandemic.
Image source: Getty Images.
Now what
S&P Global Market Intelligence shows that Norwegian last raised cash through a debt offering in July, so its latest tally, showing that Norwegian Cruise had just under $11.2 billion in total debt at the end of September 2020, should still hold true today. Today's announcement promises to grow that debt to $11.7 billion, even as cash burn will have lowered Norwegian's cash balance.
In that regard, Norwegian had about $2.35 billion in the bank at the end of September. It's been burning cash at the rate of about $175 million per month for the past two and a half months, however. Subtract that out, and add the $500 million Norwegian is now raising, and my best guess is that Norwegian should end up with about $2.5 billion in cash.
At current burn rates, this should suffice to keep the company afloat for another 14 months. With any luck, the recession will be over by then, and Norwegian Cruise can finally get back to cruising -- and paying back all the loans it's accrued to enable it to reach that point.
