Royal Caribbean (RCL 1.23%) suspended its dividend payments and all stock buybacks during the COVID-19 pandemic, and now says that after restructuring its debt with lenders, it is prohibited from restarting either program until after the third quarter of 2022.

However, the cruise ship operator said it was able to amend nearly $4.5 billion worth of loans to waive various covenants that would normally apply so they won't be applicable until late 2022 as well.

Life preserver mounted on a railing

Image source: Getty Images.

Living on borrowed time

Last April, Royal Caribbean took advantage of a "debt holiday" offered to the cruise industry by Euler Hermes, Germany's official export credit agency. Among the covenants agreed to was not paying a dividend, buying back stock, or taking on new loans for anything other than liquidity.

Global health agencies shut down all cruises from any ports of call, an order that remains largely in effect today. And the cruise operators have continuously pushed back the timeline for when they will be able to resume sailing. 

Royal Caribbean previously suspended almost all of its cruises until May, but Norwegian Cruise Line Holdings (NCLH 0.66%) just suspended all of its voyages under the Norwegian, Oceania, and Regent Seven Seas brand names until June. There could be a domino effect with other cruise operators following suit.

The covenant waivers Royal Caribbean was given as part of its agreement with the lenders include suspending testing its fixed charge coverage and net debt to capitalization on a quarterly basis. Some changes are just temporary during the waiver period while others are permanent. Certain waivers are extended through the end of 2023.

Investors should probably not expect dividends or stock buybacks to begin immediately at the end of the waiver period.