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Why Carnival Corporation Stock Just Dropped

By Rich Smith - Feb 23, 2021 at 12:46PM

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Carnival says it needs another $1 billion in cash, please.

What happened

Shares of cruise line holding company Carnival Corporation (CCL -2.48%) tumbled nearly 10% in early trading on the NYSE Tuesday before recovering to about a 2.4% loss as of 11:45 a.m. EST.

So what

As we reported last night, Carnival has announced plans to raise another $1 billion in cash through a secondary stock offering. Very late last night, the company released additional information on the offering.

Specifically, Carnival said it will create and sell 40.4 million new shares of common stock for $25.10 apiece in order to raise its targeted $1 billion in cash. At last report, Carnival had 1.1 billion shares of stock outstanding, so the just-announced offering will dilute existing shareholders out of only about 3.5% of their ownership interest in the company.  

Simple red arrow declining stock chart on a white checked background

Image source: Getty Images.

Now what

In exchange for losing that ownership interest, Carnival shareholders will own a company with $1 billion more in cash. That should buy the company about a couple more months of liquidity at its most recent stated rate of cash burn -- $500 million per month (down from $530 million previously).  

Combined with the $3.5 billion in cash raised from a debt offering two weeks ago, this should give Carnival something on the order of $14 billion in cash on its balance sheet. Granted, you need to weigh that amount against Carnival's debt, which is now more than $30 billion. But even so, the upshot is that while shareholders may own a little bit less of Carnival by the end of this week than they started with, the company continues to be the cruise line with the most cash ballast on board with which to weather the economic storm.  

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