What happened
For the third day in a row, Carnival Corp. (CCL 1.85%) stock is sinking -- down 3% as of 1 p.m. EDT. But here's something that may surprise you: While it seems clear why investors have decided to sell off the stock ... the same catalyst could also be a reason to buy it.
Image source: Getty Images.
So what
Consider: As my fellow Fool Travis Hoium explained Tuesday, investors are upset with Carnival's decision to buy back $2 billion worth of its 11.5% senior secured notes due 2023. In other words, it's paying down its debt, which is generally a good thing. But Carnival is buying back that debt at more than its face value, paying roughly $1,142.50 per $1,000 in the notes' principal value.
Now, on the one hand, that move will cut into the $9.3 billion in cash Carnival had on hand to carry it through the rest of the pandemic. This is especially concerning in light of the fact that Carnival is still burning through $500 million a month, as the revenue it's taking in while running a limited number of cruises with lower than normal occupancy levels is failing to cover the expenses of operating those ships.
Now what
As investors, obviously we'd prefer to see Carnival pay down its debt by buying back notes at below face value, rather than above. We'd also prefer to see Carnival make the best possible use of its cash.
But the fact that the company was not able to get a good deal to redeem those notes implies that its debt-holders are so supremely confident that Carnival will get "back to normal" soon and be able to pay off its debts, they refuse to accept anything less than face value when selling the notes back.
Carnival's debt-holders don't seem to view this company as in distress at all. Maybe its stock investors should take a cue from that.
