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Why Carnival Stock Dropped Today

By Rich Smith – Aug 12, 2021 at 4:57PM

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Ask Royal Caribbean why it happened.

What happened

Shares of Carnival (CCL -3.93%) fell as much as 4.3% on Thursday before finally closing the day down 2.6%. If you want to know why, look to Royal Caribbean (RCL -3.01%).

Collage showing a cruise ship, a man in a face mask and a microbe

Image source: Getty Images.

So what

All three of the major cruise line stocks suffered declines on Thursday, including Norwegian Cruise Line Holdings (NCLH -2.34%), too. But the catalyst most likely to have started this ball rolling downhill was an announcement from Royal Caribbean that it has decided to sell $1 billion worth of senior unsecured notes due in 2026, at a 5.5% interest rate.  

Royal Caribbean explained that it is taking on this new debt primarily to roll over older, higher-cost debt. It plans to redeem up to 40% of 11.500% senior secured notes due in 2025, and refinance other future debt maturities.

After 18 long months of watching cruise line after cruise line issue debt to raise funds to survive a long global shutdown, you can't blame investors for being nervous about the prospect of a new round of debt issuances.

Now what

The U.S. yesterday clocked more than 135,000 new coronavirus cases, and the delta variant of COVID-19 still seems to be spreading like a weed. The potential that the Centers for Disease Control and Prevention will reinstate a cruise ban in the midst of a fourth wave of coronavirus cannot be discounted. And the first clue that this ban might be in the cards could be a wave of new debt issuances by the cruise lines, as they prepare to weather another storm.

Where Royal Caribbean is leading on debt issuance Thursday, Carnival could follow.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

Stocks Mentioned

Carnival & Plc Stock Quote
Carnival & Plc
$9.30 (-3.93%) $0.38
Royal Caribbean Cruises Stock Quote
Royal Caribbean Cruises
$57.63 (-3.01%) $-1.79
Norwegian Cruise Line Stock Quote
Norwegian Cruise Line
$15.83 (-2.34%) $0.38

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