What happened
Shares of Royal Caribbean Cruises (RCL -0.39%) were down by 7.7% as of 12:40 p.m. ET on Friday as the major market indexes continue to tumble on intensifying recession fears following this week's Federal Reserve actions.
The central bank raised interest rates by 75 basis points for the third consecutive time and promised more such increases would be coming as it tries to tame rampant inflation. Because it's simultaneously continuing its policy of quantitative tightening -- or selling its vast portfolio of U.S. Treasuries accumulated during its decade-plus of quantitative easing -- that promises difficult times for the economy and the stock market.
Image source: Getty Images.
So what
Royal Caribbean just reported that its bookings are running far above pre-pandemic levels, showing there is significant pent-up demand for travel after the cruise line dropped its COVID-19 testing and vaccination protocols to sail. In a recent filing, management said: "Since the announcements, overall bookings have been significantly higher versus the same period in 2019. From a cumulative standpoint, 2023 remains booked within historical ranges at much higher rates."
As positive as that is, the cruise ship operator also moved to tap the junk-bond market for $2 billion in refinancing. The new bonds refinance all of its outstanding 9.125% bonds and 10.875% notes due in 2023, and will now be due in 2029. In a rising interest rate environment, refinancing has not been a common occurrence.
Now what
Royal Caribbean has a heavy debt burden. It ended the second quarter with more than $17.7 billion in long-term debt and $2.1 billion in cash. It spends more than $300 million each quarter on interest payments, nearly equivalent to its entire net loss in the second quarter, and the refinancing ought to give it more time to get fully back on its feet.
