Shares of cruise ship operator Carnival (CCL 1.01%) (CUK 1.12%) hit rough seas on Wednesday. Investors traded out of both of the company's U.S.-listed shares on the day following news that an upcoming debt issue is going to be larger than previously expected.
Well after market hours on Tuesday, Carnival announced that it has upsized its latest issue of debt securities. Instead of offering $1.25 billion worth of senior priority notes as originally planned, the cruise line bellwether is set to sell a total of $2.03 billion.
The particulars of the notes remain the same; their annual interest rate is 10.375%, and they mature on May 1, 2028. The interest is to be paid semi-annually on May 1 and Nov. 1 of each year.
Carnival said that it is upsizing the issue due to heavy investor demand. While that might be true, it's hardly reassuring that the company will add more than expected to its already considerable debt pile. Due to the coronavirus pandemic, it and peer cruise line companies saw their operations grind to a halt in order to mitigate the risk of contagion.
Since then, they have taken on massive amounts of debt simply to keep their businesses solvent. And despite a resumption of sailings amid a general rebound in global tourism, indebtedness remains high.
That said, it's encouraging that potential creditors have enough faith in Carnival to push demand higher for its debt. Not surprisingly, the company plans to utilize the funds raised to pay down at least some existing indebtedness, specifically that deriving from a revolving credit facility.