8-K: Norwegian Cruise Line Holdings Subsidiary Secures $650 Million Unsecured Commitment, Receives Credit Rating Upgrade

NCL Corporation Ltd., a subsidiary of Norwegian Cruise Line Holdings, has entered into a third amended commitment letter for a $650 million unsecured note purchase and received a credit rating upgrade from S&P Global Ratings.

Summary

• NCL Corporation Ltd. (NCLC), a subsidiary of Norwegian Cruise Line Holdings, has secured a third amended and restated commitment letter with Apollo Global Management for up to $650 million in senior unsecured notes.
• This agreement, effective March 11, 2024, supersedes a previous commitment letter from February 2023.
• The commitment is available through March 2025 and includes a one-time structuring fee of 0.50% and a quarterly commitment fee of 0.75%.
• If drawn, the notes will bear interest at a rate equal to the greater of NCLCs 7.75% senior notes due 2029 or the then-current secondary trading yield applicable to those notes, plus 200 basis points, and will be subject to an issue fee of 0.50%.
• NCLC also repurchased all of its outstanding $250 million 9.75% senior secured notes due 2028, which were subsequently cancelled.
• S&P Global Ratings upgraded NCLCs issuer credit rating to B+ and raised its secured debt ratings to BB/BBand unsecured debt ratings to B.
• The stable outlook from S&P reflects expectations that NCLC will significantly improve its credit metrics through 2024 due to anticipated increases in revenue and EBITDA.

Sentiment

Score: 8

Explanation: The document is largely positive, highlighting a credit rating upgrade, successful refinancing, and improved financial outlook. The shift to unsecured debt and the elimination of high-interest debt are strong positives. However, the variable interest rate and fees associated with the new commitment prevent a perfect score.

Positives

• The new $650 million commitment is unsecured, improving the company's financial flexibility.
• The refinancing of the $250 million senior secured notes eliminates the company's highest interest rate debt.
• The credit rating upgrades from S&P reflect improved financial health and business prospects.
• S&P's stable outlook indicates confidence in NCLC's ability to improve its credit metrics.

Negatives

• The new commitment includes fees, which will add to the cost of borrowing if the notes are drawn.
• The interest rate on the new notes is variable and tied to the performance of existing debt, which could increase borrowing costs.

Risks

• The commitment is subject to a one-time structuring fee and a quarterly commitment fee, regardless of whether the notes are drawn.
• The interest rate on the new notes is variable and could increase if the yield on NCLCs 2029 notes rises.
• The company's ability to improve its credit metrics is dependent on achieving anticipated increases in revenue and EBITDA.

Future Outlook

S&P expects NCLC to significantly improve its credit metrics through 2024 due to anticipated increases in revenue and EBITDA as it operates under normal operating conditions.

Management Comments

• Mark A. Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings Ltd., stated that the upgraded ratings are an important recognition of the strength of their business and their ability to reduce leverage.
• He also noted that the recent refinancing reduces interest costs while releasing the related collateral, demonstrating their commitment to de-levering and improving their balance sheet.

Industry Context

The announcement reflects a positive trend in the cruise industry's recovery, with increased capacity, occupancy, and pricing leading to improved financial performance. The refinancing and credit upgrade suggest a return of investor confidence in the sector.

Comparison to Industry Standards

• The credit rating upgrade to B+ by S&P is a positive sign for Norwegian Cruise Line, placing it in a better position than some competitors with lower ratings.
• The move from secured to unsecured debt is a positive step, indicating improved financial health and potentially lower borrowing costs in the long term.
• The refinancing of the $250 million 9.75% senior secured notes due 2028 is a significant step in reducing high-interest debt, which is a common goal for companies in the cruise industry.
• Competitors like Carnival Corporation and Royal Caribbean Cruises have also been working to improve their balance sheets and credit ratings, but the specific details of their debt structures and credit ratings may differ.

Stakeholder Impact

• Shareholders: The credit rating upgrade and improved financial position are positive for shareholder value.
• Creditors: The refinancing and improved credit metrics reduce the risk for creditors.
• Employees: The improved financial health of the company may provide more job security.
• Customers: The company's ability to operate under normal conditions may lead to better service and experiences.

Next Steps

• NCLC may draw on the $650 million unsecured note commitment through March 2025.
• NCLC is expected to continue improving its credit metrics through 2024.
• NCLC will continue to operate under normal operating conditions and focus on increasing revenue and EBITDA.

Key Dates

Keywords

Norwegian Cruise Line, NCLH, NCLC, Apollo Global Management, senior unsecured notes, credit rating upgrade, S&P Global Ratings, debt refinancing, senior secured notes, EBITDA