Carnival Corporation halts stock dividends

[Steve Q]

https://www.marketwatch.com/story/carnival-to-suspend-dividend-and-stock-buybacks-expects-to-remain-in-compliance-with-debt-covenants-2020-03-31?mod=home-page

[kazu]

Not at all surprising IMO.

 

Thanks for the link 🙂 

[wesport]

Many companies are doing this. At least we got the March dividend reinvested. 

[DaveOKC]

No surprise IMO.  For one thing - how can you pay out a nice dividend and then go begging for a handout from the government?

 

[Himself]

This does not surprise me.  With no income, this is logical.

[YXU AC*SE]

Also just announced .... 

Source: https://www.carnivalcorp.com/node/60966/pdf

 

Scott.

  

[TiogaCruiser]

Not a finance person here. 🧐

 

Can someone translate/explain  this please? Are they issuing more stock of a different type, options? Something else????

[Steve Q]

Tiogacruiser—-Looks like they are issuing Secured Notes that mature in 2023. In addition, they are issuing both Convertible Notes and new Stock. Convertible Notes are debt that can be converted into stock before 2023 at the debt owner’s discretion. The issuance of new stock does raise new equity but at a very poor time. Generally, you would prefer to issue new stock when the price is high, as you need to sell fewer shares. For the current stock owners, the issuance of new stock acts to dilute the value of the shares you currently own.

[Krazy Kruizers]

I am not surprised -- things are tough everywhere.

[LMaxwell]

Best Case scenario I had hoped dividend would be reduced and stay in the 2-3% range seen in the travel and entertainment sector based on a share price target of $20 but I know that wasn't very likely.  Not surprised at all the dividend has been removed.  

[KirkNC]

13 minutes ago, Steve Q said:

Tiogacruiser—-Looks like they are issuing Secured Notes that mature in 2023. In addition, they are issuing both Convertible Notes and new Stock. Convertible Notes are debt that can be converted into stock before 2023 at the debt owner’s discretion. The issuance of new stock does raise new equity but at a very poor time. Generally, you would prefer to issue new stock when the price is high, as you need to sell fewer shares. For the current stock owners, the issuance of new stock acts to dilute the value of the shares you currently own.

Good explanation.  The debt is simply borrowed money, the pay interest.  The convertible notes are a hybrid form of financing.  They would typically pay a lower interest rate as they have the ability to be converted to stock (probably at a good per share price).  These are both very commonly used forms of corporate financing.  In addition, they are issuing some common stock ($1.25 billion).  We don’t know interest rates for the debt, conversion price for the convertible notes or the price per share for the equity.  All total they are hoping for $6.0 billion.

[ski ww]

They still going to give you $100 - $200 OBC for having 100 shares??

[drowelf]

1 hour ago, ski ww said:

They still going to give you $100 - $200 OBC for having 100 shares??

Nothing in the article mentioned it. I'd be surprised if they did eliminate the Stockholders Benefit. Its not like its in the dividend/buy-back category. Both of those required CCL to spend its cash, while the OBC results in the corporation not getting as much revenue from a cabin. It would be a really interesting statistic to know how much stockholder OBC is actually given out each year. Both as a total $$ amount and as a % of onboard spending. 

[dag144]

This should assure that refunds are paid!

[npcl]

3 hours ago, KirkNC said:

Good explanation.  The debt is simply borrowed money, the pay interest.  The convertible notes are a hybrid form of financing.  They would typically pay a lower interest rate as they have the ability to be converted to stock (probably at a good per share price).  These are both very commonly used forms of corporate financing.  In addition, they are issuing some common stock ($1.25 billion).  We don’t know interest rates for the debt, conversion price for the convertible notes or the price per share for the equity.  All total they are hoping for $6.0 billion.

Would be interesting to find out the conversion price for the convertible notes.  They tend to act like a cap on the stock price until they either expire or are fully converted.

[npcl]

1 hour ago, drowelf said:

Nothing in the article mentioned it. I'd be surprised if they did eliminate the Stockholders Benefit. Its not like its in the dividend/buy-back category. Both of those required CCL to spend its cash, while the OBC results in the corporation not getting as much revenue from a cabin. It would be a really interesting statistic to know how much stockholder OBC is actually given out each year. Both as a total $$ amount and as a % of onboard spending. 

I agree the OBC is more a marketing tool than anything else, and they will need everything they can get to fill the ships when this ends.

 

 

[KirkNC]

Agreed, since these are private placements I am not sure we can get to it yet.

[KirkNC]

I did find their 8-K they just filed here:

 

https://seekingalpha.com/filing/4909554
 

interesting read, they estimate their cash burn to be $1 billion per month.  They do believe they have enough liquidity to get through this but as they repeatedly say, no one has ever been through an event like this.

[az_tchr]

5 hours ago, TiogaCruiser said:

Not a finance person here. 🧐

 

Can someone translate/explain  this please? Are they issuing more stock of a different type, options? Something else????

Same common stock and a few billion in debt.  Common will dilute existing shareholders.  Bonds look presold to institutions. Will not trade.  This gets them thru September at the current cash burn of $1B a month.

[KirkNC]

I did find a Bloomberg article that said the following o the cost of the debt:

 

Bloomberg News reported Tuesday that Carnival’s three-year dollar bonds are being marketed with a 12.5% coupon and most likely will come at a discount, bringing the yield up to 13%.

 

ouch, that’s very expensive in today’s world.

[npcl]

This should hold them to the end of the year.

 

I think the most telling in all of this was that they needed to go to convertible  and to an actual equity offering.  It implies that they could not get what they needed through a straight bond offering.  To do a convertible offering and an equity offering at this stock prices is certainly not what they would like to have to do.

 

Not surprised about the rates.  The existing CCL bonds are trading around 9%.  The good news is there 2020 bonds have dropped back to the 9% range from the 25% YTM rate that they were trading at last week. I guess the bond market considers short term BK to be off the table, but are still uncomfortable about long term outlook.

 

Hopefully now they will worry more about their existing customers and start getting the refunds paid.

Edited March 31, 2020 by npcl

[rkacruiser]

2 hours ago, KirkNC said:

I did find a Bloomberg article that said the following o the cost of the debt:

 

Bloomberg News reported Tuesday that Carnival’s three-year dollar bonds are being marketed with a 12.5% coupon and most likely will come at a discount, bringing the yield up to 13%.

 

ouch, that’s very expensive in today’s world.

 

Certainly agree about those interest rates.  (Back to the late '70's and early 80's?  I had to pay a 12 % interest rate in 1980 to get a mortgage.)  

 

I wonder if these securities are available for us small investors.  

[npcl]

11 minutes ago, rkacruiser said:

 

Certainly agree about those interest rates.  (Back to the late '70's and early 80's?  I had to pay a 12 % interest rate in 1980 to get a mortgage.)  

 

I wonder if these securities are available for us small investors.  

Probably only on the secondary market.  The bond offering appears to use some ships as collateral so probably to institutional buyers only.  The convertible seems to be a private placement.

 

The offering was mentioned on CNBC.  One of the regulars mentioned that she was surprised to see Carnival doing a junk financing offering.  

 

She also said "maybe they had no choice.  If they are able to complete it "

Edited March 31, 2020 by npcl

[KirkNC]

13 minutes ago, rkacruiser said:

 

Certainly agree about those interest rates.  (Back to the late '70's and early 80's?  I had to pay a 12 % interest rate in 1980 to get a mortgage.)  

 

I wonder if these securities are available for us small investors.  

Not unless you are an accredited investor:

 

https://www.investopedia.com/terms/a/accreditedinvestor.asp

[rkacruiser]

1 minute ago, npcl said:

The bond offering appears to use some ships as collateral

 

I have always wondered what it would be like to be the owner of a cruise ship.  😀

 

But, then, what would I do with it and where would the money come from that would allow me to do so?😟