So you want to know why NCL were so late in cancellation

[graphicguy]

To my knowledge, any new ship being built, has had their completions suspended.  So, taking delivery of any of these new ships is not something that’s going to happen this year, maybe next year, either.  I know Carnival has one that was just finished, and they aren’t even going to sail it anywhere in the near future.

 

Who would buy a fleet of ships, or even one ship, from the cruise lines?  Only they know how to operate them.  I guess they could be repurposed, but even there, it would cost billions of dollars to do so.  Who would want to do that, and to what end?

 

Just look at who’s best to run these and recover the loans the cruise industry recently secured....it’s the cruise lines themselves.  And, I’ll guarantee, if they pull to plug on one, the plug will be pulled on all of them.

 

Lots of people are just looking at the near term....what will happen in the next 6-12 months.  The banks and note holders are looking at this long term.  They loaned the cruise industry money, not as a short term investment.  If they did, they probably would not be in business as a financial institution for long.

[fshagan]

Could there be some consolidation in the lines, like a merger between RCCL and NCLH or smaller lines being absorbed by those two?

 

Usually M&A activity happens when there is a strong cash position, so I think the odds of one line buying another one out are slim. But a distress merger of two weaker lines could happen. 

[Mrdodgy]

1 hour ago, graphicguy said:

To my knowledge, any new ship being built, has had their completions suspended.  So, taking delivery of any of these new ships is not something that’s going to happen this year, maybe next year, either.  I know Carnival has one that was just finished, and they aren’t even going to sail it anywhere in the near future.

 

Who would buy a fleet of ships, or even one ship, from the cruise lines?  Only they know how to operate them.  I guess they could be repurposed, but even there, it would cost billions of dollars to do so.  Who would want to do that, and to what end?

 

Just look at who’s best to run these and recover the loans the cruise industry recently secured....it’s the cruise lines themselves.  And, I’ll guarantee, if they pull to plug on one, the plug will be pulled on all of them.

 

Lots of people are just looking at the near term....what will happen in the next 6-12 months.  The banks and note holders are looking at this long term.  They loaned the cruise industry money, not as a short term investment.  If they did, they probably would not be in business as a financial institution for long.

 

37 minutes ago, fshagan said:

Could there be some consolidation in the lines, like a merger between RCCL and NCLH or smaller lines being absorbed by those two?

 

Usually M&A activity happens when there is a strong cash position, so I think the odds of one line buying another one out are slim. But a distress merger of two weaker lines could happen. 

These two answers go tot the heart o my argument - thank you. The best way to recover secured debt is for an experienced operator - common business planning. So a chapter 11 and subsequent merger takeover of the NCL fleet is what you agree with your fully agreed comment

 

"Who would buy a fleet of ships, or even one ship, from the cruise lines?  Only they know how to operate them"

 

No inside knowledge here at all - but I suggest 

 

NCL may only build one or two Leonardo Class Ships or

NCLH gets bought out by Carnival or RCCL 

NCL bought by another group and rationalised

 

The latter may provide best shareholder value. I am afraid to say in the end Fund managers who own large % holdings in the parent will decide the destiny of what is still a much loved brand. 

 

[graphicguy]

11 minutes ago, Mrdodgy said:

 

 

 

NCL may only build one or two Leonardo Class Ships or

NCLH gets bought out by Carnival or RCCL 

NCL bought by another group and rationalised

 

 

 

11 minutes ago, Mrdodgy said:

 

 

First one.....Not sure how many, if any Leonardo Class ships will be bought and/or delivered over the next 24 months.  I say one, at most.

 

2nd one....Neither Carnival nor RCCL have the financial wherewithal to buy NCL...especially, not now.  And, given they're all in the same boat (pun intended), there's no economy of scale to realize even if one of the others tried to merge or be bought out.  No one is sailing on cruise ships.

 

3rd one.....maybe.  Tough sledding right now for the industry.  Only way an outside group comes in to buy ANY of the cruise lines would be if they are in it as a long term investment.  There is no ROI in the near term for any takeover.  And, there is no future that can be predicted with any reliability.

 

Only option left is for the cruise lines to ride out the storm and get passengers on board once things level out.

[Mrdodgy]

Thank you for your comments

 

I actually think Leonardo will be canned for the time being but thats a view only. 

 

The cCarnival or RCCL option is I agree unlikely unless someone wants to invest in them more (Saudi) take out the competition. Its actually not as far fetched as you may think as an idea but will it happen - very unlikely but in this world these days 

 

I do not think they all will be able to ride out the storm - to much metal at sea and too much being built with slower demand.

[PelicanBill]

10 hours ago, Mrdodgy said:

 

...

Chapter 11 does not mean selling ships it means debt refinancing.  

...

 

 

While that's true, there is a bigger picture to Chapter 11 in the US. And it may lead to reducing the fleet size if that is necessary to be viable going forward.

 

The overall goal is to restructure to company to be financially and operationally viable upon emerging. The companies hires a restructuring consultant (at an incredible price) who helps prepare a plan for a "new" company.  They discharge or renegotiate all debts and all creditors including all suppliers - anyone owed money.  To have a viable plan, it may be that a company must discharge more than debts. They may need to sell assets or divisions or close plants... all kinds of things. Customers are represented by a few court appointed members of the restructuring board. They seek financing for that new company, and present the whole package to the court for approval.

 

As for customer programs. These are often viewed as critical to continuing operations. So FCC stands a good chance in my experience (my comparison was rebates due to existing customers).  Stock value is generally discharged at $.00 to pennies.  Refunds owed to customers who chose them would be frozen as of filing Chapter 11 and likely lost or no better than pennies on each dollar.  They are pooled with all unsecured debt.

 

I will add that you may have some serious disruptions since suppliers tend to stop delivering services and products when they aren't being paid for. Some are flexible and will work with you. Some will drop you like a rock leaving you in a bind.

 

Oh - one more thing - what causes chapter 11 filing is running out of cash.  If they can keep managing the operational costs and debt burden they still "float"... if they can't make payroll or a debtor calls in their debt - then they must file.

 

 

 

Edited April 28, 2020 by PelicanBill

[PelicanBill]

I've studied NCL's statement on liquidity.

If you could ignore the other 2 items, cash available can cover 10-12 months of minimal operations costs.

 

You now reduce that by any debt service that does not get deferred, and that is not stated.

You then modify it by cash in for new bookings and out for refunds being given. That is also not stated but I would bet there is a lot more going out than in right now.

 

They state clearly they are looking for more liquidity - such as additional credit.  I would bet they have somewhere around 6 months until running out of cash without some kind of relief.

[Mrdodgy]

I take you mean a creditor payment 

 

Quite  agree about Chap 11 I was just trying to point out how they may try and get through this. Very similar (with differences) to UK administration 

 

I am not sure how you have worked the cash burn rate but the unknown variable  is the cash from new bookings. Will it return to normal or be much slower.

 

I do not agree that they have six months cash. If this was the case the market would not be so worried. I suspect 4 months at the most and even if they start again soon 4 -6 months cash reserve is not great if there is an economic downturn,

 

I think in your in argument you bring out a very strong possibility with  a fleet reduction and implied cancellation of the new ships. There is no way on this earth they will be able or wish  to fund the 5 or 6 ships at the rate of one a year. Sadly NCL has done a lot of damage to its loyal customer base over the last few years and I still maintain it will need to offer some very exciting prices to get the numbers back.

 

Love the comment about restructuring expert: A fried of mine s one of those vultures and he is salivating at the moment. Apparently some biggies in the pipeline. Here in UK Virgin is desperate for £500m and we are taking bets. 

[boatseller]

I'm finding such discussions to be based on inappropriately simplistic logic.  A business interruption does not mean instant bankruptcy and there are lots of reasons corporations will do whatever they can to avoid bankruptcy.  It's not a miracle cure.

 

The deferment is akin to a refinancing, not at all uncommon.  The article is strangely worded.  They're retaining liquidity through the deferments, they're not getting more $$.  Meaning NCL can spend the ~$300m on something else, they start paying again in 12 months.

 

Whether or not Leonardo is delayed will be based on marked conditions.

 

Putting on the conspiracy hat, I'm sure NCL management would be crushed if they just couldn't come up with the cash to save Epic.