Are shareholder credits why cruise lines cannot file chapter 11 bankruptcy.

[The7raveler]

I am down %50 on 6 figure Carnival investment and my thesis is that 2023 will be a record year, even higher than 2019.

The obvious reasons to not own cruise stocks is that they have diluted us shareholders a lot and taken on massive debts that would take over a decade of optimal conditions to pay back.

 

Besides the fact that they're domiciled on little island off-shore (for tax purposes) I believe that the reason the big three haven't filed for bankruptcy is that many of their customers are shareholders, because of on board credits. They would all go to $0.00 during Chapter 11, even though the cruise line would survive. 

 

Am I wrong? 

How many of you guys own cruise shares?

How long do you hold them for, on average?

 

Thank you guys!

 

(I'm new here. Looking to book my first cruise this fall.)

[ColeThornton]

Here's an ongoing thread about CCL stock that may interest you.  Welcome to the forum.

 

 

[IslandHppy]

To answer the question directly, my reading of the Carnival annual report is the deposits and credits are funds that sit on the balance sheet and are restricted.   The way that works - the moment you sign off your cruise, your deposit and used credits move from the restricted accounts to the checking account at the line.  🙂

 

In a liquidation, those unused funds go back to the customers.  The bond holders or stockholders don't get them.  In Europe they used to have a lot of package tour operators go broke and deposits were lost.  There are rules now.  

[chengkp75]

21 hours ago, The7raveler said:

Besides the fact that they're domiciled on little island off-shore (for tax purposes)

Where the company is incorporated has nothing to do with US bankruptcy laws.  US law allows foreign corporations to file both chapter 7 and 11 bankruptcies in the US, and this is frequently done because the US bankruptcy laws are more lenient than other nations.

 

21 hours ago, The7raveler said:

I believe that the reason the big three haven't filed for bankruptcy is that many of their customers are shareholders, because of on board credits. They would all go to $0.00 during Chapter 11, even though the cruise line would survive. 

Not sure why this would affect a decision to file for bankruptcy.  Do you think there are that many customer/shareholders that they could affect a board decision?  In any reorganization, the original stock becomes worthless, but is typically reissued as new stock, at an exchange rate, and this is for all shareholders.  Most customer/shareholders only have the minimum number of shares required to get the OBC (100 shares, IIRC), so even in total, they represent a small portion of the stock, even before covid.

 

I've spent my life in the maritime industry, and I would never have invested six figures in a single shipping company.  There is far too much risk involved, and the return on investment is average or below at best.

[Joebucks]

What happened to cruise stock was a travesty. For all of these companies flaws, it had little to do what happened. Unfair treatment by the government caused this. 

 

The reason they didn't file bankruptcy is likely largely because it is still a viable business. People are still cruising. New ships are compelling value propositions. 

[Gregoryfo]

We have 100 shares just to get the benis.  We purchased just after the Saudi's so we have gotten as much OBC as we paid for the stocks a couple of years back.  

 

I think you are correct that chapter 11 would not be good for public relations and future bookings, but I think disappointing the shareholder/customers is only a small part of that.  I think more so it would be how many customers would be alienated who would not purchase future cruises.  Many people do not understand the differences in bankruptcy and might be cautious to give a company going through bankruptcy thousands of dollars for a cruise that is one to two years away. 

 

I remember one of the Mississippi river boat companies running into financial trouble about ten years back and they needed to put the deposits in escrow so customers would not worry about losing their deposits.  That has to be a difficult way to run your company, not being able to tap into those funds until the cruise actually sails.     

[chengkp75]

All foreign cruise lines are required to post surety bonds for "performance" (cancellations of cruises or insolvency) in the amount of $32 million, and for "casualty" (injury or death of passenger) in the amount of $5000 per passenger berth on the ship.  As with the recent Crystal bankruptcy, the passengers who have paid for future cruises will be getting refunds (not necessarily full) from this surety bond.

[devinc]

Lots of eggs in one basket.  Regarding equities, mutual funds>individual stocks in most situations especially with large amounts.  Just a 30 year brokers 2 cents...

[ldubs]

Most or a lot of customers owning Carnival stock is not the same as saying most Carnival stock is owned by customers.  I doubt very much of Carnival stock is held by individuals.    I don't see how that ownership would come into play.   

[icft]

On 8/26/2022 at 8:13 AM, The7raveler said:

I am down %50 on 6 figure Carnival investment and my thesis is that 2023 will be a record year, even higher than 2019.

The obvious reasons to not own cruise stocks is that they have diluted us shareholders a lot and taken on massive debts that would take over a decade of optimal conditions to pay back.

 

Besides the fact that they're domiciled on little island off-shore (for tax purposes) I believe that the reason the big three haven't filed for bankruptcy is that many of their customers are shareholders, because of on board credits. They would all go to $0.00 during Chapter 11, even though the cruise line would survive. 

 

Am I wrong? 

How many of you guys own cruise shares?

How long do you hold them for, on average?

 

Thank you guys!

 

(I'm new here. Looking to book my first cruise this fall.)

I'm pretty sure you are wrong. The top two reasons they have not filed for bankruptcy of any form are:

 

1. They don't want to, and

2. They don't need to.

 

They don't want to since management is getting paid nicely if the line makes money or not and having been on the management team that took a firm into bankruptcy does not look good on the resume.

 

They don't need to as long as they can service the debt and pay the bills. When that changes it means they scramble for any other alternative to bankruptcy first, then go bankruptcy if there is no other option.

 

Remember, corporate managers work for themselves first, then for the corporation. They all want to be on a gravy train with the opportunity to move up to a bigger gravy train. A resume that says you drove a company into bankruptcy kind of spoils the party.

[The7raveler]

Thank you guys, I really appreciate the detailed responses you've given me. A lot of food for thought! 🙂 Cheers.

[MaryZ]

they have no need to file bankruptcy because they have the availability of the junk bond market.
As we go further into a recession, that market could dry up for them and then reorganization will be on the table.
I've had quite a few stocks over the years that declared bankruptcy.  Some, I lost everything.  Others, I made out quite well.

[The7raveler]

On 9/22/2022 at 7:30 PM, MaryZ said:

they have no need to file bankruptcy because they have the availability of the junk bond market.
As we go further into a recession, that market could dry up for them and then reorganization will be on the table.
I've had quite a few stocks over the years that declared bankruptcy.  Some, I lost everything.  Others, I made out quite well.

How does one make out well, once they declare bankruptcy? I thought it was a certainty to lose your money.

[Elaine5715]

On 8/26/2022 at 9:13 AM, The7raveler said:

I am down %50 on 6 figure Carnival investment and my thesis is that 2023 will be a record year, even higher than 2019.

The obvious reasons to not own cruise stocks is that they have diluted us shareholders a lot and taken on massive debts that would take over a decade of optimal conditions to pay back.

 

Besides the fact that they're domiciled on little island off-shore (for tax purposes) I believe that the reason the big three haven't filed for bankruptcy is that many of their customers are shareholders, because of on board credits. They would all go to $0.00 during Chapter 11, even though the cruise line would survive. 

 

Am I wrong? 

How many of you guys own cruise shares?

How long do you hold them for, on average?

 

Thank you guys!

 

(I'm new here. Looking to book my first cruise this fall.)

The vast majority of any stock are held by pension and mutual funds who don't care about shareholder credits

[Eli_6]

I own shares, but mainly for the stock holder benefit. They are not a major part of my portfolio. 

[BlerkOne]

On 8/26/2022 at 8:13 AM, The7raveler said:

 

Am I wrong? 

 

You are wrong.

 

On 8/26/2022 at 8:13 AM, The7raveler said:

 

(I'm new here. Looking to book my first cruise this fall.)

What did you book?

[MaryZ]

On 12/28/2022 at 12:03 PM, The7raveler said:

How does one make out well, once they declare bankruptcy? I thought it was a certainty to lose your money.

Sometimes you need to lose money to keep the money you've made.  But not all bankruptcy ends with nothing for the shareholder.

[BlerkOne]

Most if not all Carnival ships are pledged as collateral. If they go bankrupt, they have few, if any ships to restart. 

[icft]

On 12/28/2022 at 11:03 AM, The7raveler said:

How does one make out well, once they declare bankruptcy? I thought it was a certainty to lose your money.

For all intents and purposes I believe you are correct as far as owners of common stock.

 

In theory a profit can be made if you bought shares just before bankruptcy was declared (when everyone thought there would be a bankruptcy and the shares traded for pennies a share) and the bankruptcy court approved a Chapter 11 plan that did not cancel pre-bankruptcy shares. It is the proverbial "rare bird" case. In theory it can happen but having it happen to you is like you finding a species long believed extinct.

 

It is far more common for the lenders and the corporation to come to an agreement before bankruptcy is filed that presents the court with an agreed plan under which all outstanding common and preferred shares are cancelled and the lenders agree to sell their loans to the company for newly issued shares. That happens if the company would be making decent profits if it were not for the interest expense and if the lenders believe that under a liquidation bankruptcy they will loose a lot but that as the shareholders of the debt free profitable corporation they will get a good return and possibly a great return with proper management.

 

A bankruptcy judge can pretty much do whatever he/she wants. The bankruptcy court is primarily an equity court. So it does not require all lenders agree. If the holders of super majority of the debt agree, and the judge believes the interests of the customers and employees have been protected as much as feasible in the circumstances, then usually the judge will go along and the minority debt holders claims of contractual obligations and the like are overruled. Usually the common shareholders are given nothing. They willingly took the risk, they voted in the boards of directors who led the corporation down the drain and if the company had done wonderfully they, not the lenders, customers or employees, would have reaped the rewards. If anyone at the table deserves to lose it is them. To the extent the numbers permit, the court will usually try to prevent harm to customers and employees.

 

So betting on making money holding the shares of a company going into bankruptcy is not terribly wise in my opinion.

[Purvis1231]

I do not know what will happen in Carnival's future but in the past, I bought my 100 at $30 per share- it is now worth around $10 so that is not good, but I have gotten most of my lost money back in dividends and OBC.  There are several good signs for Carnival- they bookings are up so there is a big demand for cruising and thankfully fuel prices have not skyrocketed yet but on the negative side: Carnival is in massive debt and cruise prices are behind the inflation rate. This is good for us but in the long run will it jeopardize the cruise industry?   

[The7raveler]

On 12/30/2022 at 10:48 PM, BlerkOne said:

Most if not all Carnival ships are pledged as collateral. If they go bankrupt, they have few, if any ships to restart. 

Thanks guys, I appreciate the responses!

I've been watching them collateralize their ships and it's a cause for concern, definitely! 

 

I haven't booked anything yet, my investments are down so I'm waiting to make a positive return and use some of that to book. 

Edited January 2, 2023 by The7raveler

[BlerkOne]

1 hour ago, The7raveler said:

Thanks guys, I appreciate the responses!

I've been watching them collateralize their ships and it's a cause for concern, definitely! 

 

I haven't booked anything yet, my investments are down so I'm waiting to make a positive return and use some of that to book. 

We'll leave the light on!

[ontheweb]

1 hour ago, BlerkOne said:

We'll leave the light on!

Turn the lights out. They are trying to save money as they have massive debts. Do not unnecessarily add to their electric bill. 😉

[ontheweb]

37 minutes ago, BlerkOne said:

You need to get out more.

 

https://www.bizjournals.com/southflorida/stories/2010/01/18/story10.html

 

Not a Carnival ship.

[cwyse]

We might want to temper ourselves just a bit.

 

 

 

Yes it is true carnival and it's partners have a great deal of debt. Lest we not forget we are coming off on of the countries greatest shut downs man has known. Almost every corporation either borrowed or burned up their cash reserves. I foresee a good 2023 for carnival both in revenue and large increases of cruisers returning. Thus a return to a profitable platform.