CCL High Debt /what is Your Opinion

[Guest ldtr]

1 hour ago, BermudaBound2014 said:

I’m sure you are a very nice Man. But we all know that anyone can crunch the numbers until they confess. I suspect that’s exactly what you are doing because you are emotionally invested in cruising. Not to mention financially invested since you stated you have 125 days booked in the next year. You are missing big chunks of data. There is a significant cost to servicing debt.

 

Im also comfortable with CCL handling debt. They have lots of assets to sell should it come to that. Are you saying you are comfortable with CCL as it sits? No downsizing?

 

Yep, I do not expect them to down size beyond the scope of normal retirement of older ships as they age out.  Even there I expect them to keep some ships longer than they otherwise would.  I would have Princess Grand and a couple of Carnival ships to have already aged out based upon  their age.  I would expect some more shifting of ships like they did from Costa to Carnival, depending upon the demand in various regions.  I do not expect and sale of brands or any sale of major land assets.  The one that is an outlier from a Carnival Brand would be Seabourne as that is in the luxury area which is really not where  CCL plays.  Not unlike RCL shutting down their french joint venture and their sale of Azmara.  But if they were really planning to go that route I would have expected them to do it during the shutdown, not at this stage of the recovery.  They have been pushing Seabourne on Princess cruises, including having a sales rep on board talking about the features of expedition cruising on Seabourne including their subs (maybe not as big a marketing point after this weeks news).

 

While I cruise a lot, I am really not invested in the cruise industry any more than the airline industry (million miler on multiple airlines) the hotel industry and the land tour industry.  We use all of them and spend a great deal of times on various trips.

 

I do look at things from the corporate side which was a major part of my background with several different functions including market research, customer service, strategic pricing,  (basically it was everything in commercial options outside of marketing and sales itself) reporting to me in my last job.  While it was in a different industry a lot of the ways of looking at data and situations are pretty much the same.

 

Sure there is a cost in servicing debt.  I have also been involved in several acquisitions of BK companies or their assets after BK.  Have also been involved in negotiations with creditors as part of the due diligence efforts.

 

On CC many look at what the cruise lines are doing from strictly there view as a customer and mostly about their personal view of what appeals to them.  As a result you get a lot of over reaction to changes and the response that if they do not like it then they feel that the rest of the customer base will not like it as well.  I tend to look at the reason why they might make such changes and have an  idea of the type data they have and how a company will tend to look at such data prior to making such decisions.

 

We look at things from the outside in.  No matter what data we have the cruise lines will have far more upon which to base their decisions.  They may make mistakes at times (mistakes defined in many different ways).  But unlikely that they are making uninformed mistakes.

Edited June 23, 2023 by ldtr

[HappyInVan]

2 hours ago, ldtr said:

Don't you mean CCL, since they are the holder of the debt.  Sure it is a large amount of money. The size of the revenue stream for the business is also pretty large. A fair amount of the debt is long term at very favorable rates. A fair share comes from countries where ships are built and as such those countries have a major interest in keeping the cruise lines going to keep the demand going for new ships.

 

Just a reminder. Current prime rate is 8.25%, and the Fed has not finished raising rates. So, CCL has a large debt repayment problem; interest and principle. Its CCL bean-counters who are dragging HAL down.

 

I've already pointed out the amounts involved per quarter. CCL has a long way to go to be cash flow positive. Some of the ships have had favorable finance terms at their launch. But, favorable rates will only apply to new builds. Certainly hope that the CCL group doesn't try to launch new and bigger ships.

 

How competitive is the industry. Viking has a $25 deposit offer. On some itineraries, RSS is giving a 25% single supplement. Currently, deep discounts on many brands.

 

NCL is rated by the CC editors as the best cruise line for entertainment. Cunard, Disney and Virgin have their core strengths and fan base. RCL is party central. Even the big Princess ships have mega-screens on the top deck. So, what's HAL's competitive advantage?

 

 

[lissie]

5 minutes ago, HappyInVan said:

 

NCL is rated by the CC editors as the best cruise line for entertainment. Cunard, Disney and Virgin have their core strengths and fan base. RCL is party central. Even the big Princess ships have mega-screens on the top deck. So, what's HAL's competitive advantage?

 

Itineraries - I don't cruise to look at a screen - mega or otherwise - I can do that at home 

[Guest ldtr]

37 minutes ago, HappyInVan said:

Just a reminder. Current prime rate is 8.25%, and the Fed has not finished raising rates. So, CCL has a large debt repayment problem; interest and principle. Its CCL bean-counters who are dragging HAL down.

 

I've already pointed out the amounts involved per quarter. CCL has a long way to go to be cash flow positive. Some of the ships have had favorable finance terms at their launch. But, favorable rates will only apply to new builds. Certainly hope that the CCL group doesn't try to launch new and bigger ships.

 

How competitive is the industry. Viking has a $25 deposit offer. On some itineraries, RSS is giving a 25% single supplement. Currently, deep discounts on many brands.

 

NCL is rated by the CC editors as the best cruise line for entertainment. Cunard, Disney and Virgin have their core strengths and fan base. RCL is party central. Even the big Princess ships have mega-screens on the top deck. So, what's HAL's competitive advantage?

 

 

Prime rate is, but that is actually less than some of the debt taken on during the shutdown.  The question is what is the debt, when is it due and at what rates.  A lot of the debt is very long term from the ship building countries.  That portion is pretty much not an issue.  Some of it is in the form of convertable bonds, which can be converted to stack at a specific price and might never have to be repaid in cash.  Some is short term, some is variable.  

 

It is a good things that CCL rate are tied to libor not prime about 3% less.

 

So far the analysts that have looked at this in detail have not raised a repayment risk.  

 

As I said before once they passed cash flow positive on operations they opened up the ability to restructure if the absolute worst case occurred.  That would be negative for the shareholders, but (similar to how the airlines have handled it) would most likely not impact passengers at all.  It would also remove the debt entirely.  That is a very very low probability event but is now the worst case scenerio.

 

CCL last quarter was $150 million from being cash flow positive.  Most of their loss ( over $500 million) was depreciation. So not that far from being cash flow positive.

 

Hals niche is smaller average size ships compared to other mass market lines, longest average itineraries.  HAL calls on approximately 200 more different destinations than Celebrity for example (550 vs 350 approximately)

 

NCL just killed off their broadway shows so their entertainment just took a major hit.

Edited June 23, 2023 by ldtr

[Guest ldtr]

Here is the principal pay off schedule in millions for anyone interested

 

Year						Principal Payments
2Q 2023 (a)						$	785
3Q 2023						465
4Q 2023						529
2024 (a) (b)						2,734
2025						4,488
2026						4,611
2027						5,742
Thereafter						16,611
Total						$	35,963

[HappyInVan]

25 minutes ago, ldtr said:

Prime rate is, but that is actually less than some of the debt taken on during the shutdown.  The question is what is the debt, when is it due and at what rates.  A lot of the debt is very long term from the ship building countries.  That portion is pretty much not an issue.  Some of it is in the form of convertable bonds, which can be converted to stack at a specific price and might never have to be repaid in cash.  Some is short term, some is variable.  

 

It is a good things that CCL rate are tied to libor not prime about 3% less.

 

So far the analysts that have looked at this in detail have not raised a repayment risk.'' 

 

 

See this...

 

https://seekingalpha.com/article/4563924-carnival-15-percent-yielding-bonds-not-worth-risk

 

[Guest ldtr]

9 minutes ago, HappyInVan said:

 

See this...

 

https://seekingalpha.com/article/4563924-carnival-15-percent-yielding-bonds-not-worth-risk

 

Not anything newer than 6 months ago?  A time much earlier in the restart.  Written looking at those results.

 

We will get the next quarter results next week.  In the meantime keep looking to see if the sky is falling.

[BermudaBound2014]

5 hours ago, ldtr said:

Yep, I do not expect them to down size beyond the scope of normal retirement of older ships as they age out.  

Let’s come back to this in a year and see how it plays out.

[mowogo]

4 minutes ago, BermudaBound2014 said:

Let’s come back to this in a year and see how it plays out.

I’d say maybe a bit longer, but it basically would be because they got an offer to make getting rid of the last of the R class.  Costa only has 2 ships that would not automatically be the largest ship in the HAL fleet by a significant margin to even keep capacity close to level.  

[Guest ldtr]

57 minutes ago, mowogo said:

I’d say maybe a bit longer, but it basically would be because they got an offer to make getting rid of the last of the R class.  Costa only has 2 ships that would not automatically be the largest ship in the HAL fleet by a significant margin to even keep capacity close to level.  

Costa ships would not go to HAL  if the costa ships go anywhere it would be to Carnival just as the others have.  Carnival still has some of the oldest ships of any CCL line.  I expect HAL to pretty much remain constant at around 9% of CCL ship Capacity.

 

The Grand will probably be retired at the latest when the Star joins the fleet, maybe earlier.

[ontheweb]

9 hours ago, BermudaBound2014 said:

Let’s come back to this in a year and see how it plays out.

As with everything else, time will tell.

[LouChamp]

Aloha. I have voiced my opinion before and as I have said the cruise lines, banks, investors and the shipyards are all married to each other. The cruise industry is essentially too big to fail. They will keep kicking the can down the road as is done in other industries. It is a necessity.  They all know it. I never read the flowing diatribes because its just salespeak to satisfy the SEC and banking regulators and make everyone feel happy. Everyone in the know knows this.  I love cruising. No longer the theme park ships at my age but rather the smaller high end lines unless we are blessed to sail with grandkids lol.

[BermudaBound2014]

Aloha @LouChamp

 

I also agree that CCL is likely too big to fail and have been stating that all along. I don't believe anyone posting in this thread believes that CCL will fail Catastrophically.  Nor do I believe the sky is falling.

 

The friendly debate between @ldtr and myself appears to be whether or not cruisers will feel the effect of the debt in the cruising experience itself.

 

Ldtr believes CCL will not downsize, nor will there be any significant changes to the cruise experience in the coming years as a result of servicing debt.

 

I believe cruisers should adjust expectations to align with the reality of 2 Billion a year in interest only payments on debt. 

 

I think everyone here loves cruising and believes it is an excellent value (even with cost cutting measures).

[LouChamp]

2 hours ago, BermudaBound2014 said:

Aloha @LouChamp

 

I also agree that CCL is likely too big to fail and have been stating that all along. I don't believe anyone posting in this thread believes that CCL will fail Catastrophically.  Nor do I believe the sky is falling.

 

The friendly debate between @ldtr and myself appears to be whether or not cruisers will feel the effect of the debt in the cruising experience itself.

 

Ldtr believes CCL will not downsize, nor will there be any significant changes to the cruise experience in the coming years as a result of servicing debt.

 

I believe cruisers should adjust expectations to align with the reality of 2 Billion a year in interest only payments on debt. 

 

I think everyone here loves cruising and believes it is an excellent value (even with cost cutting measures).

Aloha. The various pages are full of posts about the cost cuttings. Having been blessed to sail since 1971 on various lines around the world, I have recently seen cost cuttings too numerous to mention. It is understandable from a corporate standpoint any many newbies won’t notice nor care but I guess their is no other way for the industry to manage the debt in areas they can control. I certainly do not have the expertise from a cruise management standpoint but I have switched to higher end companies and even on those ships the changes are noticeable. Even with the cutting the debt load is monstrous. Cutting the yum yum man on one line may be not noticeable to most but for me it’s a sad reality. Anyway everyone be healthy and smooth sailing!

[Guest ldtr]

2 hours ago, BermudaBound2014 said:

Aloha @LouChamp

 

I also agree that CCL is likely too big to fail and have been stating that all along. I don't believe anyone posting in this thread believes that CCL will fail Catastrophically.  Nor do I believe the sky is falling.

 

The friendly debate between @ldtr and myself appears to be whether or not cruisers will feel the effect of the debt in the cruising experience itself.

 

Ldtr believes CCL will not downsize, nor will there be any significant changes to the cruise experience in the coming years as a result of servicing debt.

 

I believe cruisers should adjust expectations to align with the reality of 2 Billion a year in interest only payments on debt. 

 

I think everyone here loves cruising and believes it is an excellent value (even with cost cutting measures).

Not quite right. Your comment implies that I expect no changes at all.

 

As I stated the cruise lines will continue to change and evolve in a similar rate going forward as they have in similar time periods in the past.  After all there were many previous changes prior to Covid, no reason to expect fewer changes going forward because the cruise lines will continue to evolve. Some people will take some of those changes as a negative just as they have taken some changes negatively pre covid.

 

One might consider the average age of ships being sailed to increase and the introduction of new ships to slow to be a change and that certainly happen.

 

Operations will be consistently funded just as they were in the past. 

 

The interest and principle  will be paid by funds that in the past went for stock buy backs, dividends, new ships and private ports. For that matter while CCL has in not generating any new orders they still have several billion in new cap ex over the next 3 years.

 

For example CCL paid 1.38 billion in dividend payments in 2019. 2 dollars per share in 50 cent quarterly payments to 692 million shares.

Edited June 24, 2023 by ldtr

[Guest ldtr]

 While working on a model for  debt retirement I went back to 2019.  A year where CCl generated 2,990  million in profit.

 

In that year CCL spent 

1.38 Billion in dividends

5.429 Billion for property and equipment (capex including ships)

.206 billion for interest payments

 

At that time they had 17 ships scheduled for development through 2025.

 

So if CCL was to return to 2019  revenue levels then one would expect that if they trimmed property and equipment purchases by 80% compared to that year then that would make the following available compared to that year

 

1.38 billion + .206 million + 4.34 billion + 2.990 billion = 8.916 billion available to deal with debt per year at break even. Even more if they run with a loss, provided the amount of loss is less than the amount of depreciation.

 

So if they do return to that level of revenue and maintain a similar expense ratio CCL generates a lot of cash.  With occupancy getting close to full (last quarter was about 15% lower than 2019, the results on Monday should be better.    The q1 results showed a revenue per customer very close to 2019 (even with a lower fare revenue level and that being before that last round of onboard price increases)  the expense per passenger day was 16% higher than 2019, but a large portion of that difference can be linked to the lower occupancy and that gap will narrow considerably as occupancy moves to the 2019 level.

 

This implies that if CCL returns to 2019 occupancy level they should generate plenty of cash to handle the debt levels.  2023, 2024, 205 still has some new cap ex involved since they will be finishing the last of the ship orders, so they may not be able to drop equipment and property by 80% immediately.  They should be able to reduce it by a significant amount.  

 

That is why I am really not worried by a 2 billion per year interest payment at this time even though it is 10x 2019.

[Roz]

And my eyes are glazing over.....🥱

[BermudaBound2014]

@ldtr This analysis is incomplete, but please continue to crunch the numbers until they confess what you want them to say, or what you want inexperienced investors on CC to believe. I don't have the time, nor energy to continue to explain the variables you have omitted. I do applaud your perseverance. 

 

If occupancy really has been 100% we will see excellent numbers posted on Monday, but you and I know that those numbers won't tell the whole story.  

 

Let's just see how this plays out.

 

 

 

 

 

 

 

[Guest ldtr]

1 minute ago, BermudaBound2014 said:

@ldtr This analysis is incomplete, but please continue to crunch the numbers until they confess what you want them to say, or what you want inexperienced investors on CC to believe. I don't have the time, nor energy to continue to explain the variables you have omitted. I do applaud your perseverance. 

 

If occupancy really has been 100% we will see excellent numbers posted on Monday, but you and I know that those numbers won't tell the whole story.  

 

Let's just see how this plays out.

 

 

 

 

 

 

 

Should not take much time please post.  You seem to tend to make claims but not much specifics.

 

This numbers are not massaged they are directly from the 2019 10k.  Anyone can go to the document and look for themselves.

 

The other numbers are directly from the last 10q.  the per person per day figures are easily calculated by anyone.  So go  ahead and post your data if so much is missing.

 

If CCL hits their projects they will be at 98 to 99 % occupancy, up 7-8 % compared to last quarter and fill half of the gap between last quarters numbers and the 2019 occupancy numbers.

 

 

[BermudaBound2014]

5 hours ago, LouChamp said:

Aloha. The various pages are full of posts about the cost cuttings. Having been blessed to sail since 1971 on various lines around the world, I have recently seen cost cuttings too numerous to mention. It is understandable from a corporate standpoint any many newbies won’t notice nor care but I guess their is no other way for the industry to manage the debt in areas they can control. I certainly do not have the expertise from a cruise management standpoint but I have switched to higher end companies and even on those ships the changes are noticeable. Even with the cutting the debt load is monstrous. Cutting the yum yum man on one line may be not noticeable to most but for me it’s a sad reality. Anyway everyone be healthy and smooth sailing!

 

Mahalo! 🙂 

 

Significant cost cutting is a reality most of us have come to accept  (not a cut here and a cut there, but significant differences post covid in quality).

 

IMO: expecting anywhere near the same experience as 2019 is naïve at best.

 

I suspect the most happy cruisers will lower their expectations, but continue to love sailing. That's my plan anyway :). 

 

 

Edited June 24, 2023 by BermudaBound2014

[Guest ldtr]

6 minutes ago, BermudaBound2014 said:

 

Mahalo! 🙂 

 

Significant cost cutting is a reality most of us have come to accept  (not a cut here and a cut there, but significant differences post covid in quality).

 

IMO: expecting anywhere near the same experience as 2019 is naïve at best.

 

I suspect the most happy cruisers will lower their expectations, but continue to love sailing. That's my plan anyway :). 

 

 

So you keep claiming but based upon what?  

 

More of a change than HAL doing away with their production shows?  More of a change than the changes in the MDR with cruise lines added specialty dining?  More of a change than occurred in the MDR when  those cruise lines that implemented a class system?

 

Exactly what level of changes?  A major drop in operating expense per passenger?  We know price increases are coming because the cruise lines have pricing power because of increases in the rest of the travel industry. 

 

By the way there is one error in my calculation which I will leave as an exercise to anyone to see if they can find it.  Should be pretty easy.

[Roz]

1 minute ago, ldtr said:

By the way there is one error in my calculation which I will leave as an exercise to anyone to see if they can find it.  Should be pretty easy.

 

Good grief!

[BermudaBound2014]

36 minutes ago, ldtr said:

Should not take much time please post.  You seem to tend to make claims but not much specifics.

 

This numbers are not massaged they are directly from the 2019 10k.  Anyone can go to the document and look for themselves.

 

The other numbers are directly from the last 10q.  the per person per day figures are easily calculated by anyone.  So go  ahead and post your data if so much is missing.

 

If CCL hits their projects they will be at 98 to 99 % occupancy, up 7-8 % compared to last quarter and fill half of the gap between last quarters numbers and the 2019 occupancy numbers.

 

 

 

Yawn, I'm not biting. I typed up a big response and deleted it. Your position is clear.

 

For the record: I do expect a drop in operating expenditures when factoring in the cost of inflation. I had to increase my grocery bill to offer the same quantity/quality.  I will let time tell the story. No problem admitting I'm wrong. 

 

I'll be anxious to see if CCL posts anywhere near 8.916 billion available to deal with debt in FY23.

 

One of is is wrong. Let's let time tell the story. 

 

 

 

Edited June 24, 2023 by BermudaBound2014

[HappyInVan]

Some people may have unwavering faith in their opinions. Myself, I prefer to check the facts. CCL is a long way from resolving its cash flow problems.

 

Specifically, CCL has to raise a billion per quarter (on average) in cash flow for the next several years. To pay for >$2b a year in interest expenses, and to retire $2b a year in debt. IMO, this is problematic for HAL (and pax) if CCL insists that its subsidiaries generate as much cash as possible.

Edited June 24, 2023 by HappyInVan

[Guest ldtr]

1 hour ago, ldtr said:

 While working on a model for  debt retirement I went back to 2019.  A year where CCl generated 2,990  million in profit.

 

In that year CCL spent 

1.38 Billion in dividends

5.429 Billion for property and equipment (capex including ships)

.206 billion for interest payments

 

At that time they had 17 ships scheduled for development through 2025.

 

So if CCL was to return to 2019  revenue levels then one would expect that if they trimmed property and equipment purchases by 80% compared to that year then that would make the following available compared to that year

 

1.38 billion + .206 million + 4.34 billion + 2.990 billion = 8.916 billion available to deal with debt per year at break even. Even more if they run with a loss, provided the amount of loss is less than the amount of depreciation.

 

So if they do return to that level of revenue and maintain a similar expense ratio CCL generates a lot of cash.  With occupancy getting close to full (last quarter was about 15% lower than 2019, the results on Monday should be better.    The q1 results showed a revenue per customer very close to 2019 (even with a lower fare revenue level and that being before that last round of onboard price increases)  the expense per passenger day was 16% higher than 2019, but a large portion of that difference can be linked to the lower occupancy and that gap will narrow considerably as occupancy moves to the 2019 level.

 

This implies that if CCL returns to 2019 occupancy level they should generate plenty of cash to handle the debt levels.  2023, 2024, 205 still has some new cap ex involved since they will be finishing the last of the ship orders, so they may not be able to drop equipment and property by 80% immediately.  They should be able to reduce it by a significant amount.  

 

That is why I am really not worried by a 2 billion per year interest payment at this time even though it is 10x 2019.

Since nobody else seems to mentioned it.  A couple of thing got double counted (the dividends should had been subtracted out of profits) the capex should have subtracted out the amount funded by new loans.  The correction would put  the expected amount that could be applied to debt around 4 billion, instead of 8.  Still sufficient to more than pay for the interest expense and make a debt in debt reduction each year.