(Bloomberg) -- Royal Caribbean Cruises Ltd. has returned to investment-grade status at S&P Global Ratings, days after the cruise operator posted a record start to its busiest booking period.
S&P said it upgraded the cruise line to BBB-, the lowest high-grade rating, from BB+, the highest junk grade. Moody’s Ratings has the company rated in the highest junk grade.
The global cruise operator has seen bookings outpace the previous year across all key products, and average prices per day are higher, according to S&P. The ratings firm expects those bookings to help improve cash flow.
The company’s rating outlook was also put on stable, reflecting S&P’s expectations of continued cash flow growth.
“In addition, we expect Royal’s leverage will improve to around 3x in 2025, well below our 3.75x leverage threshold,” S&P analysts Melissa Long and Dan Daley wrote. “We believe these credit measures represent sufficient cushion to our thresholds to withstand a moderate to severe cyclical downturn.”
The upgrade brings the company one step closer to returning to the Bloomberg high-grade corporate bond index. An additional upgrade from Moody’s would place it in that index. Being included in high-grade indexes instead of junk indexes often lowers a company’s borrowing costs because more investors are eligible to buy investment-grade securities.
S&P said it could raise Royal’s grade further if it believes it can sustain the levels it sees it reaching this year.
S&P’s announcement caps a long road of recovery for the company’s credit health. In the throes of the pandemic, with industry-wide operations forced to shut down, the cruise line’s debt load ballooned to more than $18 billion at the end of 2020 compared with more than $9 billion the year before. The company was first cut to junk by S&P in April 2020 and by Moody’s a month later.
As of Dec. 31, Royal had $20.1 billion of long-term debt on its balance sheet, excluding its lease liabilities.
Since restarting operations, record-setting demand levels led to a string of impressive results, helping the company hit its mid-term financial targets a year and a half early. Recently, Royal said it expects profits to be about $14.50 per share, nearly 20 cents more than analysts estimates.
(Updates to add detail on RCL’s position in the investment-grade index and additional information on RCL’s debt in the sixth and penultimate paragraphs, respectively.)
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