(Bloomberg) -- Royal Caribbean Cruises Ltd. tapped the US corporate high-yield bond market to help refinance debt the company has coming due next year.
The cruiseline operator raised $2 billion to help refinance all of its outstanding 9.125% bonds due 2023 and its 10.875% notes due the same year, according to a Thursday statement. The new bonds will be due in 2029.
The company split the funds into two parts: $1 billion of secured notes that sold at a yield of 8.25%, and $1 billion of priority guarantee notes that priced at 9.25%, according to people familiar with the matter.
The company’s 9.125% notes due 2023 traded about 0.8 cents higher at 101.8 cents, according to Trace bond trading data. Meanwhile, its 5.5% and 11.625% bonds maturing in 2026 and 2027 fell by about 1.6 cents and 1.25 cents, respectively, in secondary trading.
Most companies tapping the junk-debt market have been doing so because they have imminent financing needs, typically for a merger or acquisition. Refinancings have been scarce since the Federal Reserve started raising interest rates earlier this year.
Morgan Stanley led the bond sale as sole bookrunner, the person said, asking not be identified discussing a private transaction. Representatives for Morgan Stanley and Royal Caribbean did not immediately respond to requests for comment.
Moody’s Investors Service downgraded Royal Caribbean last month to B2, five steps into junk, from a B1 credit rating. That same month, the cruiseliner paid more than 11% on another refinancing in the junk-bond market totaling $1.25 billion, for debt maturing in 2022 and 2023.
Moody’s attributed the downgrade to a weaker-than-expected recovery in 2022 which will leave the company with less than $1 billion in earnings before interest, taxes, depreciation and amortization this year. The credit rater also cited the company’s large debt load that will need refinancing at likely higher interest rates and place pressure on its bottom line.
“Several headwinds impacted the company’s earnings recovery in early 2022, including the impact on bookings and increased cancellations due to the Omicron variant and Russia’s invasion of Ukraine, materially higher fuel costs and food cost inflation,” continues the Moody’s report. “However, Royal Caribbean’s smaller, younger fleet and greater mix of higher end or luxury offerings is supporting pricing power.”
Royal Caribbean also raised $1 billion of 6% convertible senior notes due 2025 earlier in August, to repurchase $350 million of senior notes due in November 2023 and $800 million of senior notes due June 2023.
The company has tapped corporate debt markets throughout the pandemic and had more than $23 billion in debt on its balance sheet as of June 30, 2022, according to its latest quarterly earnings filing.
(Updates with final pricing.)
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