(Bloomberg) — Norwegian Cruise Line Holdings Ltd. sold $1.6 billion of notes Thursday to refinance the expensive debt it took out in 2020 to weather the global lockdowns amid the pandemic.
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The company tapped the U.S. junk-bond market to sell $1 billion of secured notes due in 2027 and $600 million of unsecured notes due in 2029, according to a statement. It is also offering $435 million of exchangeable notes due in 2027 in a private offering.
The secured notes priced with a yield of 5.875%, and the unsecured portion at 7.75%, according to a person familiar with the matter who asked not to be identified because they’re not authorized to speak about it. The secured debt is rated B1/B+, four steps into junk. JPMorgan Chase & Co. led the sale.
Price guidance tightened throughout the syndication process with the secured tranche discussed in the 6% area, while talk for the unsecured tranche was for a yield in the 7.75%-8% range. That movement in pricing is a sign that the deal garnered strong demand from investors at a time when many borrowers are opting for loans over bonds to hedge against rate risk. Pricing discussions for the secured notes were originally in the 6.25%-6.5% area, while the unsecured notes were being discussed at a yield as high as 8.25%.
Norwegian Cruise Line will use the proceeds to redeem all of its outstanding 12.25% notes and 10.25% notes, and to make principal payments on short-term debt that’s maturing, according to the statement. The secured notes and the related guarantees are backed by three of the company’s vessels.
The 12.25% notes due in 2024 last traded at 116.25 cents on the dollar, while the 10.25% notes due 2026 were trading at 116.75 cents, according to Trace. The company’s shares, however, dipped by as much as 5.65% Thursday during early trading hours in New York after forecasting 2021 revenue short of expectations and issued guidance for a net loss that’s wider than 2020.
Cruise companies such as Norwegian, Carnival Corp. and Royal Caribbean Cruises Ltd. rushed to debt markets in 2020 to shore up cash as the pandemic shut down large swaths of the economy. Many paid a hefty price to secure financing as travel and leisure industries shuttered and cruises paused operations.
“We’re seeing the same story on repeat for the big three of the seas: refinancing high coupon debt and pushing out maturities, while at the same time bolstering liquidity to fill cash gaps until they become cash flow positive,” said Jody Lurie, Bloomberg Intelligence credit analyst. She said she expects 2022 to be another year of refinancing with the prospects of net debt repayment not beginning until at least 2023.
(Updates with final pricing in third paragraph.)
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