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Cruise lines’ stocks fall after Fed rate hike raises concerns about debt, recession

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People come out to observe the brand new Carnival Cruise Line ship Mardi Gras because it departs on its maiden voyage, a seven-day cruise to the Caribbean from Port Canaveral, Florida on July 31, 2021.

Paul Hennessy | Anadolu Agency | Getty Images

Shares of Carnival, Norwegian and Royal Caribbean fell this week after the Federal Reserve again hiked rates, raising worries about cruise firms’ huge debt loads and their ability to get well in a broader economic downturn.

The declines in cruise stocks come because the industry is working to get well from the pandemic, with bookings ticking up after the U.S. Centers for Disease Control and Prevention lifted Covid-19 guidelines from ships.

“There’s lots of one step forward, one step back happening,” Truist analyst Patrick Scholes said. He also noted the debt cruise firms racked up while their ships were anchored throughout the pandemic.

As of Sept. 1, Truist estimates that Carnival holds $35 billion in debt, Royal Caribbean has $25 billion and Norwegian owes $14 billion. Respectively, the businesses’ values within the stock market are about $11.01 billion, $11.18 billion and $5.61 billion.

The declines got here during a selloff within the broader market, because the three major indices have taken a beating for the reason that Fed’s decision Wednesday.

Norwegian, Carnival and Royal Caribbean didn’t reply to request for comment.

“The rationale the stocks, for my part, went down a bunch on Wednesday was because you simply had this fear that the businesses are going to must pay more for his or her debt,” Deutsche Bank analyst Chris Woronka said. The businesses’ losses continued throughout the week.

At the identical time, Woronka said their revenues may not get well as strongly in a broader economic downturn if individuals are spending less on leisure.

On Thursday, Bloomberg reported that Royal Caribbean will use high-yield corporate bonds, or “junk-bonds,” to assist refinance $2 billion of debt due next yr.

Still, some investors have been bullish on debt-ridden cruise lines. Earlier this month, Stifel analyst Steven Wieczynski reiterated a buy rating for Norwegian, noting that cruise bookings have climbed, particularly for luxury lines that cater to higher-income customers.

Scholes says that Norwegian is best-positioned with a high proportion of luxury options. But between high interest expenses and revenues which are still recovering, he said not one of the cruise firms are yet “out of the woods.”

Carnival shares are down about 55% this yr, while Norwegian stock is down about 35% and Royal Caribbean has fallen about 43%.

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