Old Ships: Gold Mine?

Can a company make money running older ships?

According to a prospectus for Cruise Holdings (CHL), now known as Premier Cruises, dated May 1997, its ships can generate enough cash for payback on the investment in less than two years. The company expects to achieve this return at 100 percent occupancy, but at per diems 30 to 50 percent lower than the major cruise lines.

CHL also stated that low acquisition costs, cost efficiencies gained by consolidation, and product differentiation will be keys to its success.

Thus, CHL promises a new attack on a market where the cruise lines that it has acquired “have each historically incurred losses or achieved only marginal levels of profitability,” according to the prospectus.

Private Placement

The prospectus was used for a private placement, which netted CHL about $12.5 million. ln addition, the company refinanced its debt, which included the establishment of a $60 million credit facility from Skandinaviska Enskilda Banken.

After repayment of debt and other allocations, the balance of the proceeds was $9.7 million. Total assets were listed at $164 million and total liabilities at $153 million.

The prospectus listed pro forma operating income of $22 million on revenues of $202 million in 1996, compared to operating income of $19 million on revenues of $137 million in 1995, and operating income of $22 million on revenues of $119 million in 1994.

Also, for 1997, CHL has scheduled the vessels for $22.5 million in maintenance and upgrade work.


CHL has grown fast, but ship acquisitions are not always what they seem to be.

Case in point is CHL’s charter of the Islandbreeze (ex-Festivale) from Carnival Corporation. The ship charter came with advance deposits of $8 million which was used in part to make a deposit to Carnival.

Similarly, CHL bought Premier Cruise Lines and the Oceanic for $19 million which is exactly the amount of cash Premier had at the time of closing.

But while this money pays for ships, it is passenger deposits which in turn become debt for CHL.

Risk Factor

CHL maintains a bond of $12.4 million that satisfies the requirements of the U.S. Federal Maritime Commission relating to its ability to meet liability in cases of non-performance of obligations to passengers and casualty and personal injury. Meanwhile, the company listed $32.4 million of passenger deposits.

The bond covers the ships that sail from U.S. ports, but not those that do not sail from U.S. ports.


CHL strategy may very well work, but CHL depends on good sailing weather ahead. This year has so far been on the up-and-up for the cruise industry.

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