Norwegian Cruise Line Holdings today provided a business update in response to the novel coronavirus global pandemic.
“With the COVID-19 pandemic impacting communities worldwide, we continue to closely monitor the evolving global public health environment. We have also taken decisive action to protect the Company’s future by shoring up our liquidity position through cost mitigation and cash conservation measures as well as pursuing additional sources of liquidity to help us weather this global pandemic,” said Frank Del Rio, president and chief executive officer of Norwegian Cruise Line Holdings. “We believe the disruption to the travel industry, while swift and severe, will eventually subside. Our guests continue to demonstrate their desire for cruise vacations as we continue to experience demand for voyages further in the future across our three brands. When the time comes, we will be ready to safely resume operations and welcome our loyal guests onboard.”
The company said it anticipates estimated ongoing ship operating expenses and administrative operating costs combined to range from approximately $70 million to $110 million per month during the suspension of operations.
Booking Environment and Outlook
Prior to the outbreak of COVID-19, 2020 was off to a strong start with all three of the company’s brands entering the year in a record booked position and at higher prices on a comparable basis. For the first two months of the year, ships sailed full at prices that were higher than prior year despite healthy capacity growth of approximately 7%. The company has since experienced substantial impacts related to the emergence of the COVID-19 global pandemic including meaningful softness in near-term demand and elevated cancellations. As of April 17, advanced bookings for the remainder of 2020 were meaningfully lower than the prior year with pricing down low-single digits, Norwegian said.
Booking trends indicate demand for cruise vacations in the medium and longer term with the booked position for 2021 essentially flat compared to prior year at pricing that is down mid-single digits.
All three brands have instituted programs for guests on canceled sailings as a result of the company’s voyage suspension which include offering value-add future cruise credits typically for 125% of the cruise fare paid in lieu of providing cash refunds. These future cruise credits are valid for any sailing through December 31, 2022. As of April 17, 2020, approximately half of the guests who have had their voyages cancelled have requested cash refunds. As of March 31, 2020, the company had $1.8 billion of advanced ticket sales.
COVID-19 Action Plan
Reduced Operating Expenses
• Meaningfully reducing cruise operating expense which includes reducing expenses associated with crew payroll, food, fuel, insurance and port charges. The majority of ships in the company’s fleet are currently transitioning to cold layup.
• Significantly reducing or deferring marketing expense in the first half of the year.
• Introduced a temporary shortened work week and reduced work hours with commensurate 20% salary reduction for shoreside team members.
• Paused employer 401(k) match contribution.
• Implemented a company-wide hiring freeze.
• Suspended travel for shoreside employees across the organization.
Reduced Capital Expenditures
The company has identified approximately $515 million of capital expenditure reductions, comprised of:
• $345 million, or a nearly 70% reduction of non-newbuild capital expenditures for the remainder of 2020.
• Approximately $170 million in expected reduced and deferred capital expenditures for newbuild related payments through March 31, 2021 which the company is currently finalizing. Upon completion, the Company’s next newbuild related payments would not be until April 2021.
Improved Debt Profile
• Export Credit Agencies and Norwegian’s lenders are working to finalize an industrywide initiative to grant a 12-month debt holiday to provide interim debt service relief for amortization payments and financial covenants (“Debt Holiday”).
• Contractual optionality to extend $230 million Pride of America term loan by one year to January 2022.
Balance Sheet and Liquidity Position
In response to COVID-19, the company secured a new $675 million revolving credit facility on March 5, 2020 and fully drew down on this new facility as well as its existing $875 million revolving credit facility beginning on March 12, 2020 for a total of $1.55 billion. As at March 31, 2020 the company’s total debt position was $8.6 billion. As outlined in the Improved Debt Profile section above, the company is in negotiations to defer a substantial portion of the maturities due within the next twelve months. At March 31, 2020 the company’s cash and cash equivalents were $1.4 billion and the company believes it was in compliance with all debt covenants.
Norwegian now estimates its cash burn to be on average in the range of, approximately $110 million to $150 million per month during the suspension of operations. This includes ongoing ship operating expenses, administrative operating expenses, interest expense and expected necessary capital expenditures and excludes cash refunds of customer deposits as well as cash inflows from new and existing bookings.
The company is also currently evaluating several additional strategies to enhance its liquidity position. These strategies may include, but are not limited to, pursuing additional financing from both the public and private markets through the issuance of equity and/or debt securities, which may include secured debt. The timing and structure of any transaction will depend on market conditions, Norwegian said, in a press release.
“Our quick action to proactively and aggressively implement initiatives to preserve cash and enhance liquidity in this uncertain and fluid environment puts us in a stronger position to withstand the adverse financial effects of COVID-19,” said Mark A. Kempa, executive vice president and chief financial officer of Norwegian Cruise Line Holdings. “We will not only benefit from the actions taken to strengthen our liquidity profile but will also benefit from a period of reduced capital expenditures with no newbuild deliveries until at least mid-2022. We will continue to evaluate all additional options to enhance liquidity.”