Norwegian Cruise Line Holdings announced it expects a net loss on both a U.S. GAAP and adjusted basis for the quarter ended March 31, 2020 and year ending December 31, 2020.
The company also said its ability to forecast cash inflows and additional capital needs was hampered, and it may be required to raise additional capital.
The company noted a “substantial doubt about the company’s ability to continue as a going concern.”
“The company is currently evaluating several different strategies to enhance its liquidity position as a result of the significant financial and operational impacts due to the outbreak of the COVID-19.” the company said. “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.”
Norwegian said it was taking significant measures to mitigate the financial and operational impacts of COVID-19 as well as additional actions to improve the company’s liquidity through cost reduction and cash conservation measures.
Norwegian noted it had identified approximately $515 million of capital expenditure reductions, comprised of approximately $345 million of reduction opportunities from planned 2020 non-newbuild capital expenditures and are in negotiations to further reduce capital expenditures for newbuild related payments by approximately $170 million (which reduction does not take into account the impact on timing of payments in connection with newbuilds as a result of the potential delays in ship
“We have also identified various projects and initiatives to reduce our ship operating costs and selling, general and administrative expenses, which we expect will result in reduced cash outflows and cost savings. We are undertaking meaningful reductions in ship operating expense including food, fuel, insurance, port charges and reduced crew manning of vessels during the suspension, resulting in lower crew payroll expense. The majority of the vessels in the company’s fleet are currently transitioning to cold layup, to further reduce operating expenses during the suspension.”
Some other initiatives already implemented include the significant reduction or deferral of marketing expenditures in the first half of 2020, the implementation of a company-wide hiring freeze, the introduction of a temporary shortened work week and reduced work hours with a commensurate 20% salary reduction for shoreside team members, a pause in 401(k) matching contributions and corporate travel freezes for shoreside employees
In addition, another challenge is provisions in Norwegian’s credit card processing and other commercial agreements.
“We have agreements with a number of credit card companies to process the sale of tickets and other services. Under these agreements, the credit card companies could, under certain circumstances and upon written notice, require us to maintain a reserve, which reserve could be funded by the credit card companies withholding or offsetting our credit card receivables, or our posting of cash or other collateral,” Norwegian said, in a Tuesday SEC filing.
“As a result of the impacts of COVID-19, we have seen an increase in demand from consumers for refunds on their tickets, and we anticipate this will continue to be the case for the near future. Requests for refunds may reduce our liquidity and risk triggering liquidity covenants in these processing agreements and, in doing so, could force us to post cash or other collateral (including the potential to post certain of our vessels as collateral) as a reserve with the credit card processing companies in accordance with the terms of our agreements with them. Because of COVID-19, we have been in conversation with our credit card processors about posting collateral, and if we were required to post collateral or otherwise maintain a reserve, our financial position and liquidity could be materially impacted.”