Royal Caribbean Makes More Finance Moves; Q1 Filing to Come

[SpeedNoodles]

https://www.cruiseindustrynews.com/cruise-news/22927-royal-caribbean-makes-more-finance-moves-q1-filing-to-come.html?fbclid=IwAR2CpFA_aMSlZ3VBZa__3KmXbW6xbheJ3VWyvV5LztTKRxNIY-7qYq1Xx04

[JLMoran]

OK, I read it and I don't understand more than maybe 1/4 of it. Can someone with deeper understanding of debt instruments and corporate loans explain what it all means? The first part seems semi-clear -- instead of being evaluated quarterly for some of those loans (to measure ongoing liquidity?), they're now being checked monthly. I guess that's to certify they're doing as they said and just keeping the lights on with minimal cash burn?

But the other stuff (including a German financial company name that makes me want to say, "Gesundheit!" after reading it) is about as clear as mud.  

[SpeedNoodles]

14 minutes ago, JLMoran said:

OK, I read it and I don't understand more than maybe 1/4 of it. Can someone with deeper understanding of debt instruments and corporate loans explain what it all means?

Agreed - I just posted it in the hopes that someone else could interpret.

[thatguy]

The following is a bit of an over simplification for the accountants out there but here is the "explain like I'm 5" explanation 

RCCL amended the agreements it has made with banks on 3 loans

A $1.55 billion revolving credit facility 
A $1.925 billion unsecured revolving credit facility
A $1.0 billion unsecured 3 year loan

A revolving credit facility you can think of as similar to a home equity line of credit.  The second loan is the same but  "Unsecured" means the loan has no collateral.  It is typical for businesses to have lines of credit like this for additional liquidity in times of a cash crunch or to finance larger projects or initiatives.

"Quarterly tested fixed charged coverage" means that every quarter the banks evaluate RCCL's ability to pay its debts in order to determine if it wants to continue to provide the line of credit to the company based upon an agreed set of metrics.  What they have done is agreed to change what these metrics are, most likely in a way that makes it easier for RCCL to meet the requirements in the short term while still protecting the banks during this time when accounts payable vs accounts receivable is way out of wack.  It's possible RCCL made some kind of concession for this, such as agreeing to a higher interest rate, but the article does not say if it did.  The article goes on to say this is temporary and in effect through Q1 of 2021.  It will revert back to the old metrics after that time.

They've also amended the loans used to finance Ovation and Harmony to take advantage of a debt holiday being offered by a German credit agency.

Finally RCCL is delaying it's quarterly report as allowed by the SEC as part of the easing of rules due to COVID-19.

Hope this helps.  There's no big news here, it's just RCCL doing whatever it can with outstanding loan agreements to help get the company through this time of no revenue.  Just like student loans and auto loan lenders are offering people forbearance and other concessions, banks are doing similar actions with large companies as well.

[Matt]

12 hours ago, JLMoran said:

OK, I read it and I don't understand more than maybe 1/4 of it.

Glad I wasn't the only one!

[JLMoran]

11 hours ago, thatguy said:

the "explain like I'm 5" explanation 

Thanks for this, definitely appreciated. Although in my case it's probably starting to be more like the "explain like I'm going senile" explanation. You'd think after working in the financial industry for over 20 years I'd have started to pick up some of this lingo!  

[Dad2Cue]

I think it just means they have no income and are living month to month by putting their expenses on a credit card.  Hopefully the banks will continue to increase their credit limit and are happy to collect the minimum amount due.

[Lovetocruise2002]

14 hours ago, JLMoran said:

OK, I read it and I don't understand more than maybe 1/4 of it.

 

1 hour ago, Matt said:

Glad I wasn't the only one!

Well, I'm not even going bother trying then! 

[rjac]

1 minute ago, Lovetocruise2002 said:

 

Well, I'm not even going bother trying then! 

I'm with you! 

[VACruiser]

It has/is interesting to see how a challenged industry is working their financials in a zero income environment. The banks are doing everything they can to keep it a float (intended pun). The CFO’s are really making their salaries now. No one wants to see a huge money making industry go down the tubes but the travel industry is in for lot of problems in the coming years. Older and younger Americans may not frequent the industry as much as in the past so as older cruisers pass away; younger cruises may not want to try the “floating pertri dish” as has been stated over and over by the press. The cruise industry is going to have to pay a lot of money for advertising going forward as it has to fix the curse that has been thrust upon them with bad press.

I believe that the future innovation in the travel/cruise industry will be hindered going forward so as to shore up their financials. This COVID situation will be imprinted on the minds of CFO’s for years to come just as much as it was for people in the 1930’s. We will remember it for years as 2020 is a year to remember for the rest of our lives.