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RCL stock and chances of company BK


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I hate trading public equities but love Royal Caribbean.

With stock prices so deflated, I picked up a decent amount (for me) of RCL shares. My initial thought was to keep buying up more here and there to cost-average myself into a decent position. Then for the first time I thought, "what if RCCL goes Chapter 11?"

What are the chances? Any thoughts will be much appreciated!

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You have to be comfortable with what you are comfortable with. Only you can know what risk you are willing to take. 

With that said personally, I think Royal's stock has plenty of room to continue to go down before it goes up. Then of course possibility of Chapter 11 but no one has a crystal ball. If you had told me in March that cruises would be canceled into the fall I would have said you were crazy but here we are.

Do what feels comfortable for you.

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29 minutes ago, ted52 said:

You have to be comfortable with what you are comfortable with. Only you can know what risk you are willing to take. 

With that said personally, I think Royal's stock has plenty of room to continue to go down before it goes up. Then of course possibility of Chapter 11 but no one has a crystal ball. If you had told me in March that cruises would be canceled into the fall I would have said you were crazy but here we are.

Do what feels comfortable for you.

Thanks @ted52 - I guess this is part of my process to determine my comfort level. I'm reading as much as I can online, but value the feedback of this community as well. 

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Any investment in RCL, any other cruise line, has to be looked at with a timeframe of years at this point. And those years will likely have even more volatility than they've had before all the stuff hit the fan.

Chapter 11 doesn't mean the end of the company. It just means their debts get restructured and what's effectively a payment plan established so that the company can get back on its feet. It may require them to sell off some ships sooner than planned, or cancel / postpone plans for new ship builds or refurbishments. It will definitely cause a hit to the company's stock price if it happens, but it is also something that will recover over time if the company plays its cards right and rebuilds the business and brand. But it would take years to pull off if it happened, maybe even a decade with the negative sentiment around cruising right now.

I personally think owning stock in RCCL requires a few key things from each investor, especially right now:

  • Believing that Royal is, at its core, still a solid company with a good product and plan to execute
  • Researching their 10-Ks / 10-Qs to see how they've been doing financially, how they're using debt, etc.
  • Getting as good an understanding as you can about the current debts they've taken on and how that could impact the company over the next few years (and this is probably the hardest part right now, because some of those instruments are confusing)
  • Being ready to hold onto that stock for years and even decades before selling it off
  • Being willing to keep doing the "homework" of keeping up with the company's financial announcements and general news
  • And lastly, being ready to see more price drops (possibly big ones)

I was personally good with the first, fourth, and fifth points, and OK, if not thrilled, with the second. Trying to understand those debt instruments, though, was really hard for me. And being 10 years (hopefully, but could be 15) from retirement left me less willing to risk those big drops that might need a long time to recover.

 

Full disclosure: I work in the financial industry, but I am not in any way a financial professional or licensed investment manager. I'm just a guy who works in IT but has done my best to understand the stock market and how to properly invest.

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4 minutes ago, JLMoran said:

Any investment in RCL, any other cruise line, has to be looked at with a timeframe of years at this point. And those years will likely have even more volatility than they've had before all the stuff hit the fan.

Chapter 11 doesn't mean the end of the company. It just means their debts get restructured and what's effectively a payment plan established so that the company can get back on its feet. It may require them to sell off some ships sooner than planned, or cancel / postpone plans for new ship builds or refurbishments. It will definitely cause a hit to the company's stock price if it happens, but it is also something that will recover over time if the company plays its cards right and rebuilds the business and brand. But it would take years to pull off if it happened, maybe even a decade with the negative sentiment around cruising right now.

I personally think owning stock in RCCL requires a few key things from each investor, especially right now:

  • Believing that Royal is, at its core, still a solid company with a good product and plan to execute
  • Researching their 10-Ks / 10-Qs to see how they've been doing financially, how they're using debt, etc.
  • Getting as good an understanding as you can about the current debts they've taken on and how that could impact the company over the next few years (and this is probably the hardest part right now, because some of those instruments are confusing)
  • Being ready to hold onto that stock for years and even decades before selling it off
  • Being willing to keep doing the "homework" of keeping up with the company's financial announcements and general news
  • And lastly, being ready to see more price drops (possibly big ones)

I was personally good with the first, fourth, and fifth points, and OK, if not thrilled, with the second. Trying to understand those debt instruments, though, was really hard for me. And being 10 years (hopefully, but could be 15) from retirement left me less willing to risk those big drops that might need a long time to recover.

 

Full disclosure: I work in the financial industry, but I am not in any way a financial professional or licensed investment manager. I'm just a guy who works in IT but has done my best to understand the stock market and how to properly invest.

Thanks for the thoughtful feedback, Joe!

I have no doubt that RCCL will survive the long term. And I have no problem holding stock for years or even a decade.

My only concern is that they'll need to wipe their balance sheet to stay alive and my stocks will go the way of the Titanic.

Like you, I'm very comfortable with the items you mentioned other than the financials. Those I just don't fully understand regarding long-term financial implications.

Again, thanks for the helpful thoughts!

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Trading stock is legalized gambling.  Should you bet on red or black?  Even or odd?  Will the dealer go bust with the next card?

It's probably too early to predict what will happen with Royal.  NCL is in more precarious financial shape so they may be a canary in the coal mine for us.  If NCL goes into bankruptcy it will have a chilling effect on Royal stock even if Royal doesn't follow them into bankruptcy.  Might be a good time to invest more, or it might be a sign that it's time to jump ship.

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One strategy to consider using to make money on the stock is to write/sell out-of-the-money puts on the common stock. I'm a retired stockbroker and can tell you some of the best ways to earn money in the market is to use this strategy as part of an overall diversified portfolio.

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On 7/27/2020 at 12:53 PM, MustCruise said:

Thanks @ted52 - I guess this is part of my process to determine my comfort level. I'm reading as much as I can online, but value the feedback of this community as well. 

Totally understand! Just wanted to highlight that your comfort is what's most important. I know you will make the best choice. 

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I like the company.  The covid environment is what worries me.  I don't see the earnings side of the P/E ratio improving anytime soon unless an effective vaccine emerges.  I personally don't want to contribute anymore to their earnings until something changes.  My bet is that many people feel that way.  My other concern is that the product is going to change and I'm not sure how well I will like it when it does.  I'm probably the average loyal guy --- it may just depend on how well I extrapolate to the rest of their customers --- not just their loyal customers. 

For me, it is more about whether my FCC will be worthless or not.  Royal is giving out too many IOUs --- sad but true.

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My 2c.. 

  • RCL is unlikely to file chapter 11 this year.
  • I would be hard pressed to hold RCL stock past the end of this year if things are still bad.
  • All bad news has been taken into account at this point and the stock is just bouncing between 45 and 55.
  • It is unlikely to change until something happens.
  • I would not add to any position at this point since it will likely drop if they announce cancellation of cruises for the remainder of the year.
  • The stock will likely rocket to $70+ the moment the CDC announce the no sail order is ending.

At this point, it is going to depend on what comes next..  CDC extending no sail order vs. CDC allowing no sail order to end.

Obviously, news from other cruise companies will effect them all.. so if NCLH or CCL announce bad news, RCL will drop too.
Also, what if RCL, CCL or NCLH start to cruise in Europe?  that would have an impact too.

I also have cruise stock and for now I am comfortable holding it.  I just do not see any good news coming in the next month to change anything.

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On 7/27/2020 at 11:54 AM, JLMoran said:

 

Chapter 11 doesn't mean the end of the company. It just means their debts get restructured and what's effectively a payment plan established so that the company can get back on its feet. It may require them to sell off some ships sooner than planned, or cancel / postpone plans for new ship builds or refurbishments. It will definitely cause a hit to the company's stock price if it happens, but it is also something that will recover over time if the company plays its cards right and rebuilds the business and brand. But it would take years to pull off if it happened, maybe even a decade with the negative sentiment around cruising right now.

 

Can you point to any examples of a Chapter 11 where the share holders didn't get wiped out?  It's my understanding that it's theoretically possible.  However, in reality, the bond holders and other secured debt holders have priority and there is usually nothing left for the original equity holders after the company is reorganized.

Will Royal Caribbean continue as a cruise line?  I think that much is ultimately certain.  GM continues to make and sell cars today, but the GM that existed for a century went through bankruptcy back around 2009 and became "Old GM".  All the assets were transferred to the newly formed company and new stock was issued.  The old share holders were wiped out.

https://en.wikipedia.org/wiki/Motors_Liquidation_Company

All of the major cruise lines have taken on enormous debt to raise cash to try and make it through the no sail orders.  And because none of them are American companies, they haven't gotten any kind of discounts or support on those debt issuance.  Royal's terms have been pretty harsh, including being secured by 28 of their ships.

So, personally, while I believe Royal will continue to operate and sail someday, I'm not convinced that it will be the legal entity that you own stock in today.

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I have it because I enjoy the industry and like the benefit.   A  year ago they did quite well, but these times are really going to stress the industry because of the debt they must carry.  Really didn't hold for the investment value (especially in these times).   I think they issued a  bond yielding 12% when they were raising capital this spring.  

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