CCL bonds

[Scuba]

Normally I don’t sell on market declines, but we own some CCL bonds that I could sell for about 17% less than I paid. The holding isn’t significant at about 0.2% of our portfolio. Still, I’d hate to hold and lose the other 83% of this investment if CCL goes bankrupt and bond holders get pennies in the dollar.

What do you think the likelihood of default is on CCL bonds?

 

[Spock]

The question isn't default, I think they will. The question is "will they be bailed out?". Will the Bahamas or Panama or where ever they flagged their ships for tax purposes have enough will and resources to prop them up? Or will they find a loophole/lobbyist that gets the US to bail them out?

Personally I think they should be allowed to let nature take its course because I don't see a pent up demand for cruises when the virus settles down... if they ran at max capacity before, its not like they can make up for the lost time.

 

[pb4uski]

Truly wacky. https://www.reuters.com/article/us-...edit-investors-on-board-sources-idUSKBN21K07H

(Reuters) - Carnival Corp (CCL.N), the world’s largest cruise operator, said it has raised $6.25 billion by issuing new debt and equity on Wednesday, borrowing at a high cost to weather the economic storm of the coronavirus pandemic.

Despite having its cruise ships idled to comply with coronavirus travel restrictions, the company was able to attract enough investors that its capital raising was oversubscribed several times over, albeit at a steep price, sources told Reuters.

Carnival priced $4 billion in bonds maturing in 2023 - upsized from the $3 billion originally planned - with a yield at par value of 11.5%, it said in a statement.

By comparison, Carnival paid a 1% yield in October, when it borrowed 600 million euros ($657.7 million) in the European debt market. Moreover, Carnival had to use its ships as collateral to attract bond investors on Wednesday.

The company also raised $1.75 billion in convertible notes with a 5.75% coupon, it added.

Beyond the bond issues, Carnival also issued new stock to raise $500 million, less than the $1.25 billion it was targeting. The issue was priced at $8 per share, the company said.

 

[Scuba]

Truly wacky. https://www.reuters.com/article/us-...edit-investors-on-board-sources-idUSKBN21K07H

Thanks for this. I saw the announcement that they were trying to raise capital but didn’t know how it went. Being oversubscribed several times over indicates there are a lot of investors confident things will work out for CCL. I definitely wouldn’t invest new money in CCL bonds so should probably sell even at a loss.

 

[brewer12345]

Scuba, I would hit the bid.

 

[RetireAge50]

Sell it and buy the stock. Might as well get the upside if you are taking the risk.

 

[wrigley]

Just for fun I threw $1000 at CCL stock on Thursday when it dropped to $8 per share. It will be interesting to see if they can recover.

Mike

 

[IMATERP]

I’m planning to add to my RCL position when it gets down to $20. Their CEO has dealt with 4 large economic issues during his 32 years and am rather certain that they will get through this - it may take a year or two.

 

[Montecfo]

The stocks may be interesting trades especially if we take out the near term lows.

 

[Running_Man]

And in 2017 2018 and up to five weeks ago CCL was purchasing back 1 billion dollars per year in common stock average price over that time around $60 per share. AT 2 Billion dollars they purchased purchasing back a little over 30 million shares for the 2 billion dollars they issued 60 million shares for 500 million dollars, throwing away 1.5 billion in corporate cash assets.

 

[copyright1997reloaded]

A gentle reminder of how bad things can get, and CCL bond pricing is not yet reflecting it. In 2008/9 I was able to buy Ford junior debt (7.5% note) for 20 cents on a dollar, with a 37.5% yield. While the debt was unsecured, it was higher in the pecking order than common. Also, Ford was the strongest of the three domestic auto makers (by far) - not one of the weaker players.

 

[GreenEggs]

What do you guys think about MGM? It seems to me that Las Vegas would recover quicker than cruises, especially after people have been trapped at sea on infected ships.

 

[Closet_Gamer]

A gentle reminder of how bad things can get, and CCL bond pricing is not yet reflecting it. In 2008/9 I was able to buy Ford junior debt (7.5% note) for 20 cents on a dollar, with a 37.5% yield. While the debt was unsecured, it was higher in the pecking order than common. Also, Ford was the strongest of the three domestic auto makers (by far) - not one of the weaker players.

Great insight.

 

[copyright1997reloaded]

What do you guys think about MGM? It seems to me that Las Vegas would recover quicker than cruises, especially after people have been trapped at sea on infected ships.

As of December 2019, they had 2.3 billion in cash, over $3 billion in current liabilities. I have no clue as to their current values, but can only imagine that cash flow is being impacted big time.

 

[NW-Bound]

Truly wacky. https://www.reuters.com/article/us-...edit-investors-on-board-sources-idUSKBN21K07H

Beyond the bond issues, Carnival also issued new stock to raise $500 million, less than the $1.25 billion it was targeting. The issue was priced at $8 per share, the company said.

And in 2017 2018 and up to five weeks ago CCL was purchasing back 1 billion dollars per year in common stock average price over that time around $60 per share. AT 2 Billion dollars they purchased purchasing back a little over 30 million shares for the 2 billion dollars they issued 60 million shares for 500 million dollars, throwing away 1.5 billion in corporate cash assets.

Many CEOs have this uncanny ability to buy high/sell low.

For this skill, their boards of directors pay them big bucks.

About their being able to raise money, I wonder how much of that is due to European bonds having negative yields, causing some investors to take risks to get a positive rate.

 

[Lakewood90712]

If I understand correctly , Saudi gov. wealth fund has taken a large stake in the company as of today.

 

[Scuba]

A gentle reminder of how bad things can get, and CCL bond pricing is not yet reflecting it. In 2008/9 I was able to buy Ford junior debt (7.5% note) for 20 cents on a dollar, with a 37.5% yield. While the debt was unsecured, it was higher in the pecking order than common. Also, Ford was the strongest of the three domestic auto makers (by far) - not one of the weaker players.

Interesting. I don’t know much about the bond market. Thanks for sharing.

 

[Scuba]

Update for those interested. I sold our CCL bonds today. They had a nice uptick in value so although I still sold at a loss, it was less than $1K and about $700-800 less than I would have lost when I first considered selling them. I don’t normally like locking in losses, bu in this case I felt there was a strong possibility of bankruptcy in the future and I knew I’d be kicking myself if the bonds went down to pennies on the dollar.

I’m not reinvesting the funds in CCL stock, although I think that was a great idea to capture potential upside vs holding the bonds. But I don’t feel great about their prospects so I’ll invest the proceeds elsewhere.

Thank you to those who commented!

 

[Montecfo]

Sometimes good (and worthwhile) to just move on!