Norwegian Cruise Line Holding Ltd (NCLH), the world’s third largest listed cruise shipping group, has unveiled plans to cut expenses and to address liquidity and balance sheet related matters in the aftermath of the COVID-19 outbreak
“The Company has swiftly undertaken several proactive measures to mitigate the financial and operational impacts of COVID-19. This action plan includes cost mitigation and cash conservation levers the Company has deployed to preserve and enhance liquidity and is part of an overall plan that, as described below, also contemplates additional sources of capital and liquidity,” NCLH said in a statement.
These measures include:
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.
The Company 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.
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 newbuilding 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 (ECA) and Norwegian’s ECA lenders are working to finalize an industry wide initiative to grant a 12-month debt holiday to provide interim debt service relief for amortization payments and financial covenants.
The company has approximately $540 million of ECA-backed amortization payments due over the next 12-months, of which approximately $385 million of payments related to guaranteed financing by Euler Hermes Aktiengesellschaftthe official ECA of Germany, have already been deferred through April 2021 and associated credit agreements have been amended to incorporate this Debt Holiday. The Company is in the process of finalizing the deferral of the remaining approximately $155 million of payments through March 31, 2021 with its other ECA lenders.
Contractual optionality to extend $230 million Pride of America term loan by one year to January 2022.
Working with lenders and evaluating additional options available to defer or refinance certain of the Company’s existing debt profile.
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.
These cash conservation measures and the potential deferral of near-term debt amortization and newbuild related payments1, the company 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.
“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 Ltd. “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.”
Outlook
The meaningful and rapidly evolving impacts from the pandemic, the temporary suspension of sailings globally and the uncertainty and fluidity of the ongoing situation, the company withdrew its first quarter and full year 2020 guidance provided earlier this year on its earnings call on February 20, 2020, which excluded known and unknown impacts from COVID-19.
As a consequence of these known and unknown impacts, while the company cannot estimate the impact on its business, financial condition or near- or longer-term financial or operational results with certainty, it expects to report a net loss on both a U.S. GAAP and adjusted basis for the quarter ended March 31, 2020 and the year ending December 31, 2020.
The COVID-19 outbreak has had a significant impact on the company’s financial position and results of operation. If the temporary suspension of sailings is further extended, the company’s liquidity and financial position would likely continue to be significantly impacted.
