Carnival Said to Prep Bond Sale for Next Week to Buy Back Debt

(Bloomberg) -- Carnival Corp. is looking to slash borrowing costs with the sale of new junk bonds that would refinance debt that the cruise operator sold at the height of the pandemic at almost triple the cost.

The new offering may be sold as soon as next week, and early pricing discussions are in the 4%-4.125% range, according to people with knowledge of the transaction.

The proceeds will finance a tender offer, launched last week, to buy back as much as half of Carnival’s $4 billion three-year secured notes with a whopping 11.5% coupon. Carnival issued those notes in April of last year to raise cash as cruise travel halted around the globe. If the company were to buy back $2 billion of that debt at a rate of 4%, it would save $150 million per year in interest costs, according to Bloomberg calculations.

A representative for Citigroup Inc., which is leading the junk-bond sale, declined to comment. A representative for Carnival didn’t immediately respond to a request for comment.

Read more: Carnival Seeks to Buy Back $2 Billion Debt From Height of Covid

Average junk bond yields have grinded tighter in recent months and currently sit at just 3.74%, according to Bloomberg Barclays index data. Carnival is taking advantage of these low rates to refinance expensive debt it issued at the height of the market volatility caused by the Covid-19 pandemic last year. The cruise operator already completed a repricing in May where the company cut the rate on a leveraged loan it issued in 2020.

Delta Air Lines Inc. on Thursday offered to buy back up to $1 billion of high-cost bonds issued at the height of the virus outbreak, as the company begins to look at ways to scale back its balance sheet.

Current holders of the existing Carnival 11.5% notes that accept the tender offer by an early deadline of July 19 will receive 114.25 cents on the dollar.

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