Companies Pinched By Virus Approach Banks For New Credit

(Bloomberg) -- Some of the companies hit hardest by the Covid-19 coronavirus are starting to talk to banks about short-term loans that would provide a safety net during the outbreak, according to people familiar with the matter.

Discussions are preliminary and have occurred mostly with airlines, said the people, who asked not to be named discussing private information. Companies in industries such as energy and travel and leisure with investment-grade or high-yield ratings could also consider backup financings, they added.

The structures of the deals are in flux, but could include one-year bridge financings, 364-day term loans that use aircraft as collateral, or additional revolving credit facilities, they said. Investment-grade loans could be syndicated to a broad banking group, or arranged between only a small group of banks, one of the people added.

Royal Caribbean Cruises Ltd. said Tuesday it had increased its revolving credit capacity by $550 million to bolster liquidity. Norwegian Cruise Line Holdings Ltd. disclosed Monday that it had signed a new loan.

The Federal Reserve and other U.S. bank regulators urged financial institutions Monday to “work constructively with borrowers and other customers” feeling the financial effects of the virus.

Disruption from Covid-19 threatens companies across the credit spectrum. Airlines, dealing with thousands of canceled flights, have slashed earnings estimates. Companies in the lodging, gaming and entertainment industry have also suffered amid large-scale event cancellations. Energy bonds fell off a cliff on Monday following a double-hit of weaker demand from the virus and a price war between Saudi Arabia and Russia that sent crude oil plunging to around $31 a barrel.

President Donald Trump said he will seek a payroll tax cut and “very substantial relief” for industries that have been hit by the virus. The economic package is said to leave out for now any aid for the travel industry.

Airlines talking with banks aren’t facing a liquidity squeeze yet, but could run into trouble in the coming months if the situation worsens. Companies across sectors are looking to secure temporary financing from their longtime bankers until problems with the virus subside.

Norwegian Cruise Line recently raised an additional $675 million revolving credit facility, a type of financing that allows a company to borrow as needed and repay the money whenever it wants. Norwegian “took the proactive measure of securing additional liquidity” due to the impact of the virus, and has not yet drawn on the facility, which is secured against the Norwegian Epic cruise ship, according to a regulatory filing.

In less than two months, shares of Norwegian and rivals Carnival Corp and Royal Caribbean Cruises have lost more than half their value. Norwegian’s bonds are rated in the top tier of junk. Its $565 million of unsecured notes due 2024 closed six points lower on Monday at 81 cents on the dollar, according to Trace data.

Boeing Co. also recently raised a temporary credit facility to give the planemaker flexibility as it works through the 737 Max grounding. The company has already tapped $7.5 billion of the $13.825 billion 2-year delayed-draw term loan.

©2020 Bloomberg L.P.

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