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S&P May Cut Royal Caribbean, Carnival on Virus Travel Impact

Royal Caribbean May be Cut to Junk by S&P on Virus Travel Impact

(Bloomberg) -- S&P Global Ratings is taking aim at two cruise lines that have been battered by the coronavirus, as it may cut the ratings of Royal Caribbean Cruises Ltd. and Carnival Corp.

Each may be downgraded as the spreading virus batters the tourism industry, affecting everything from airlines to casinos. Royal Caribbean may be cut to junk, while Carnival would join the lowest tier of investment grade.

As multiple cruise ships have been quarantined globally in an effort to contain the virus, investors have sold bonds or bought protection against default tied to debt of Royal Caribbean, as well as those of rivals Carnival Corp. and Viking Cruises Ltd. Royal Caribbean also withdrew its first-quarter and full-year forecasts Tuesday, and increased its credit capacity by $550 million to boost liquidity.

“It is increasingly likely that the demand for cruises will remain weak even after the virus is contained,” S&P analysts Ariel Silverberg and Melissa Long said in a report.

Royal Caribbean’s 5.25% bonds due 2022 fell more than 5 cents to 89.6 cents, according to Trace, while its shares fell as much as 17% to their lowest price in more than six years. Carnival lost as much as 7.1% and Norwegian Cruise Line Holdings dropped as much as 14% as of 11:54 a.m. in New York.

The cost to protect Royal Caribbean’s debt against default for five years soared to the highest level since October 2008 on Monday, but retreated a bit Tuesday as the broader market rallied, according to ICE Data Services. The company is still rated investment grade at Moody’s Investors Service, one step higher than S&P’s rating.

S&P’s action takes Royal Caribbean one step closer to becoming a fallen angel. With two speculative-grade ratings, its $1.5 billion of debt would leave the Bloomberg Barclays investment-grade index. Carnival is rated A3 by Moody’s, equivalent to S&P’s A- rating.

--With assistance from Courtney Dentch.

To contact the reporter on this story: Olivia Raimonde in New York at oraimonde@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Molly Smith, Andrew Kostic

©2020 Bloomberg L.P.