Carnival Boosts Dollar Bond Offering Amid Rampant Demand

(Bloomberg) -- Cruise line operator Carnival Corp., one of the companies on the frontline of the coronavirus pandemic, has increased its dollar bond offering after scrapping plans to issue part of it in euros.

The company raised its debt issuance to $4 billion on Wednesday after it had earlier approached bond investors on both sides of the Atlantic to sell $3 billion of notes in dollars and euros, according to people with knowledge of the transaction. But with investors piling into the dollar offering, Carnival pulled the plug on the euro tranche.

The deal is oversubscribed, with orders exceeding $10 billion, one person said. The dollar-denominated portion had been marketed with a coupon of about 12.5%, while European investors were offered around 11.5%. Carnival has now cut the dollar coupon to 12%.

Given that the dollar offering is so large, “why would you go into a much more illiquid tranche” in euros, Mark Benbow, a fund manager who helps manage about $1.5 billion across high-yield strategies at Kames Capital, said. “The discount you’re getting on the euro one was quite small anyways. It kind of didn’t make sense.”

The decision to drop the euro issue wasn’t a question of demand and came down to currency preference, according to a person familiar with the matter. The European high-yield market has been shut for the past month as borrowing costs soared.

JPMorgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. are leading the Carnival bond sale, which is expected to complete on Wednesday.

Recovery Bet

Kames Capital hasn’t made a decision on whether to buy the bonds, but Benbow views the deal as interesting. He’s hopeful the cruising industry will recover after the coronavirus pandemic slows down.

Two points that caught his attention on Tuesday’s conference call on the bond offering: the company received 39,000 bookings since it stopped sailing, and 45% of customers chose credit for future trips as opposed to cash refunds.

Still, even with ships as collateral, investors can’t be sure when Carnival will sail again after a series of Covid-19 outbreaks at sea raised concern about the safety of the industry.

Carnival representatives in the U.S. didn’t immediately return requests for comments.

Carnival is taking advantage of a rebound in credit markets which have seen more than $200 billion of debt sold in the U.S. and Europe over the past week. Carnival, run out of Miami is incorporated in Panama. While it derives some revenue from Europe, it gets most of its business from the U.S.

©2020 Bloomberg L.P.

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