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NORWEGIAN CRUISE LINE HOLDINGS: needs to raise $ 1.7 Billion to stay afloat - plans cold-lay-up of cruise vessels

c: Meyer

Norwegian Cruise Line Holdings Ltd, the world's third-largest cruise operator, raised doubts about its ability to continue operating on Tuesday, the first in the sector to signal it may succumb to the coronavirus crisis.

The company's shares closed down more than 22% (NCLH)as it launched a $1.6 billion offering of shares and bonds in a scramble to raise money, and announced a $400 million investment in a subsidiary from private equity firm L Catterton.

"This is an industry that we've been pursuing for a long period of time," Scott Dahnke, global co-chief executive at L Catterton, who will take a seat on Norwegian's board as part of the deal, said in an interview.

"It's a really attractive, interesting industry with ongoing tailwinds from an aging population, millennials and Gen Zs discovering cruising, as well as increased demand from Asia,"he said." We think those secular drivers will continue to exist as the industry rebounds."

Norwegian Cruise and rivals Carnival Corp and Royal Caribbean Cruises have been among the most high-profile victims of the pandemic after deadly outbreaks on some cruise ships led to extended port quarantines in Japan and California.

Norwegian, which has suspended its sailings through June 30, has not announced a relaunch date. On Monday Carnival said it plans to resume some cruises beginning Aug. 1, pending continued efforts to coordinate with government officials.

The cruise industry was left out of a $2.3 trillion U.S. stimulus package for troubled companies as the major players are all incorporated outside the United States.

"COVID-19 has had, and is expected to continue to have, a significant impact on our financial condition and operations, which adversely affects our ability to obtain acceptable financing," Norwegian said, also flagging substantial doubt about its ability to continue as a "going concern."

The company said that as of April 24, advance bookings for the remainder of the year were "meaningfully lower than the prior year, with pricing down mid-single digits." Norwegian's shares have lost almost 80% of their market value this year.

The Miami-headquartered company faces class-action lawsuits alleging that it made false and misleading statements to the market and customers about COVID-19 and its impact on its business - allegations it says are without merit.

In March, Florida's attorney general announced an investigation related to Norwegian's marketing to customers during the coronavirus outbreak, based on allegations it downplayed the severity and highly contagious nature of the virus in an effort to sell cruises.

Other attorneys general and governmental agencies are conducting similar investigations, according to the company.

Norwegian said it does not have sufficient liquidity to meet its obligations over the next 12 months.

Since the start of the crisis, the company has borrowed $1.55 billion under credit facilities. At the end of last year, it had about $6 billion of total long-term debt obligations and cash and cash equivalents of $252.9 million.

Norwegian is taking steps to enhance its financial position through new offerings of stock, exchangeable and secured noted and a $400 million private placement to a private equity firm.  They have also revised terms on some of the outstanding debt from their ships and are working to revise payments related to future new building projects.  Additional, Norwegian is “undertaking meaningful reductions in ship operating expense including food, fuel, insurance, port charges and reduced crew manning of vessels during the suspension.”  Among the actions, they have reduced marketing expenditures, temporarily shortened the work week and reduced work hours for shoreside employees or furloughed employees.  

The company is also reducing costs by transitioning its fleet into cold layup

As part of the layup efforts, The Port of Virginia is providing berth space at Portsmouth Marine Terminal (PMT) for three of the Norwegian Cruise Line ships, Norwegian Encore, Norwegian Bliss, and Norwegian Spirit, through June 30, 2020. 

Prior to moving to Virginia, the three ships had been in Miami and offshore or the Bahamas, while Norwegian arranged for the crews to be flow home or transferred on to the company’s other ships for transportation home. 

According to The Port of Virginia, currently there are less than 175 crew members on each ship, but the Centers for Disease Control and Prevention (CDC) is requiring all crew members to stay aboard the vessels while on berth.  Further, the Port explained in a press release, “In order to be accepted into the Norfolk Harbor and allowed to dock at PMT, Norwegian Cruise Line had to submit crew manifests and a plan of operation during their stay at The Port of Virginia for review to the CDC, the U.S. Coast Guard and the Virginia Department of Health. Each agency approved the plan before the vessels were allowed into Virginia waters.”

Other cruise ships operated by Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises are currently in a variety of ports around the globe ranging from Port Rashid in Dubai, United Arab Emirates, and Mumbai, India to the waters around the Port of Los Angeles, Miami and the Bahamas.  The Norwegian Star is currently en route to Southampton, England transporting crew from the company’s ships while the Norwegian Breakaway is current bound for Marseilles, France.

During a cold layup the crew is typically reduced to minimal levels while machinery is taken out of service and routine maintenance is deferred.

The class societies also need to be notified of the change of status for the ship and depending on the total length of the layup the ship may require a survey before returning to service. Readiying the vessel for service can take up to 5 weeks.

c: Tod Corillo