Rating Action: Moody's downgrades Carnival's senior unsecured rating to Baa1, ratings are on review for downgrade
moodys.com
11 Mar 2020
New York, March 11, 2020 -- Moody's Investors Service, ("Moody's") downgraded the senior unsecured rating, and senior secured revenue bond ratings of Carnival Corporation and Carnival plc (together, "Carnival") to Baa1 from A3. At the same time, Moody's placed the company's ratings, including its Prime-2 short-term rating for commercial paper on review for further downgrade.
"The downgrade reflects Moody's expectation that soft booking trends and increased cancellations related to the global spread of the coronavirus (COVID-19) will significantly impact Carnival's earnings in 2020, resulting in metrics outside of levels appropriate for a single A rating," stated Pete Trombetta, Moody's lodging and cruise analyst. "Following earnings pressure in the second half of 2019 due to the ban on travel to Cuba and European pricing pressure, Carnival entered 2020 with metrics that were slightly within the range for an A3 long-term credit rating with minimal cushion to absorb a shock such as COVID-19," added Trombetta. While the cruise industry has seen past cyclical downturns including recession and terrorist attacks, Moody's believes that the COVID-19 coronavirus will more significantly pressure the cruise companies' earnings, cash flow, and liquidity as compared to previous cycles.
The cruise industry has been one of the sectors most visibly impacted by the spread of COVID-19, with quarantined ships due to confirmed cases of infected passengers prominent in global media coverage that could cause some customers, especially first time cruisers and older passengers, to pull back from cruising altogether. With COVID-19 cases increasing exponentially and global countermeasures becoming increasingly severe and restrictive, Moody's sees scope for a significant drop in cruise passenger volumes and net yields in 2020 as well as the potential for a reduction in demand for cruises beyond 2020. The industry's seasonal peak in the third quarter of 2020 will be impacted, and as the virus continues to spread across North America over the coming months, we expect to see lower demand and pricing pressure into 2021 and possibly beyond. While cruise demand has proven to be resilient following previous challenges, the eventual return to a more normalized state is likely to take longer than in the past and could alter the trajectory of demand in the industry.
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