Norwegian Cruise Line Holdings' decision to raise $2bn in capital in the form of equity and debt is getting positive feedback from analysts.
The Frank Del Rio-led owner of 28 cruise ships on Tuesday offered 46.9m shares to investors holding its 6% exchangeable senior notes. The New York-listed company priced the units at $23.64 per share.
Miami-based Norwegian plans to use the money from the offering, set to expire on Friday, to redeem $236m in 12.25% senior secured notes and $263m in 10.25% senior secured notes, all due in 2026.
The company also launched a private offering for $1bn in 1.125% exchangeable senior notes due in 2027, after upsizing the fundraiser from the previously planned $800m.
The investors who buy into the offering can take up an additional $150m in debt securities within two weeks after the notes are issued.
Proceeds from the notes offering, which is also scheduled to expire on Friday, will go toward rebuying up $716m of the 6% exchangeable senior notes, which are due in 2024.
Everyone does it
Infinity Research analyst Assia Georgieva said the two capital markets transactions are smart moves by Norwegian because they allow the company to get rid of $1.5bn of very expensive debt while providing it with $500m in liquidity.
"Even the individual would want to do that, refinance with a mortgage or a credit card where you get lower interest rates," she told TradeWinds.
She said competitors Carnival Corp and Royal Caribbean Group will most likely also exchange billions of dollars in high-interest notes with low-interest debt as well.
"They knew that the rates would be exorbitant, but within the contracts, there are always clauses where they can repay debt and refinance at lower rates," she said.
"I think this is something that we will continue to see probably for the next nine months out of all three of the public companies."
Stifel analyst Steven Wieczynski wrote in a client note that both deals will result in much lower interest rates for a considerable portion of Norwegian's $13bn in debt.
"It is clear these transactions are an absolute positive for the company as they are not increasing their diluted share count (actually lowering it) and are materially lowering their overall borrowing costs," he wrote.
"Those two transactions should save the company $50m in interest costs each year."
Stifel believes that the cruise industry could be "positioned well, given their massive underperformance this year", he said.
"We expect demand and pricing metrics to continue to improve as we move into 2022 and investors will have to take notice," he wrote.