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Stay Ashore: Could Carnival Be Cruising Into Bankruptcy?

CBx Vibe:Cruisin’” D’Angelo

By CultureBanx Team

  • Carnival Carnival Cruise Lines halts cruises through the end of the 2020
  • Carnival raised of $5.75B in junk bonds to help it survive in the short term

Carnival Cruise Lines (CCL +7.23%), helmed by CEO Arnold Donald has extended a halt on cruises through the end of the year. Additionally, the Cruise Lines International Association group which includes cruise giants Princess, Carnival, and Royal Caribbean cruise lines, said its members have agreed to extend the suspension of U.S. sailing operations for the rest of 2020. With that in mind can Carnival stay afloat, as Donald looks to guide the cruise operator as it adapts to the pandemic challenges, in an attempt to fight off bankruptcy?

Why This Matters: It’s going to be difficult for Donald to steer Carnival away from the financial headwinds they are facing. The CLIA estimates that the suspension of cruises snuffed out more than $25 billion in economic activity, and 164,000 American jobs. Companies have suffered billions in losses this year, wiping out more than 70% of their value, according to The Associated Press.

The suspension of cruises snuffed out more than $25 billion in economic activity

Capital raises of $5.75 billion in junk bonds will help Carnival survive in the short term, though it won’t be smooth sailing. Donald told CNBC he believes his company has enough cash to survive, even if it generates no revenue for the rest of the year.

During Carnival’s fiscal Q3 2020 the company’s revenue declined down to $31 million, from $6.53 billion during Q3 2019. They’ve burned through $770 million cash every month during Q3, but the company expects this to drop to $530 million monthly during Q4. The company could face bankruptcy if it has similar or increased cash outflows in 2020. Currently, Carnival has around $7.6 billion in cash on its balance sheet.

What’s Next: At the beginning of November, federal health officials issued new rules that will enable large cruise ships to start sailing again in U.S. waters, though not immediately. Among the CDC’s requirements is that ship owners must test all passengers and crew at the start and end of all voyages, which are limited to seven days. Given the state of the pandemic, and that fact Carnival’s stock has fallen more than 68% year to date, bankruptcy still seems to be a long-term possibility.

CBx Vibe:Cruisin’” D’Angelo

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