Moody’s Upgrades Royal Caribbean Rating

Moody’s rating agency has upgraded Royal Caribbean Cruises’ senior unsecured rating to Baa2 from Baa3, and assigned a P-2 rating to the company’s planned USD 1.15 billion commercial paper program.

The rating agency added that the company’s rating outlook is stable.

“The upgrade to Baa2 reflects Moody’s expectation that Royal Caribbean will benefit from strong booking trends, increased onboard spending and the introduction of new ships which will enable the company to maintain leverage below 3.5x,” Pete Trombetta, Moody’s lead lodging and cruise analyst, said.

“The upgrade also reflects the company’s improved liquidity position, including reduced outstandings under its committed revolving credit facilities,” Trombetta added.

The P-2 commercial paper rating reflects RCL’s adequate liquidity, supported by its strong free cash flow generation which is sufficient to cover debt maturities over the next 24 months.

Constraining the company’s liquidity profile is the large cash outflows related to new ship deliveries which cause spikes in capital expenditures throughout the year.

RCL also has a USD 1.4 billion revolver due 2020 and a USD 1.2 billion revolver due in 2022; combined outstandings of about USD 700 million at March 31, 2018.

The revolvers do not require a material adverse change representation at borrowing, but do contain financial covenants which are expected to maintain ample headroom, Moody’s concluded.