NEW YORK (Standard & Poor‘s) Jan. 15, 2012--Standard & Poor’s Ratings Services said today that its ratings on Carnival Corp. (BBB+/Stable/A-2), and other rated cruise operators including Royal Caribbean Cruises Ltd. (BB/Stable/--) and NCL Corporation Ltd. (B+/Stable/--), are currently unaffected by the grounding of the Costa Concordia. The cause of this tragic event, reportedly claiming at least five lives, is unclear.
Carnival Corp.’s operating performance in 2012 will be negatively impacted by the loss of this ship from its fleet, as well as any costs associated with the event, including investigation into the cause, amending or refunding future itineraries scheduled on the Costa Concordia, and any investment associated with restoring the reputation of the Costa brand, which is one of Carnival’s largest and most well known. In addition, while it is difficult to assess the degree that a tragic event such as this could have on the overall cruise sector, we believe there is the potential that this event could weigh on booking trends across other cruise brands. The timing of this event could weaken 2012 booking trends given the fact that it occurred early in the wave season, the two-to-three month period in which a substantial portion of cruise business is booked.
Prior to this event, our outlook for the cruise sector in 2012 was for minimal growth in net revenue yields and a slight decline in operating costs, including fuel. This outlook reflects our economists’ expectations for modest economic growth in the U.S. and the U.K., and for a mild recession in first half of 2012 in the eurozone. We have now also considered a scenario where there is some level of price discounting across the sector in response to weaker than anticipated wave season demand stemming from this event. Specifically, we have considered a scenario where net revenue yields are negatively impacted by 3% in 2012 compared to our current expectation for low-single digit growth for each cruise operator. Under this scenario, lease and port commitment adjusted debt to EBITDA for Carnival, Royal Caribbean, and NCL, would increase to near our maximum thresholds but remain in line with our current ratings on each company. These thresholds are 3x for Carnival at its current ‘BBB+’ rating, 5.5x for Royal Caribbean at its current ‘BB’ rating, and 6x for NCL at its current ‘B+’ rating. (See our latest rating rationales on Carnival Corp., Royal Caribbean Cruises Ltd., and NCL Corporation Ltd., for further detail) We will continue to closely monitor booking trends following this event, and consider incorporating a more conservative set of assumptions in our ratings, if necessary.