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Why Carnival Stock Fell Today Despite Its Good News

The Motley Fool logo The Motley Fool 7/27/2021 Eric Volkman
a large ship in a body of water: Why Carnival Stock Fell Today Despite Its Good News © Provided by The Motley Fool Why Carnival Stock Fell Today Despite Its Good News

What happened

Shares of Carnival (NYSE: CCL)(NYSE: CUK) sank a bit on Tuesday, closing 1.6% lower, against the 0.47% dip of the S&P 500 index. While the company stands to benefit from a positive development in the legal sphere, a new round of debt financing might be dampening investor enthusiasm.

So what

Monday was a good day for Carnival; Tuesday, not so much. The week started well, following a U.S. Court of Appeals ruling the previous Friday.

a large ship in a body of water: Cruise ship sailing, with storm cloud in the background. © Getty Images Cruise ship sailing, with storm cloud in the background.

This ruling reversed a previous decision regarding the Centers for Disease Control and Prevention (CDC) Conditional Sailing Order. The latest ruling stated that the CDC cannot enforce the order, which imposes fairly strict limits on cruise lines' operations during the pandemic.

But this was tempered by Carnival's announcement after market close on Monday that it has completed its latest round of financing. This is not a small issue; all told, the company is selling first-priority senior secured notes totaling just over $2.4 billion. The rate is 4%, and the notes are due in 2028.


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Now what

We should never be happy when one of our investments takes on a fresh pile of debt, yet there is a big "but" here. Carnival's issue is being used to purchase up to $2 billion worth of a previous batch of notes that was far pricier (with an 11.5% coupon) and had a much earlier maturity date (2023). 

The company said this will save $135 million annually in interest expenses; at this point, any savings are welcome for the still-struggling cruise operator.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

 
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