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Carnival has its credit rating slashed as its return to the seas is likely crippled by an uptick in COVID-19 cases

Business Insider logo Business Insider 6/24/2020 snagarajan@businessinsider.com (Shalini Nagarajan)
a large ship in the water: MediaNews Group/Long Beach Press-Telegram via Getty Images © MediaNews Group/Long Beach Press-Telegram via Getty Images MediaNews Group/Long Beach Press-Telegram via Getty Images
  • Carnival Cruise Line, the world's largest cruise operator, has lost its investment-grade status after S&P downgraded its rating on Tuesday.
  • Carnival's credit rating now stands at BB-, dropped from BBB-, as S&P analysts established a "high level of uncertainty" for the cruise operator's return to normal services.
  • The firm's credit measures are expected to "remain very weak through 2021 because of its plans for a gradual reintroduction of capacity" and continued weak demand, S&P said in a statement.
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Cruise giant Carnival has lost its investment grade status with one ratings agency as it grapples with the coronavirus pandemic bringing the cruise industry to a near standstill, the latest sign of distress for the stricken operator.

S&P Global Ratings downgraded the cruise line on Tuesday, lowering Carnival's credit rating from BBB- to BB-.

That means the agency thinks Carnival has moved from having "adequate capacity to repay" its debts, to "implying major future uncertainties on repayment."

BB- is considered a "junk" rating meaning that many institutions will not touch the company's debt.

Analysts Ariel Silverberg and Melissa Long said in a report that "there remains a high level of uncertainty around when and how the company will resume its service and its ultimate recovery path."

The cruise industry may face a lengthy period of weak demand as it returns to action after the pandemic, causing Carnival's "credit measures to remain very weak through at least 2021" as the cruise line plans a gradual resumption of its operations, S&P said.


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The ratings agency believes it may take several months for the cruise operator to restore all its ships into service, while the pandemic will force Carnival to speed up removal of older ships and delay new ship deliveries. 

In May, Carnival said it would resume some of its North American routes from August 1 onward, with others resuming later in the summer. 

But an uptick in coronavirus cases in the US is impeding upbeat outlooks for many cruise companies. 

Last week, the Cruise Lines International Association said it would extend suspension of cruise operations from US ports until September 15, and it is likely other cruise companies could follow suit.

Carnival, which includes brands such as Princess Cruises and Cunard, earlier said it plans to sell six of its cruise ships after reporting a second-quarter loss of $4.4 billion as its services were crippled by the pandemic. 

General administration and keeping ships afloat still costs the cruise line $250 million a month.

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