What is the 'Debt Holiday' initiative and how does it benefit RCL?

The 'Debt Holiday' is an initiative offered by Euler Hermes Aktiengesellschaft (Hermes), Germany's export credit agency, to provide interim debt service and financial covenant relief to cruise-line borrowers during the current global health crisis. For RCL, this means they can defer principal payments on specific loans for 12 months (April 2020 - March 2021), which helps improve their liquidity and provides flexibility by waiving mandatory prepayments due to covenant breaches during this period.

How much liquidity does these amendments provide?

The amendments to the loan facilities for Quantum of the Seas and the four Celebrity ships are expected to generate approximately $250 million in incremental liquidity through April 2021. This is in addition to $200 million previously realized from similar Debt Holiday implementations on other Hermes-backed facilities.

Are there any restrictions on RCL's financial activities due to these amendments?

Yes, while the 'Deferred Tranche' is outstanding, RCL is restricted from taking certain actions, including the payment of dividends, repurchase of company stock, and the issuance of new debt or equity (unless for specific liquidity purposes or to finance new ships). These restrictions are designed to help the company preserve its cash and liquidity during the challenging environment.

When will RCL have to start repaying the deferred principal amounts?

The principal amounts deferred between April 1, 2020, and March 31, 2021, will be repaid in eight equal semi-annual installments. The repayment period will commence in April 2021 and conclude in October 2024.

RCL 8-K: Material Agreements & Financial Events

Summary

Royal Caribbean Cruises Ltd. (RCL) filed an 8-K on April 24, 2020, detailing significant amendments to its loan facilities to incorporate a "Debt Holiday" initiative. This initiative, offered by Euler Hermes Aktiengesellschaft (Hermes), the German export credit agency, provides temporary relief for debt service and financial covenants for cruise line borrowers during the global health crisis. The amendments allow for the deferral of principal payments on specific loans, including those for the Quantum of the Seas, Celebrity Eclipse, Celebrity Equinox, Celebrity Solstice, and Celebrity Silhouette, for a period of 12 months ending March 31, 2021. These deferrals are structured through new "Deferred Tranches" that will be repaid over a period of approximately 3.5 years starting in April 2021. Crucially, the amendments also waive mandatory prepayment triggers for breaches of financial covenants during this deferral period, offering much-needed flexibility. While this provides substantial liquidity relief, the company is restricted from paying dividends, repurchasing stock, or issuing new debt/equity for purposes other than essential liquidity needs, subject to customary exceptions. The aggregate liquidity generated from these specific Debt Holiday amendments is approximately $250 million through April 2021, in addition to prior amounts realized.

Key Highlights

1RCL has amended export-credit backed loan facilities for five ships (Quantum of the Seas, Celebrity Eclipse, Equinox, Solstice, Silhouette) to include a 12-month debt holiday initiative.
2The Debt Holiday allows for the deferral of principal payments between April 1, 2020, and March 31, 2021.
3Deferred principal payments will be repaid in eight semi-annual installments starting April 2021 through October 2024.
4Breaches of financial covenants during the deferral period will not trigger mandatory prepayments.
5These amendments are expected to generate approximately $250 million in incremental liquidity through April 2021.
6RCL is restricted from paying dividends, repurchasing stock, or issuing certain new debt/equity while the deferred tranche is outstanding, to preserve liquidity.
7The company continues to seek to apply this Debt Holiday initiative across the remainder of its Hermes-backed facilities.

ROYAL CARIBBEAN CRUISES LTD 8-K Report, Material Agreement (Apr 24, 2020)

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