S&P, Moody’s, warn of potential credit risks to cruise liner companies

The impact of the Covid-19 virus on cruise companies’ earnings could pose credit risks, ratings agencies Moody’s Investors Service and S&P Global Ratings have warned.

The cruise operators have suffered cancelled trips and quarantines, and have resorted to steep discounts in order to keep up customer numbers.

Carnival Corp and Royal Caribbean Cruises have said that cancelled itineraries in Asia due to the outbreak would affect their earnings per share more than expected. Norwegian Cruise Line Holdings last week predicted an impact of 75 cents per share on full-year adjusted earnings.

The earnings impact on both Carnival and Royal Caribbean was deemed credit negative by Moody’s. Neither company’s credit ratings was immediately affected.

S&P Global analysts wrote in a note last week that the impact on Carnival’s cash flow from Covid-19 was expected to drive leverage this year above the 2.5 debt to EBITDA ratio. That is a threshold that would normally warrant a downgrade if breached. However, if the analysts believe the impact on Carnival to be temporary and that leverage could be lowered within a year or two, they would not expect to downgrade.

Carnival has the most capacity in China and would therefore likely see the biggest hit to earnings, analysts said.

Carnival said that the primary impact on the cruise industry was focused mostly on China, which currently remained an emerging market for the cruise industry, so the impact was relatively small.

Credit analysts said they did not expect the effect to be lasting.