12th Mar 2020 06:57
(Alliance News) - Moody's Investors Service late Wednesday downgraded Carnival PLC's senior unsecured rating, and senior secured revenue bond ratings with the ratings agency expecting the cruise ship operator to see "increased cancellations" due to the spread of the coronavirus.
The two ratings were downgraded to Baa1 from A3, and the ratings agency added that "at the same time, Moody's placed the company's ratings, including its Prime 2 short-term rating for commercial paper on review for further downgrade".
In February, Carnival warned its earnings for the current financial year will suffer due to travel restrictions and trip cancellations amid the outbreak of covid-19.
Carnival said at the time it was forced to suspend cruise operations from ports in China, which resulted in the cancellation of trips in other parts of Asia. Since then, the virus has spread further, with Europe also being hit.
Moody's Lodging & Cruise analyst Pete Trombetta said: "The downgrade reflects Moody's expectation that soft booking trends and increased cancellations related to the global spread of the coronavirus will significantly impact Carnival's earnings in 2020, resulting in metrics outside of levels appropriate for a single A rating."
Moody's added that although the cruise industry has previously experienced "cyclical downturns" due to recessions and terrorist attacks, the spread of the contagion poses a larger risk to companies like Carnival.
Moody's explained: "Moody's believes that the covid-19 coronavirus will more significantly pressure the cruise companies' earnings, cash flow, and liquidity as compared to previous cycles.
"The cruise industry has been one of the sectors most visibly impacted by the spread of covid-19, with quarantined ships due to confirmed cases of infected passengers prominent in global media coverage that could cause some customers, especially first time cruisers and older passengers, to pull back from cruising altogether. With covid-19 cases increasing exponentially and global countermeasures becoming increasingly severe and restrictive, Moody's sees scope for a significant drop in cruise passenger volumes and net yields in 2020 as well as the potential for a reduction in demand for cruises beyond 2020."
The third quarter of the calendar year, which tends to be peak season for cruise ship companies, will be hurt as the virus spreads to North America. Moody's said. It expects to see lower demand and pricing pressure for companies like Carnival in 2021 and beyond.
Moody's warned: "While cruise demand has proven to be resilient following previous challenges, the eventual return to a more normalized state is likely to take longer than in the past and could alter the trajectory of demand in the industry."
On Wednesday, a British man became the first UK citizen to die from coronavirus after being infected on the Diamond Princess cruise ship, owned by Carnival, in Japan.
In February, Japan quarantined the cruise ship carrying 3,500 people.
Carnival shares closed 5.4% lower at 1,566.50 pence each in London on Wednesday.
By Eric Cunha; [email protected]
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