The stock market posted solid gains on Tuesday morning, with investors once again expressing optimism about the prospects for a long-term economic recovery in the United States despite the new coronavirus pandemic. Market participants strongly hope that reopening business in several states will not result in new COVID-19 cases, despite concerns from health officials that such measures may be premature. At 11:00 a.m. EDT, Dow Jones Industrial Average (DJINDICES: ^ DJI) was up 337 points to 24,086. S&P 500 (SNPINDEX: ^ GSPC) won 44 points to 2887, and the Nasdaq composite (NASDAQINDEX: ^ IXIC) climbed 150 points to 8860.
Unfortunately, the good news has not spread to all stocks in the market. The cruise ship industry has been particularly affected by the COVID-19 epidemic, resulting in a sharp drop in cruise ship actions. Today, Norwegian Cruise Line Holdings (NYSE: NCLH) has given investors other bad news that casts doubt on the operator’s ability to weather the current crisis without resorting to extreme measures.
Norwegian Investor: Give Me Money
The Norwegian’s shares fell 19% on Tuesday morning, as investors reacted to the company’s latest actions in an attempt to increase their chances of survival. Even though most of those who follow Norwegian agree that he had to perform these key movements, a language he used raised the specter of frightening results if he failed to navigate rough waters.
Norwegian seeks to raise capital in three ways:
- He wants to sell $ 650 million of four-year exchangeable senior notes in a private placement.
- She also wants to raise $ 600 million by selling four-year guaranteed senior notes.
- Finally, he wants to sell $ 350 million worth of shares as part of a secondary public offering.
It all sounds simple and consistent with what other cruise operators have done. Both Carnival (NYSE: CCL) and Royal Caribbean Cruises (NYSE: RCL) exploited the financial markets for essential capital. With businesses spending cash to pay fixed expenses while their cruise ships are seated in port, the need for liquidity is evident. Additionally, in many cases, cruise stocks won ground when they sought to raise capital.
However, astute investors who have actually read the prospectus for the offers have focused much of their attention on two scary words in the following statement (emphasis added):
The suspension of cruise travel and the decline in advance bookings, as well as debt and other bond maturities over the next year, have raised significant doubts about the company’s ability to continuity of exploitation.
In particular, Norwegian stressed that it does not currently have sufficient liquidity to meet its financial obligations in the next 12 months if it cannot obtain new financing or take other measures to resolve its money problems. . For this reason, he felt the need to go back and revise his 2019 annual report to mention the risk of continuity. This is something that Carnival and Royal Caribbean did not do, which is why their shares fell only 5% to 6% that day.
What the Norwegian has to do
The Norwegian is doing what he needs to try to raise capital and get through the difficult period when he cannot operate his cruise ships. Almost all investors in cruise stocks understand the existential struggle the companies are involved in, so there was nothing shocking in the information in the Norwegian disclosures. However, words are important to investing, and having to openly voice concerns about going concern was another important step that cruise ship investors did not want to happen.