Viking Cruises Ltd. sold $720 million of junk bonds on Monday to refinance costly debt from the early days of the pandemic as cruise companies are broadly seeing their fortunes bounce back after the pandemic.
(Bloomberg) — Viking Cruises Ltd. sold $720 million of junk bonds on Monday to refinance costly debt from the early days of the pandemic as cruise companies are broadly seeing their fortunes bounce back after the pandemic.
The notes, maturing in 2031, were sold at a yield of 9.125%, lower than earlier discussions of around 9.25%, according to a person familiar with the matter. Viking is redeeming notes that had 13% coupons and were originally sold in May 2020 when Covid-19 had all but shut down the industry.
Three years ago, many travel companies were looking for financing to help stay in business. Now, their fortunes have improved: cruise line operators are still seeing jumps in demand after pandemic fears have largely abated. Carnival Corp. said on Monday that its quarterly revenue more than doubled, although the company’s shares fell after results failed to keep pace with investors’ high expectations.
“All the cruise lines are seeing a much brighter future with return to normalcy,” said Bloomberg Intelligence credit analyst Jody Lurie. “It’s not coincidental that Viking is tapping into that market the same day that Carnival issued results and Carnival’s results were relatively strong.”
Monday’s sale was Viking’s first public note sale since 2021. The sale comes as investor optimism has powered travel companies’ junk bonds higher. The sector’s notes have seen total returns of around 15.5% this year through Friday, compared with 4.5% for US high-yield bonds, according to Bloomberg index data.
Viking’s interest expenses ballooned 41% between 2020 and 2022. Cruise operators have generally been looking to cut funding costs by selling new notes. Royal Caribbean Cruises Ltd. sold $700 million of junk bonds in February to refinance its debt.
Viking is privately held, in contrast to publicly traded peers like Royal Caribbean and Carnival. That left it without some of the financing options that its competitors pursued, including equity issuance and convertible debt.
“Some got very creative with their financing,” said Jack Parker, assistant portfolio manager at Brandywine Global Investment Management. “It was an expensive couple year for them, for everyone, from a balance sheet perspective.”
Junk bonds aren’t the only securities that have benefitted from the return to travel. Shares of cruise companies have meaningfully outperformed the S&P 500 this year, with Carnival having gained 96% through Friday, a figure that dropped on Monday after results failed to top investors’ lofty expectations.
Viking tends to focus on older, higher-income travelers, according to bond documents. It has river cruise tours in the US and Europe.
“If you’re a wealthy retiree, Viking is your cruise line,” Parker said.
(Updates with pricing information in the lede, second and fifth paragraphs.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.