Carnival Corporation & Plc (CCL) announced a $1.25 billion secondary offering when the battered cruise ship line's stock was trading at $13.00 on Tuesday morning. The news triggered another rush for the exits, dropping the stock more than 32% in two sessions, forcing two quick cuts in the sale's value. It's now set to offer those shares on Thursday at $8.00, or just 10 cents above March's 17-year low at $7.90, reflecting the latest haircut and lack of investor appetite.
Meanwhile, rival Royal Caribbean Cruises Cruises Ltd. (RCL) has notified lenders that it's drawing down the balance of revolving credit agreements that will now add nearly $3.5 billion in outstanding debt. The company has stopped all sailings until at least mid-May and ran into a stone wall of resistance in Congress about funding a bailout because it is domiciled in Liberia, not the United States.
Actions by both cruise ship operators highlight the rapid pace of financial destruction as a result of the pandemic. It has been less than two months since Diamond Princess passengers got sick, but the latest developments suggest that time is already running out before the companies are forced to declare bankruptcy. It seems inevitable because tourists will be skeptical of their safety on airlines and cruise ships for months after the virus runs its course.
Carnival came public in the 1980s and entered a modest uptrend that accelerated after breaking out above resistance at $13 in 1995. The advance continued into the second quarter of 1999, when the stock topped out at $53.50 and entered a downtrend that found support in the mid-teens after the September attacks in 2001. It tested that low successfully in 2003 and turned higher, completing a round trip into the prior high in 2005.
The subsequent reversal reached the 2003 low during the 2008 economic crisis, reinforcing support ahead of a slow-motion uptick that took another seven years to reach range resistance. It finally broke out in 2017, but gains were limited, posting an all-time high at $72.70 when the trade war broke out in January 2018. A steady decline off that peak accelerated in February 2020, breaking long-term support in less than three weeks.
The stock is now trading just six points above the all-time low posted in 1987, raising doubts about long-term survival. This week's secondary will add less than $1 billion to the coffers, but new shareholders will act as a buffer against short sellers, so it might buy the company a little time. Even so, the sale tells us that Carnival no longer has access to commercial lenders, which clearly don't want to underwrite the excessive risk.
Royal Caribbean opened on the public exchanges at $9.38 in April 1993, posting a low at $7.82 a month later and turning higher in an uptrend that stalled at $15.25 in 1994. A 1997 breakout gathered momentum into the end of 1999, topping out at $58.88, ahead of a brutal downtrend that gave up 100% of rally gains before bottoming out seven cents below the 1993 low in September 2001. A strong bounce stalled less than four points under the prior high on 2005, marking a peak that wasn't challenged for the next nine years.
The stock crashed through the 2003 low during the 2008 economic collapse, posted an all-time low at $5.40, and turned higher into the new decade. This advance reached resistance in 2014, triggering an immediate breakout and two-legged uptrend that hit an all-time high at $135.65 in January 2018. The stock failed the breakout in February 2020 and has now violated the .786 Fibonacci retracement of the nine-year uptrend, raising the odds that the decline will reach the 2009 low.
The Bottom Line
Cruise ship credit lines are drying up quickly, forcing these battered companies into fights for survival that may not be winnable.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.