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Topic: How Cruise lines "Buy" ships

elad
First Class Passenger
Member # 5150

posted 07-14-2011 02:27 PM

Hey all!!

One interesting question that allways bottered me and I never dare to ask is How cruise line finance their newbuilt project.

As you all know newbuilt investments are extremely high, for example 3.7 Billion $ for 5 Solstice-class ships or 800 million euros for QM2.

So how they manage finance it really? Is it all came from the line's capital? Banks help? long-term loans?

If sombody has a clue, i am willing to know

Elad

Posts: 747 | From: israel | Registered: Oct 2004 | IP: Logged

SSTRAVELER
First Class Passenger
Member # 15170

posted 07-14-2011 08:22 PM

quote:
Originally posted by elad:
How cruise line finance their newbuilt project. ...
As you all know newbuilt investments are extremely high, for example 3.7 Billion $ for 5 Solstice-class ships or 800 million euros for QM2.

So how they manage finance it really? Is it all came from the line's capital? Banks help? long-term loans?

Elad

The answer is usually some combination of the above. Remember both Royal Caribbean and Carnival are public corporations which was specifically done to get access to the capital markets. NCL also sold debt and bond for its ships which made it a quasi-public company. No NCL stock but the bonds were trading so they had financial reporting requirements.

Generally the new buildings start out with some cash and/or yard financing and what are called bridge loans that provide short term capital from the banks. Then the ship lines turn to the debt markets most often selling some form of bonds. Each ship is usually in its own corporate structure directly tied to the debt and it is non-recourse to the ship line itself. Meaning if they fail to pay the interest on the debt the bond holders recourse is the ship itself usually not all of the assets of the line.

The ship line generally has very little cash involved in the new building ship.

Debt service for example was the big cost item on the the NCL books the past few years. While they were making money on the ship operations the cost of the debt for all their new constructions was their challenge.

Add in another challenge for some of the firms is that they are paying for their ships in euros for the most part but they earn the bulk of their revenues in US Dollars. They get an added issue of the cost of currency fluctuations in the business and paying for the ships.

Corporate finance is a many splendid thing isn't it?

Posts: 757 | From: New York | Registered: May 2008 | IP: Logged

elad
First Class Passenger
Member # 5150

posted 07-16-2011 05:33 AM

ok! Now i get it

Thank you so much

Are you related to bank or finance profession? you seems like expert.

Elad

Posts: 747 | From: israel | Registered: Oct 2004 | IP: Logged

SSTRAVELER
First Class Passenger
Member # 15170

posted 07-16-2011 10:42 PM

You are welcome. Glad it made sense, I was afraid I was getting technical.

The ships are in effect mortgaged just like a home buyer, either with a bank holding the mortgage or more often the original bank debt being converted to longer term bonds. If you look at Royal Caribbean the public company's filings/press releases you can read all about the debt they did to pay for Oasis, Allure and the Solstice class.

Yes one of my many hats is in finance plus I have spent some time reading up on the cruise lines and their finances.

[ 07-16-2011: Message edited by: SSTRAVELER ]

Posts: 757 | From: New York | Registered: May 2008 | IP: Logged

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