Silversea Cruise Finance Ltd. — Moody’s places Royal Caribbean’s ratings on review for downgrade

Rating Action: Moody’s places Royal Caribbean’s ratings on review for downgradeGlobal Credit Research – 10 Feb 2021New York, February 10, 2021 — Moody’s Investors Service, (« Moody’s ») placed the ratings of Royal Caribbean Cruises Ltd. and Silversea Cruise Finance Ltd. (together, « Royal Caribbean ») on review for downgrade including the company’s B1 corporate family rating, B1-PD probability of default rating, Ba2 senior secured rating, and B2 senior unsecured rating. The company’s speculative grade liquidity rating of SGL-2 is unchanged at this time. »The review for downgrade will focus on the timeline for the company to return to service, the potential to ramp up operations in a meaningful way in 2021, and the resulting impact to its liquidity, » stated Pete Trombetta, Moody’s lodging and cruise analyst. We do not expect US cruise operations will be able to resume until there are indications that the coronavirus spread is slowing.The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt the cruise sector. Our analysis has considered the effect on the performance of Royal Caribbean from the ongoing travel restrictions in the US and other global regions, the current weak US economic activity and a gradual recovery for the coming months. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to containment of the virus. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.On Review for Downgrade:..Issuer: Royal Caribbean Cruises Ltd….. Probability of Default Rating, Placed on Review for Downgrade, currently B1-PD…. Corporate Family Rating, Placed on Review for Downgrade, currently B1….Senior Secured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba2 (LGD2)….Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently B2 (LGD4)..Issuer: Silversea Cruise Finance Ltd…..Senior Secured Regular Bond/Debenture, Placed on Review for Downgrade, currently Ba2 (LGD2)Outlook Actions:..Issuer: Royal Caribbean Cruises Ltd…..Outlook, Changed To Rating Under Review From Negative..Issuer: Silversea Cruise Finance Ltd…..Outlook, Changed To Rating Under Review From NegativeRATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRoyal Caribbean’s credit profile is supported by its good liquidity and solid market position as the second largest global ocean cruise operator based upon capacity and revenue which acknowledges the strength of its brands. Royal Caribbean is well diversified by geography, brand, and market segment. In the short run, Royal Caribbean’s credit profile will be dominated by the length of time that cruise operations continue to be suspending, the path forward to resuming operations and the resulting impacts on the company’s cash consumption and its liquidity profile. However over the long run, the value proposition of a cruise vacation as well as a group of loyal cruise customers supports a base level of demand once health safety concerns have been effectively addressed. The normal ongoing credit risks include the company’s current exceptionally high leverage, the highly seasonal and capital intensive nature of cruise companies and the cruise industry’s exposure to economic and industry cycles, weather incidents and geopolitical events. We expect the Royal Caribbean’s debt/EBITDA will exceed 6.0x for at least the next two years.Prior to the review for downgrade, the factors that could lead to a downgrade included if the company’s liquidity weakened in any way or if the recovery in cruising activity is delayed beyond our base assumptions which include a resumption of US cruising in the first half of 2021 with capacity days reaching at least 65% of their 2019 levels and occupancy reaching at least 70% by the second quarter with continued improvement from there. The ratings could also be downgraded if there are indications that the company is not on a path to restoring leverage to a sustainable level. The outlook could be revised to stable if the impacts from the spread of the coronavirus stabilizes and cruise operations resume at a level that enables the company to maintain debt/EBITDA below 5.5x. Ratings could be upgraded if the company is able to maintain leverage below 4.5x with EBITA/interest expense of at least 3.0x.Royal Caribbean (operating under the name Royal Caribbean Group) is a global vacation company that operates four wholly-owned cruise brands, including Royal Caribbean International, Celebrity Cruises, Azamara, and Silversea. The company’s brands operate a combined 61 ships. Net revenue for fiscal 2019 was $8.7 billion.The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.At least one ESG consideration was material to the credit rating action(s) announced and described above.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Peter Trombetta Vice President – Senior Analyst Corporate Finance Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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