Posted on 08/01/2022 2:42:40 PM PDT by Capt. Tom
I’m cruising on Carnival to Mexico in October. They have the ships, the business and the customers. No one cares about debt when they’re making money. Their debt came from government-mandated shutdown, not customers walking away.
Their creditors are competing with each other offering them money. They know in a recession returns are harder to come by and cruise lines are comparatively more lucrative for creditors due to customers already having savings thus independent of economic activity. This is the type of business creditors want to lend to when they anticipate economic downturn. Hence the better rates they offer.
“Looks to me like the big 3 cruise lines are drifting into a legal Ponzi Scheme, by paying off old borrowed debt by using newly borrowed debt.”
Like refinancing a mortgage at a lower rate? Not a Ponzi scheme at all. Economics.
The creditors see a recession coming so their options for good returns are expected to be reduced. They’re offering lower rates to cruise lines because their customers have savings and are less affected by a recession.
I am going under the assumption that the big 3 cruise lines are not going to get the passengers they need, and the money they need, to pay off their debt.
Time makes all things clear. - Tom
And we continue to disagree. Those aren’t good rates. They are junk bond rates. They are only good in comparison to the Ford - Carter years.
I stand corrected - junk bond yields appear to be in the 8 - 9 percent range. So worse than junk bonds.
As BJ Cook at the Motley Fool said recently:-Tom
Second, the credit rating agencies have assigned Carnival's debt a junk bond rating, which means they think the company has a higher than average risk of missing interest payments and defaulting on its debts.
Yes. Defend the cruise lines or not - that’s a matter opinion and preference. But no one should pretend that Carnival got a great rate on those loans.
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