The shares of major cruise lines tanked on Thursday after Carnival announced a $1 billion stock sale in order to pay down debt as the cruise industry continues to feel the impact of Covid-19.
Carnival is trying to raise money so it can get ahead of debt payments.
Carnival said it would sell $1 billion worth of stock at $9.95 per share with the option to buy another 15.3 million shares.
The company expects to use the net proceeds from the offering for general corporate purposes which could include addressing 2023 debt maturities.
Carnival ended the second quarter with $35 billion in debt, more than its peers, and $7.5 billion in cash, but analysts warned that that could quickly shrink if customer demand takes a hit in the form of fewer bookings and more canceled deposits.
The news spooked investors and caused Norwegian Cruise Line and Royal Caribbean Cruises' stocks to fall.
The move to raise more money will likely lead to more questions about the health of the cruise business, according to a recent note from analysts.
The firm believes that Carnival is being proactive and trying to get ahead of debt payments that are due next year, despite the negative headline.
It's no surprise that investors will panic and assume that any cruise-related name would probably be looking to raise equity as well at some point in the near future.
Royal Caribbean and Norwegian have both seen their stock prices fall this year.
There were no sailing orders for most of the year in 2020 due to the Pandemic Lock-up. With business at a standstill, many cruise companies took on a lot of debt in the meantime. Even though cruises have seen a rebound in demand, many are still seeing a slow return to full capacity. The industry is starting to feel the effects of high inflation and oil prices.
Morgan Stanley is worried about potential stock wipeout.
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