S&P Global Ratings has upgraded Carnival Corp.’s credit rating by two notches to BB- on the heels of the cruise operator’s impressive quarterly results. The move signifies a positive step for the company to reclaim its investment-grade status, which it lost in 2020 during the early stages of the pandemic. Carnival’s recent performance, marked by robust bookings and higher prices, contributed to the credit rating upgrade.
In Thursday’s report, Carnival revealed a remarkable 40% increase in quarterly revenue, reporting an operating income of $384 million. This is a significant improvement from the operating loss of $1.135 billion in the same quarter the previous year. S&P credit analysts Melissa A Long and Dan Daley highlighted the company’s positive outlook, noting that Carnival has booked approximately two-thirds of its 2024 occupancy at significantly higher prices compared to 2023, providing strong revenue visibility.
The upgraded credit rating brings Carnival to BB-, aligning it with its competitor Royal Caribbean Cruises, which also holds a BB- rating from S&P. However, Jody Lurie, senior credit analyst at Bloomberg Intelligence, notes that Carnival is a few quarters behind Royal in its turnaround journey.
Carnival, with a debt of about $30.6 billion as of November 30 (down from $34.5 billion the previous year), expects revenue growth to fuel increases in adjusted free cash flow. David Bernstein, Carnival’s CFO, stated that this would be the primary driver for reducing debt balances on their path back to investment grade. The company anticipates tapping the debt markets next year as part of its ongoing recovery, eyeing opportunities for refinancing to save on interest costs.
S&P forecasts Carnival’s adjusted debt-to-earnings ratio (leverage) to improve to about 5 times by the end of fiscal 2024, following a figure of approximately 6.5 times for the latest fiscal year. The positive trajectory indicates a favorable financial outlook for Carnival as it continues its journey towards recovery.
