In
addition to the amendments to the Ovation and EUR denominated Harmony facilities referred to above, on May 5,
2020, we also amended the export-credit backed USD loan facility incurred to finance Harmony of the Seas in order to incorporate
the benefits of the Bpi Debt Holiday and the credit agreement for the financing of Odyssey of the Seas to incorporate the
financial covenant waivers under the Hermes Debt Holiday. Across the amendments to the Harmony and Ovation
facilities described above, these Debt Holiday amendments will generate approximately $150 million of incremental liquidity through
April 2021.
With the amendments set forth above, we
have completed the amendments to our BpiFAE-backed and Hermes-backed facilities to incorporate the debt amortization holiday.
Quarterly Report on Form 10-Q Filing Update
On March 25, 2020,
the U.S. Securities and Exchange Commission issued an order under Section 36 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and certain rules thereunder (Release No. 34-88465) (the “Order”), which
allows a registrant to delay the filing of certain reports under the Exchange Act by up to 45 days after the original due date
of such report if a registrant is unable to meet the filing deadline due to circumstances related to the COVID-19 pandemic.
The Company will be
relying on the Order to delay the filing of its Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the
“Form 10-Q”), due May 11, 2020, by up to 45 days due to circumstances related to the COVID-19 pandemic. COVID-19
has resulted in unprecedented operational challenges for the cruise industry generally, as well as the Company, leading to substantial
disruptions to the Company’s business and operations. In particular, the COVID-19 pandemic has resulted in the Company announcing
a voluntary suspension of its global cruise operations from March 13 through June 11, 2020, interfering with the Company’s
normal operations. In addition, voluntary and mandatory measures implemented by the Company to reduce the spread of the virus have
limited access to many of the areas where the Company operates, including its corporate offices and facilities, resulting in limited
support from staff. These restrictions have, in turn, impacted the Company’s ability to complete its internal quarterly review,
including an evaluation of the various impacts of COVID-19 on the Company’s financial statements and to prepare and complete
the Form 10-Q in a timely manner.
Notwithstanding the
foregoing, the Company expects to file the Form 10-Q by May 31, 2020, which is less than 45 days after the original filing deadline of the
Form 10-Q.
Risk Factor Update
In light of the COVID-19
pandemic, the Company is supplementing its risk factors previously disclosed in Item 1A of its Annual Report on Form 10-K
for the fiscal year ended December 31, 2019 with the following risk factor:
The global COVID-19 pandemic has
had, and will continue to have, a material adverse impact on our business and results of operations. The global spread of COVID-19
and the unprecedented responses by governments and other authorities to control and contain the spread has caused significant disruptions,
created new risks, and exacerbated existing risks to our business.
We have been, and will
continue to be, negatively impacted by the COVID-19 pandemic, including as a result of actions taken in response to the outbreak.
Examples of these include, but are not limited to, travel bans and cruising advisories and the resulting temporary suspension of
our operations, which is expected to continue until at least June 11, 2020, restrictions on the movement and gathering of
people, social distancing measures, shelter-in-place/stay-at-home orders, and disruptions to businesses in our supply chain. In
addition to the imposed restrictions affecting our business, the extent, duration, and magnitude of the COVID-19 pandemic’s
effect on the economy and consumer demand for cruising and travel is still rapidly fluctuating and difficult to predict. As such,
these impacts may persist for an extended period of time or even become more pronounced, even after we are permitted to and/or
begin to resume operations.
The COVID-19 pandemic
also has elevated risks affecting significant parts of our business:
|
|
·
|
Operations: Due to the global public health circumstances, we have decided to extend
the suspension of sailings of our global fleet through at least June 11, 2020 and Alaska sailings at least until
July 31, 2020. It is uncertain as to whether we will need to suspend additional sailings and to what extent. The
suspension of sailings and the expected reduction in demand for future cruising once we resume sailing has led to a
significant decline in our revenues and cash inflows, which has required us to take cost and capital expenditure containment
actions. Consequently, we have reduced and furloughed our workforce, with approximately 23% of our US shoreside employee base
being impacted and, except for the minimum safe manning shipboard crew required to operate the ships during the suspension of
operations, our shipboard crew were notified that their contracts would end early and they would be notified about new
assignments when operations resume in the future, which may delay our ability to rebuild our workforce in the case of
improved conditions.
|
|
|
|
In addition, we
have reduced our planned capital spending through 2021, which may negatively impact our execution of planned growth strategies,
particularly as it relates to investments in our ships, technology, and our expansion of land-based developments. Furthermore, we have taken actions to monitor
and mitigate changes in our supply chain, and port destination availability, which may strain relationships with our vendors and
port partners. Due to the unprecedented and uncertain nature of the COVID-19 pandemic, it is difficult to predict the impact of
further disruptions and their magnitude. The impact of further disruptions may depend on how they coincide with the timing of when
we seek to resume sailing. In addition, we have never previously experienced a complete cessation of our cruising operations, and
as a consequence, our ability to predict the impact of such a cessation on our brands and future prospects is limited and such
impact is uncertain.
|
|
|
·
|
Results of Operations: Our decision to suspend sailings of our global fleet through
June 11, 2020 and the resulting trip cancellations have materially impacted the results of our operations. We have
incurred and will continue to incur significant costs associated with cancellations as we accommodate passengers with refunds
and future cruise credits; as well as assisting our crew with their return home, food, housing, and medical needs. In
addition, although cruise operations are currently suspended, we have incurred and will likely continue to incur significant
overhead costs associated with layup of our fleet and enhanced COVID-19 related sanitation procedures. As we cannot control
adverse media coverage and we cannot predict exactly when we will resume sailing operations, we are experiencing and may
continue to experience weak demand for cruising for an undeterminable length of time and we cannot predict when we will
return to pre-outbreak demand or fare pricing or if we will return to such levels in the foreseeable future. In turn, these
negative impacts to our financial performance have resulted and may continue to result in impairments of our long-lived and
intangible assets. For the three months ended March 31, 2020, we are finalizing certain impairment charges preliminarily
estimated to be between $1.0 to $1.3 billion related to the impairment of goodwill
attributable to our Silversea Cruises reporting unit and several of our vessels. Additionally, future profitability will be
impacted by increased debt service costs as a result of our liquidity actions, including our 364-day senior secured
term loan and certain payments made in connection with the amendments to our existing indebtedness described herein.
|
|
|
·
|
Liquidity: The suspension of our sailings and the reduction in demand for future
cruising has adversely impacted our liquidity as we have experienced a significant increase in refunds of customer deposits
while cash inflows from new or existing bookings on future sailings has reduced sharply. As a result, we have taken actions
to increase our liquidity through a combination of capital and operating expense reductions and financing activities. For
instance, we borrowed an aggregate principal amount of $2.2 billion on March 23, 2020 and an additional $150 million on
May 4, 2020 pursuant to a 364-day senior secured term loan which we intend to refinance with a portion of the proceeds
of this offering. On March 27, 2020, we drew down all the remaining capacity of our revolving credit facilities for a
total of $3.475 billion outstanding. On March 31, 2020, Moody’s downgraded us from Baa2 to Baa3, and on
April 2, 2020 S&P Global downgraded us from BBB- to BB and our ability to incur secured indebtedness will be reduced
if we cease to be rated investment grade by Moody’s and our access to capital and the cost of any debt financing will
be further negatively impacted. Also, in April and May 2020, we obtained interim debt service and financial
covenant holidays under certain of our export-credit backed loan facilities to generate a cumulative $820 million of
incremental liquidity through April 2021. Our ability to raise additional financing, whether or not secured, could be
limited if our credit rating is further downgraded, and/or if we fail to comply with applicable covenants governing our
outstanding indebtedness, and/or if overall financial market conditions worsen. Additionally, due to the complexity of the
pandemic’s impact to the economy and uncertainty of its duration, we cannot guarantee that assumptions used to project
our liquidity needs will be correct, which may result in the need for additional financing and/or may result in the inability
to satisfy covenants required by our current credit facilities. Our audited consolidated financial statements for the year ended December 31, 2019 include an emphasis of matter paragraph
regarding substantial risk as to our ability to continue as a going concern. If we raise additional funds through equity or
debt issuances, our shareholders could experience dilution of their ownership interest, and these securities could have rights,
preferences, and privileges that are superior to that of holders of our ordinary shares. If we raise additional funds by issuing
debt, we may be subject to limitations on our operations due to restrictive covenants, which may be more restrictive than
the covenants in our existing debt agreements, and we may be required to further encumber our assets. If adequate funds are
not available on acceptable terms, or at all, we may be unable to fund our operations, or respond to competitive pressures,
any of which could negatively affect our business. There is no guarantee that financing will be available in the
future or that such financing will be available with similar terms or terms that are commercially acceptable to us. Further,
if any government agrees to provide us with disaster relief assistance, or other assistance due to the impacts of the
COVID-19 pandemic, and we determine it is beneficial to seek such government assistance, it may impose restrictions on
executive compensation, share buybacks, dividends, prepayment of debt and other similar restrictions until the aid is repaid
or redeemed in full, which could significantly limit our corporate activities and adversely impact our business and
operations. We cannot assure you that any such disaster relief would be available to us.
|
Cautionary Note Concerning Forward-Looking
Statements
Certain statements
in this Current Report on Form 8-K relating to, among other things, our future performance estimates, forecasts and projections
constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These statements include, but
are not limited to: statements regarding revenues, costs and financial results for 2020 and beyond. Words such as “anticipate,”
“believe,” “could,” “driving,” “estimate,” “expect,” “goal,”
“intend,” “may,” “plan,” “project,” “seek,” “should,” “will,”
“would,” “considering”, and similar expressions are intended to help identify forward-looking statements.
Forward-looking statements reflect management’s current expectations, are based on judgments, are inherently uncertain and
are subject to risks, uncertainties and other factors, which could cause our actual results, performance or achievements to differ
materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples
of these risks, uncertainties and other factors include, but are not limited to the following: the impact of the economic and geopolitical
environment on key aspects of our business, such as the demand for cruises, passenger spending, and operating costs; our ability
to obtain sufficient financing, capital or revenues to satisfy liquidity needs, capital expenditures, debt repayments and other
financing needs; the effectiveness of the actions we have taken to improve and address our liquidity needs; incidents or adverse
publicity concerning our ships, port facilities, land destinations and/or passengers or the cruise vacation industry in general;
concerns over safety, health and security of guests and crew; the impact of the global incidence and spread of COVID-19, which
has led to the temporary suspension of our operations and has had and will continue to have a material negative impact on our operating
results and liquidity, or other contagious illnesses on economic conditions and the travel industry in general and the financial
position and operating results of our Company in particular, such as: the current and potential additional governmental and self-imposed
travel restrictions, the current and potential extension of the suspension of cruises and new additional suspensions, guest cancellations,
an inability to source our crew or our provisions and supplies from certain places, the incurrence of COVID-19 and other contagious
diseases on our ships and an increase in concern about the risk of illness on our ships or when traveling to or from our ships,
all of which reduces demand; unavailability of ports of call; growing anti-tourism sentiments and environmental concerns; changes
in US foreign travel policy; the uncertainties of conducting business internationally and expanding into new markets and new ventures;
our ability to recruit, develop and retain high quality personnel; changes in operating and financing costs; our indebtedness and
restrictions in the agreements governing our indebtedness that limit our flexibility in operating our business, including the significant
portion of assets that are collateral under these agreements; the impact of foreign currency exchange rates, interest rate and
fuel price fluctuations; vacation industry competition and changes in industry capacity and overcapacity; the risks and costs associated
with protecting our systems and maintaining integrity and security of our business information, as well as personal data of our
guests, employees and others; the impact of new or changing legislation and regulations or governmental orders on our business;
pending or threatened litigation, investigations and enforcement actions; the effects of weather, natural disasters and seasonality
on our business; emergency ship repairs, including the related lost revenue; the impact of issues at shipyards, including ship
delivery delays, ship cancellations or ship construction cost increases; shipyard unavailability; and the unavailability or cost
of air service.
In addition, many
of these risks and uncertainties, as well as those listed in our most recent Annual Report on Form 10-K, are currently
heightened by and will continue to be heightened by, or in the future may be heightened by, the COVID-19 pandemic. It is not
possible to predict or identify all such risks.
More information about
factors that could affect our operating results is included under the captions “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in our most recent Annual Report on Form 10-K,
a copy of which may be obtained by visiting our Investor Relations website at www.rclinvestor.com or the SEC’s website at
www.sec.gov. Undue reliance should not be placed on the forward-looking statements in this Current Report on Form 8-K, which
are based on information available to us on the date hereof. We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.