Cruise operator Carnival pays high price to get credit investors on board

By Joshua Franklin

(Reuters) - Carnival Corp <CCL.N>, the world's largest cruise operator, said it has raised $6.25 billion by issuing new debt and equity on Wednesday, borrowing at a high cost to weather the economic storm of the coronavirus pandemic.

Despite having its cruise ships idled to comply with coronavirus travel restrictions, the company was able to attract enough investors that its capital raising was oversubscribed several times over, albeit at a steep price, sources told Reuters.

Carnival priced $4 billion in bonds maturing in 2023 - upsized from the $3 billion originally planned - with a yield at par value of 11.5%, it said in a statement.

By comparison, Carnival paid a 1% yield in October, when it borrowed 600 million euros (531 million pounds) in the European debt market. Moreover, Carnival had to use its ships as collateral to attract bond investors on Wednesday.

The company also raised $1.75 billion in convertible notes with a 5.75% coupon, it added.

Beyond the bond issues, Carnival also issued new stock to raise $500 million, less than the $1.25 billion it was targeting. The issue was priced at $8 per share, the company said.

Carnival shares had tumbled 33.2% on Wednesday on the capital raising news, ending at $8.80.

The funds are expected to be enough to cover Carnival's existing financial obligations for the next 12 months, the company said on Tuesday.

While Carnival is deemed investment grade by rating agencies, demand for the deal came largely from investors in junk-rated debt given the imperiled state of the cruise industry, the sources said.

U.S. companies raised a record $109.1 billion through investment-grade bond sales last week, days after Yum Brands Inc <YUM.N> reopened the U.S. market for junk-rated issues after its longest lull since the 2008 financial crisis.

Shares in Carnival have fallen more than 80% this year.

(Reporting by Joshua Franklin in New York, additional reporting by Maria Ponnezhath; Editing by Kim Coghill and Vinay Dwivedi)