Carnival's Debt Issuance and Bankruptcy Risks

Carnival is issuing $550 million in US dollar second lien notes and 400 million euros of second lien notes due in 2026 as part of its strategy for general corporate purposes. This follows a previous $4 billion issuance of first lien notes, highlighting the ongoing challenges faced by the cruise industry amid the resurgence of the coronavirus. A significant concern arises due to a provision in Carnival's debt agreements that requires secured debt to be equalized to existing debt if it exceeds 25% of total assets while rated below investment grade. Currently, Carnival has approximately $9 billion in secured debt, close to the $13 billion threshold that would trigger these provisions, which could lead to portions of the new notes becoming unsecured once that limit is breached.