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December 20, 2007 |
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STAR CRUISES: S&P Cuts Long-Term Corporate Credit Rating to B Standard & Poor's Ratings Services lowered its long-term corporate credit rating on Hong Kong-based cruise operator Star Cruises Ltd. to 'B' from 'BB-'. Standard & Poor's also lowered its long-term corporate credit rating on U.S.-based cruise operator NCL Corp. Ltd. (NCL) to 'B' from 'BB-', and its foreign currency rating on NCL's senior unsecured debt of US$250 million due 2014 to 'CCC+' from 'B'. All these ratings remain on CreditWatch with negative implications. "The downgrades reflect Standard & Poor's view that the economic incentive of Malaysia's Genting Bhd. (BBB/Stable/--), to continue supporting them financially is significantly reduced," said Standard & Poor's credit analyst Manuel Guerena. "Standard & Poor's considers that both Star Cruises and NCL have more financial flexibility than their financial figures suggest, and that NCL's financial profile will benefit from the incoming capitalization from Apollo Management L.P. However, these factors only partially offset our perception of the decreased potential support from Genting due to a change in its investment priorities as a result of its interest in the Sentosa Integrated Resort. In August 2007, Star Cruises agreed to a US$1 billion equity injection in NCL by Apollo Management in exchange for a 50% equity interest, with these proceeds to be used to pay down debt. Once the transaction materializes, NCL will cease to be consolidated into Star Cruises and will be accounted for using the equity method. Star Cruises and Apollo Management have also agreed to evaluate the commercial viability of NCL's U.S.-flag Hawaiian cruise operation (with three ships deployed) by no later than Dec. 31, 2008. Genting indirectly owns 19.6% of Star Cruises, while NCL is, until the agreement with Apollo Management materializes, a fully-owned subsidiary of Star Cruises. Star Cruises is the third-largest cruise operator globally, with 22 ships and about 34,700 lower berths. For the nine months ended Sept. 30, 2007, Star Cruises reported consolidated revenues of US$1.96 billion, and a net loss of US$77 million. Of these 22 ships, NCL operates 15, with 29,000 lower berths. For the nine months ended Sept. 30, 2007, NCL had revenues of US$1.72 billion and a net loss of US$94 million. The ratings on Star Cruises and NCL will remain on CreditWatch with negative implications due to the potential consequences of the agreed, but not yet finalized, transaction with Apollo Management. The CreditWatch also reflects these companies' leveraged financial profiles, their vessels replacement needs, and the strong pressure from competitors. "These ratings are expected to be removed from CreditWatch after the materialization of Apollo Management's deal (and subsequent capitalization of NCL and its deconsolidation from Star Cruises) and Standard & Poor's further evaluation of each of these companies' operating and financial evolution," Mr. Guerena noted. "At that point, the ratings on Star Cruises are likely to be affirmed with a stable outlook, while those on NCL are likely to be affirmed with a negative outlook, due to the latter's higher investment requirements." |
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