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January 28, 2008 |
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STAR CRUISES: S&P Affirms 'B' Ratings; Removed from CreditWatch Standard & Poor's Ratings Services affirmed its 'B' corporate credit ratings on Hong Kong-based Star Cruises Ltd. and U.S.- based NCL Corp. Ltd. The outlook for the rating on Star Cruises is stable, while that for NCL is negative. The ratings have been removed from CreditWatch, where they were placed with negative implications on Dec. 19, 2007. At the same time, the 'CCC+' rating on NCL's senior unsecured debt has also been affirmed and removed from CreditWatch. The ratings were placed on CreditWatch in December after an assessment of their ultimate shareholding group Genting Bhd.'s (BBB/Stable/--) business portfolio, and the significant investment by a third party, Apollo Management L.P., in Star Cruises' most important subsidiary, NCL. On Jan. 7, 2008, U.S.-based private equity fund Apollo Management invested US$1 billion in NCL (B/Negative/--) for a 50% stake in the company, with proceeds earmarked for reducing NCL's debt. After this transaction, Star Cruises no longer consolidates NCL (until then a fully-owned subsidiary), and will account for its remaining 50% stake by using the equity method. However, NCL's financials will be proportionately incorporated into Star Cruises' analysis by Standard & Poor's. The transaction triggered the Change of Control covenant of the 'CCC+' rated US$250 million 10.625% senior unsecured notes due July 15, 2014, which are to be completely prepaid by the company at 101% of their principal amount, no later than 90 days from the Change of Control event. "Despite this sizable equity injection, NCL has an aggressive and potentially weakening financial profile, due to its historically poor operating performance and expected debt increase to fund its two Aker ships, costing approximately US$1 billion each, and scheduled to be delivered by 2010," said Standard & Poor's credit analyst Manuel Guerena. Before December 2008, Star Cruises and Apollo Management will decide whether to continue or wind up NCL's Hawaiian operations, where three of the company's 13 ships operate (two from February 2008 onward, after one ship is redeployed to Europe). This impending decision is not likely to affect the rating on NCL. Going forward, Star Cruises' financial statements will primarily reflect its Asian operation, where it offers about 7,100 lower berths through its fleet of eight ships. Its unfavorable fleet aging (average weighted age is 16 years), which translates into lower fuel efficiencies and higher operating expenses than newer vessels would, is partially offset by its strong brand reputation and by the relatively short itineraries predominant in the Asian cruise market, where Star Cruises has an established market share of about 72%. However, despite this market's rapid growth, (cruise guests are expected to reach 1.5 million by 2010, from 2005's 1.07 million), Asia still constitutes less than 5% of the global cruise market. "The ratings on Star Cruises and NCL factor in the financial flexibility they get from their links to Genting (owning 19.6% of Star Cruises) and to its major shareholder, the Lim family (with 46.7% of Star Cruises), though we believe Genting's economic incentive to support Star Cruises or NCL has diminished due to a shift in Genting's investment priorities," said Mr. Guerena. Star Cruises Limited, publicly listed in Hong Kong, is 19.3% owned by Resorts World Bhd, which is, in turn, 49.2% owned by Genting Berhad. SCL operates 21 ships with some 33,300 lower berths under five brands: Star Cruises and Cruise Ferries, which service Asia Pacific, and three brands under NCL. |
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