Carnival Corporation’s chief financial officer, David Bernstein, is exploring options in the debt markets to reduce the company’s interest costs. With a debt pile of $33.7 billion, Carnival believes it is well-positioned to continue paying it down.
One potential strategy for Carnival to decrease its debt is by issuing junk bonds. These bonds have higher yields but are also considered riskier than investment-grade bonds. However, the higher interest rates offered by junk bonds could potentially help Carnival save money on its overall debt payments.
Following Viking Cruises’ successful issuance of $720 million in junk bonds, Carnival is considering a similar move. However, Bernstein emphasizes that the decision will only be made if it aligns with the company’s financial interests and is not something to rush into.
Reducing debt is a common goal among cruise line operators, and Royal Caribbean Cruises has also expressed its intention to pay down its debt while potentially considering junk bond issuance in the future.
The rising interest rates pose a challenge for companies seeking to borrow money. Nonetheless, for Carnival, the advantages of issuing junk bonds may outweigh the risks. By reducing interest payments, Carnival could enhance its financial performance and positively impact its stock price.
In weighing the decision of whether or not to issue junk bonds, there are several pros and cons to consider:
Pros:
- Higher interest rates could lead to cost savings on overall debt payments.
- Junk bonds may contribute to improved financial performance and a higher stock price for Carnival.
Cons:
- Junk bonds are inherently riskier compared to investment-grade bonds.
- Carnival could face difficulties repaying its junk bonds if its financial performance deteriorates.
Carnival will need to weigh the risks and benefits carefully before making a decision.
