Royal Caribbean Rebounds with Over One Billion Dollars Bond Offering Amid Strong Cruise Industry Outlook

Royal Caribbean Cruises Ltd. recently raised \$1.5 billion by issuing bonds, marking a significant development as the company’s credit rating was upgraded by Fitch Ratings. This bond issuance came at the beginning of a busy week for the investment-grade bond market, with several other companies also tapping into the market for capital. The cruise operator’s bond, which will mature in 10 years, carries a yield of 125 basis points above U.S. Treasuries, after initially being discussed at around 160 basis points. These funds will be used for several purposes, including financing the delivery of the company’s new Celebrity Xcel ship, redeeming or refinancing a portion of its 2026 senior notes, and supporting general corporate initiatives.

The bond issuance reflects the company’s improved financial standing, which has been bolstered by the progress it has made since the pandemic. Fitch Ratings’ decision to upgrade Royal Caribbean’s credit rating to ‘BBB’ from ‘BBB-‘ is a clear indication of the company’s strengthened financial position. This upgrade is attributed to improvements in its leverage metrics, ongoing debt reduction, and the overall positive outlook for the cruise industry. Additionally, S\&P Global Ratings revised the company’s outlook to positive, expressing confidence that Royal Caribbean is building a strong credit cushion moving forward.

Royal Caribbean’s journey to regaining its investment-grade status has been a challenging one. The company lost its high-grade rating in 2020 when the COVID-19 pandemic ravaged the global economy, severely affecting the cruise and hospitality industries. However, the company has worked hard to recover, and in May of this year, it regained its investment-grade rating. Additionally, in September 2024, the company raised \$1.5 billion in the high-yield market, demonstrating that investors were willing to back the company despite the challenges faced by the cruise sector.

Analysts from CreditSights, a leading research firm, noted that the new 10-year bonds are fairly priced, with yields in line with the initial price guidance based on the company’s existing bonds that mature in 2033. Despite ongoing challenges in the global economy, such as tariffs and economic uncertainty, analysts have maintained a “market perform” recommendation on Royal Caribbean. They believe that strong consumer demand and continued robust bookings for the cruise industry will support the company’s growth prospects. The analysts have also pointed to the company’s ability to manage debt and reduce leverage as key factors contributing to its recovery and credit upgrade.

The bond issuance by Royal Caribbean is part of a larger wave of borrowing in the investment-grade bond market, which saw a total of \$15.95 billion raised by eight issuers on Monday alone. This includes Broadcom Inc., which raised \$5 billion in a three-part bond offering, and Dell International, which issued \$4.5 billion in debt. Additionally, the Commonwealth Bank of Australia raised \$1.5 billion in a two-part offering. These moves indicate a high demand for investment-grade debt and a strong appetite among institutional investors to buy bonds issued by creditworthy companies.

The current strength of the investment-grade market is not a new trend. Sales volumes for investment-grade bonds have remained robust throughout September, with issuance already surpassing \$140 billion in the first three weeks of the month. This puts September on track to match or potentially exceed the \$170 billion in high-grade debt issued in the same month last year. According to market analysts, this continued demand is a result of companies’ desire to lock in favorable financing terms while investor confidence remains strong. Despite some market participants possibly avoiding deals during the Rosh Hashanah holiday, the bond market has experienced a strong start to the week.

This pattern of strong issuance reflects investor optimism in the current economic climate, as corporate credit spreads remain tight. The yield for the average corporate bond is holding steady at 4.76%, up slightly from its year-low levels earlier in the month. Corporate credit spreads remain narrow, and the average spread for BBB-rated bonds has reached a new multi-decade low, according to data compiled by Bloomberg. This stability in the investment-grade bond market signals a continued strong demand for high-quality debt securities, despite the economic uncertainties created by factors like global trade tensions and the ongoing effects of inflation.

In conclusion, Royal Caribbean Cruises Ltd.’s recent bond issuance and credit rating upgrade serve as a significant milestone for the company, marking a recovery from the financial strain caused by the pandemic. The broader investment-grade bond market remains strong, reflecting high investor demand and corporate interest in securing favorable financing conditions. The cruise operator’s success in regaining its high-grade rating highlights the resilience of the cruise industry and its ability to bounce back from the challenges posed by the global pandemic. With the continued strength of the bond market and the broader economy, Royal Caribbean appears well-positioned to navigate future challenges and capitalize on the growing demand for cruises and leisure travel.