What changed in this filing

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Item 1A. Risk Factors

2020-10-08 compared with 2020-07-10 · 73 added, 39 removed, 116 unchanged (49% of the section changed)

Risk Factors .

The risk factors in this Form 10-Q below should be carefully considered, including the risk factors discussed in "Risk Factors" and other risks discussed in our Form 10-K, our Form 10-Q for the quarter ended February 29, 2020, and other filings with the SEC since the date of the Form 10-K.

The risk factors in this Form 10-Q below should be carefully considered, including the risk factors discussed in “Risk Factors” and other risks discussed in our Form 10-K, our Form 10-Q for the quarters ended February 29, 2020 and May 31, 2020 and other filings with the SEC since the date of the Form 10-K.

These risks could materially and adversely affect our results, operations, outlooks, plans, goals, growth, reputation, cash flows, liquidity, and stock price.

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The spread of COVID-19 and the recent developments surrounding the global pandemic are having material negative impacts on all aspects of our business.

We have implemented a pause of our guest cruise operations across all brands and such pause may be prolonged.

We implemented a pause of our guest cruise operations in mid-March 2020 across all brands.

Although we have begun the resumption of limited guest operations in September 2020, such partial pause may be prolonged.

In addition, we have been, and will continue to be further, negatively impacted by related developments, including heightened governmental regulations and travel advisories, recommendations by the U.S.

Department of State, the Centers for Disease Control and Prevention and other regulatory authorities, and travel bans and restrictions, each of which has impacted, and is expected to continue to significantly impact, global guest sourcing and our access to various ports of call.

To date we have incurred, and expect to continue to incur, significant costs as we pause our guest cruise operations, provide air transportation to return our passengers to their home destinations, repatriate shipboard team members and assist some of our crew that is, or will be upon docking, unable to return home, with food and housing.

We will continue to incur COVID-19 related costs as we sanitize our ships and implement additional hygiene-related protocol to our ships, as well as prepare for the resumption of guest operations.

To date we have incurred significant costs as we paused our guest cruise operations, provided air transportation to return our passengers to their home destinations, repatriated shipboard team members and assisted some of our crew that were unable to return home, with food and housing.

We will continue to incur COVID-19 related costs as we sanitize our ships and implement additional hygiene-related protocols to our ships, as well as prepare for the continued resumption of guest operations.

In addition, the industry may be subject to enhanced health and hygiene requirements in attempts to counteract future outbreaks, which requirements may be costly and take a significant amount of time to implement across our global fleet cruise operations.

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We have no insurance coverage for loss of revenues or earnings from our ships or other operations.

We have a total of 16 cruise ships expected to be delivered through 2025, including several during the remainder of fiscal 2020.

In connection with our capacity optimization strategy, we have accelerated the removal of ships from our fleet in 2020 which were previously expected to be sold over the ensuing years.

We have sold, expect to sell or have agreements for the disposal of various vessels.

Some of these agreements or preliminary agreements for the disposal of vessels are for recycling.

When we choose to dispose of a ship, there can be no assurance that there will be a viable buyer to purchase it at a price that exceeds our net book value, which could result in ship impairment charges and losses on ship disposals.

The effects of COVID-19 on the operations of shipyards where our ships are under construction will result in a delay in ship deliveries, which we cannot predict and may be prolonged.

We cannot predict when any of our ships will begin to sail again and ports will reopen to our ships.

Moreover, even once travel advisories and restrictions are lifted, demand for cruises may remain weak for a significant length of time and we cannot predict if and when each brand will return to pre-outbreak demand or fare pricing.

We cannot predict the timing of our complete return to service and when various ports will reopen to our ships.

If we are delayed in recommencing guest cruise operations or there is a future pause in the resumption of limited guest operations, it could negatively impact our liquidity.

Moreover, even as travel advisories and restrictions are lifted, demand for cruises may remain weak for a significant length of time and we cannot predict if and when each brand will return to pre-outbreak demand or fare pricing.

In particular, our bookings may be negatively impacted by the adverse changes in the perceived or actual economic climate, including higher unemployment rates, declines in income levels and loss of personal wealth resulting from the impact of COVID-19.

In addition, we cannot predict the impact COVID-19 will have on our partners, such as travel agencies, suppliers and other vendors.

We may be adversely impacted as a result of the adverse impact our partners suffer.

In addition, we cannot predict the impact COVID-19 will have on our partners, such as travel agencies, suppliers and other vendors, counterparties and joint ventures.

We may be adversely impacted as a result of the adverse impact our partners, counterparties and joint ventures suffer.

We have never previously experienced a complete cessation of our guest cruise operations, and as a consequence, our ability to be predictive regarding the impact of such a cessation on our brands and future prospects is uncertain.

In particular, we cannot predict the impact on our financial performance and our cash flows required for cash refunds of deposits as a result of the pause in our global fleet cruise operations, which may be prolonged, and the public’s concern regarding the health and safety of travel, especially by cruise ship, and related decreases in demand for travel and cruising.

Moreover, our ability to attract and retain guests and crew depends, in part, upon the perception and reputation of our company and our brands and the public’s concerns regarding the health and safety of travel generally, as well as regarding the cruising industry and our ships specifically.

In particular, we cannot predict the impact on our financial performance and our cash flows required for cash refunds of deposits as a result of the current partial pause in our global fleet cruise operations, which may be prolonged, and the public’s concern regarding the health and safety of travel, especially by cruise ship, and related decreases in demand for travel and cruising.

Moreover, our ability to attract and retain guests and our ability to hire and the amounts we must pay our crew depends, in part, upon the perception and reputation of our company and our brands and the public’s concerns regarding the health and safety of travel generally, as well as regarding the cruising industry and our ships specifically.

As a result, we expect a net loss on both a U.S.

GAAP and adjusted basis for the second half of 2020, and our ability to forecast our cash inflows and additional capital needs is hampered.

As a result of all of the foregoing, we have raised, and may be required to further raise, additional capital.

GAAP and adjusted basis for the quarter and year ending November 30, 2020, and our ability to forecast our cash inflows and additional capital needs is hampered.

As a result of all of the foregoing, we have raised, and expect to be required to further raise, significant additional capital, including additional equity capital.

Our access to and cost of financing depend on, among other things, global economic conditions, conditions in the global financing markets, the availability of sufficient amounts of financing, our prospects and our credit ratings.

As a result of COVID-19's effects on our liquidity, in May and June 2020, Moody's and S&P Global further downgraded our long-term issuer rating and our short-term rating, which prevents us from issuing additional commercial paper except for government-backed programs.

In addition, our long-term ratings were placed on review for further downgrade by both rating agencies.

As a result of COVID-19's effects on our liquidity, since March 2020, Moody’s and S&P Global have downgraded our credit ratings to be below investment grade.

Our current short-term commercial paper credit rating prevents us from issuing additional commercial paper.

If our credit ratings were to be further downgraded, or general market conditions were to ascribe higher risk to our rating levels, our industry, or us, our access to capital and the cost of any debt financing will be further negatively impacted.

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In addition, the COVID-19 outbreak has significantly increased economic and demand uncertainty.

The current outbreak and continued spread of COVID-19 could cause a global recession, which would have a further adverse impact on our financial condition and operations.

The current outbreak and continued spread of COVID-19 could cause a global recession, which would have a further adverse impact on our financial

condition and operations.

In past recessions, demand for our cruise vacations has been significantly negatively impacted which has resulted in lower occupancy rates and adverse pricing, with a corresponding increase in the use of credits and other means to attract travelers.

Current economic forecasts for significant increases in unemployment in the U.S.

and other regions due to the adoption of social distancing and other policies to slow the spread of the virus is likely to have a negative impact on booking demand for our global fleet cruise operations once our operations resume, and these impacts could exist for an extensive period of time.

and other regions due to the adoption of physical distancing and other policies to slow the spread of the virus is likely to have a negative impact on booking demand for our global fleet cruise operations, and these impacts could exist for an extensive period of time.

The extent of the effects of the outbreak on our business and the cruising industry at large is highly uncertain and will ultimately depend on future developments, including, but not limited to, the duration and severity of the outbreak, the length of time it takes for demand and pricing to return and normal economic and operating conditions to resume.

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“Risk Factors” included in our Form 10-K.

• Any potential government disaster relief assistance could impose significant limitations on our corporate activities and may not be on terms favorable to us .

If any government agrees to provide disaster relief assistance, it may impose certain requirements on the recipients of the aid including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt, incurrence of additional indebtedness and other similar restrictions until the aid is repaid or redeemed in full.

We cannot assure you that any such government disaster relief assistance, if passed, will not significantly limit our corporate activities or be on terms that are favorable to us or at all.

Such restrictions and terms could adversely impact our business and operations.

• Any potential government disaster relief assistance could impose significant limitations on our corporate activities and may not be available to us on terms that are favorable or at all .

If any government provides or agrees to provide disaster relief assistance, it may impose certain requirements on the recipients of the aid including restrictions on executive officer compensation, share buybacks, dividends, prepayment of debt, incurrence of additional indebtedness and other similar restrictions until the aid is repaid or redeemed in full.

In addition, the government may change the terms of the assistance or the eligibility requirements.

We cannot assure you that any such government disaster relief assistance will not significantly limit our corporate activities or, even if we qualify for a program, will be available to us on terms that are favorable or at all.

For example, we initially qualified for a government commercial paper program providing over $700 million of available liquidity, and in September 2020, the relevant government agency paused our access to further drawings, and the ability to roll over existing drawings, under the government commercial paper program.

Any restrictions, terms and inability to access government disaster relief assistance could adversely impact our business, operations, liquidity and financial condition.

• Our substantial debt could adversely affect our financial health and operating flexibility .

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If new debt is added to our existing debt levels, our business could be adversely affected, which may prevent us from fulfilling our obligations with respect to our debt.

• We are subject to restrictive debt covenants that may limit our ability to finance future operations and capital needs and to pursue business opportunities and activities.

• We are subject to restrictive debt covenants that may limit our ability to finance future operations and capital needs and to

pursue business opportunities and activities.

In addition, if we fail to comply with any of these restrictions, it could have a material adverse effect on the company .

The Secured Term Loan Facility, the indenture governing the 2023 Secured Notes, the Revolving Facility Agreement and certain of our other debt instruments limit our flexibility in operating our business.

For example, the Secured Term Loan Facility and the indenture governing the 2023 Secured Notes restrict or limit the ability of Carnival Corporation, Carnival plc and certain of their respective subsidiaries to, among other things:

Certain of our debt instruments limit our flexibility in operating our business.

For example, some of our debt instruments limit the ability of Carnival Corporation, Carnival plc and certain of their respective subsidiaries to, among other things:

◦ incur or guarantee additional indebtedness;

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All of these limitations are subject to significant exceptions and qualifications.

Despite these exceptions and qualifications, we cannot assure you that the operating and financial restrictions and covenants in our Secured Term Loan Facility, the indenture governing the 2023 Secured Notes, the Revolving Facility and certain of our other debt instruments will not adversely affect our ability to finance our future operations or capital needs or engage in other business activities that may be in our interest.

Despite these exceptions and qualifications, we cannot assure you that the operating and financial restrictions and covenants in certain of our debt instruments will not adversely affect our ability to finance our future operations or capital needs or engage in other business activities that may be in our interest.

Any future indebtedness may include similar or other restrictive terms.

In addition, our ability to comply with these covenants, including financial covenants relating to our consolidated net interest, and restrictions may be affected by events beyond our control.

In addition, many of our debt agreements contain one or more financial covenants that require us to maintain minimum debt service coverage, maintain minimum shareholders equity and/or limit our debt to capital ratio.

Our ability to comply with our debt covenants, including the financial maintenance covenants described above, and restrictions may be affected by events beyond our control.

These include prevailing economic, financial and industry conditions.

If we breach any of these covenants or restrictions, we could be in default under the terms of our Secured Term Loan Facility, the indenture governing the 2023 Secured Notes, the Revolving Facility and certain of our other debt facilities and the relevant lenders could elect to declare the debt, together with accrued and unpaid interest and other fees, if any, immediately due and payable and proceed against any collateral, if any, securing that debt.

If the debt under the Secured Term Loan Facility, the indenture governing the 2023 Secured Notes, the Revolving Facility or certain of our other debt instruments that we enter into were to be accelerated, our assets may be insufficient to repay in full our debt.

If we breach any of these covenants or restrictions, we could be in default under the terms of certain of our debt facilities and the relevant lenders could elect to declare the debt, together with accrued and unpaid interest and other fees, if any, immediately due and payable and proceed against any collateral, if any, securing that debt.

If the debt under certain of our debt instruments that we enter into were to be accelerated, our assets may be insufficient to repay in full our debt.

Borrowings under other debt instruments that contain cross-default provisions also may be accelerated or become payable on demand.

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• Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly .

Borrowings under the Secured Term Loan Facility, the Revolving Facility Agreement and certain of our other facilities are at variable rates of interest and expose us to interest rate risk.

Borrowings under certain of our facilities are at variable rates of interest and expose us to interest rate risk.

If interest rates increase, our debt service obligations on certain of our variable rate indebtedness will increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease.

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However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any such swaps may not fully mitigate our interest rate risk, may prove disadvantageous, or may create additional risks.

• As a result of the COVID-19 outbreak, we have paused our guest cruise operations, and if we are unable to re-commence normal operations in the near-term, we may be out of compliance with a maintenance covenant in certain of our debt facilities as of May 31, 2021.

At May 31, 2020, we were in compliance with all of our debt covenants.

• As a result of the COVID-19 outbreak, we may be out of compliance with a maintenance covenant in certain of our debt facilities, for which we have waivers for the period through March 31, 2021 with the next testing date of May 31, 2021.

Under the terms of certain of our debt facilities, we are required to maintain minimum debt service coverage (EBITDA to consolidated net interest charges for the most recently ended four fiscal quarters) of not less than 3.0 to 1.0 at the end of each fiscal quarter.

We have entered into supplemental agreements or side letters to amend our agreements with respect to this covenant to:

• Waive compliance, in conjunction with the Debt Holiday, for our export credit facilities through March 31, 2021, August 31, 2021 or December 31, 2021, as applicable.

We will be required to comply beginning with the next testing date of May 31, 2021, November 30, 2021 or February 28, 2022, respectively.

As of August 31, 2020, we have entered into supplemental agreements or side letters to amend our agreements with respect to this Financial Covenant to:

• Waive compliance for all of our funded export credit facilities through March 31, 2021, August 31, 2021 or December 31, 2021, as applicable.

• Waive compliance through November 30, 2021 for certain of our bank loans.

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• Waive compliance for the remaining applicable bank loans through their respective maturity dates.

Even though we have waivers in place with respect to this covenant, if we were unable to re-commence normal operations in the near term, we may be out of compliance with our minimum debt service coverage covenant as of May 31, 2021 or in future periods for certain agreements.

At August 31, 2020, we were in compliance with the applicable debt covenants.

Subsequent to August 31, 2020, we extended the Financial Covenant waivers for our funded export credit facilities through at least November 30, 2021 (with the next testing date of February 28, 2022) except that for three of our funded export credit facilities with Financial Covenant waivers through March 31, 2021 (with the next testing date of May 31, 2021) or August 31, 2021 (with the next testing date of November 30, 2021), with total aggregate indebtedness of $1.3 billion as of August 31, 2020, we are currently engaged in discussions to extend the waivers for these facilities through November 30, 2021 (with the next testing date of February 28, 2022).

In addition, we have entered into supplemental agreements or side letters to amend our agreements with respect to the Financial Covenant for our unfunded export credit facilities to waive compliance through August 31, 2021 (with the next testing date of November 30, 2021) for aggregate principal of $2.7 billion, through November 30, 2021 (with the next testing date of February 28, 2022) for aggregate principal of $1.2 billion (of which we borrowed $610 million to fund delivery of a ship in September 2020), and through December 31, 2021 (with the next testing date of February 28, 2022) for aggregate principal of $3.7 billion.

For the remaining three unfunded export credit facilities with an aggregate principal of $1.8 billion, we are engaged in discussions with the counterparties to waive the Financial Covenant through March 31, 2021 (with the next testing date of May 31, 2021).

Simultaneously with obtaining the initial waivers for these three unfunded export credit facilities, we have also requested extension of waivers for these facilities through November 30, 2021 (with the next testing date of February 28, 2022).

Although highly unlikely, if the covenant waiver for any unfunded facility for which we have not yet obtained a waiver is not obtained, the lender under that facility could terminate it if we did not comply with the Financial Covenant for any fiscal quarter ending on or after August 31, 2020.

Even though we have or expect to have waivers in place with respect to this covenant, we may be out of compliance with the Financial Covenant following March 31, 2021 with the next testing date of May 31, 2021 or in future periods for certain agreements because of the pause in our guest operations.

If we expected to be out of compliance, we would again seek waivers from the lenders under the applicable facilities prior to any covenant violation.

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If we were not able to obtain a covenant waiver under any one or more of these debt facilities, we would be in default of such agreements, which could result in cross defaults to our other debt agreements.

As a consequence, we would need to refinance or repay the applicable debt facility or facilities, and would be required to raise additional debt or equity capital, or divest assets, to refinance or repay such facility or facilities.

As a consequence, we would need to refinance or repay the applicable debt facility or facilities, and would be required to raise additional debt or equity capital, or divest assets, to refinance

or repay such facility or facilities.

If we were to be unable to obtain a covenant waiver under any one or more of these debt facilities, there can be no assurance that we would be able to raise sufficient debt or equity capital, or divest assets, to refinance or repay such facility or facilities.

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Any such waiver may lead to increased costs, increased interest rates, additional restrictive covenants and other available lender protections that would be applicable to us under these debt facilities, and such increased costs, restrictions and modifications may vary among debt facilities.

Our ability to give additional lender protections under these facilities, including the granting of security interests in collateral, will be limited by the restrictions in our

indebtedness and security interest we have already granted.

If we were not able to obtain a waiver, the occurrence of such events may cause our level of secured indebtedness to increase substantially.

Our ability to give additional lender protections under these facilities, including the granting of security interests in collateral, will be limited by the restrictions in our indebtedness and security interest we have already granted.

If we were not able to obtain a waiver, the occurrence of such events may result in an event of default under these facilities and other debt facilities that contain cross default provisions that would be triggered.

• Breaches in data security and lapses in data privacy as well as disruptions and other damages to our principal offices, information technology operations and system networks, including the recent ransomware incident, and failure to keep pace with developments in technology may adversely impact our business operations, the satisfaction of our guests and crew and lead to reputational damage

We have been and may continue to be impacted by breaches in data security and lapses in data privacy, which occur from time to time.

These can vary in scope and intent from economically motivated attacks to malicious attacks intended to disrupt or compromise our shoreside and shipboard operations by targeting our key operating systems.

Breach or circumvention of our systems or the systems of third parties, including by ransomware or other attacks, results in disruptions to our business operations;

unauthorized access to (or the loss of company access to) competitively sensitive, confidential or other critical data (including sensitive financial, medical or other personal or business information) or systems;

loss of customers;

financial losses;

regulatory enforcement actions and fines;

litigation and misuse or corruption of critical data and proprietary information, any of which could be material.

On August 15, 2020, we detected a ransomware attack and unauthorized access to our information technology systems.

We engaged a major cybersecurity firm to investigate the matter and notified law enforcement and regulators of the incident.

While the investigation is ongoing, early indications are that the unauthorized third-party gained access to certain personal information relating to some guests, employees and crew for some of our operations.

There is currently no indication of any misuse of this information.

While at this time we do not believe that this information will be misused going forward or that this incident will have a material adverse effect on our business, operations or financial results, no assurances can be given and further we may be subject to future attacks or incidents that could have such a material adverse effect.

Our principal offices, information technology operations and system networks may be impacted by actual or threatened natural

disasters (for example, hurricanes, earthquakes, floods, fires, tornadoes, tsunamis, typhoons and volcanic eruptions) or other

disruptive events.

Our maritime and/or shoreside operations, including our ability to manage our inventory of cabins held for

sale and set pricing, control costs, and serve our guests, depends on the reliability of our information technology operations and

system networks as well as our ability to refine and update to more advanced systems and technologies.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors