What changed in this filing

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Item 1. Financial Statements

2020-08-10 compared with 2020-05-15 · 328 added, 150 removed, 463 unchanged (51% of the section changed)

4 unchanged sentences

Three Months Ended

Six Months Ended

Passenger ticket

19 unchanged sentences

( 2,611,511 )

Income tax benefit

Income tax benefit (expense)

Net income (loss)

7 unchanged sentences

Three Months Ended

Six Months Ended

Net income (loss)

33 unchanged sentences

490,000,000 shares authorized;

238,976,120 shares issued and 214,525,261 shares outstanding at March 31, 2020 and 237,533,270 shares issued and 213,082,411 shares outstanding at December 31, 2019

280,798,331 shares issued and 256,347,472 shares outstanding at June 30, 2020 and 237,533,270 shares issued and 213,082,411 shares outstanding at December 31, 2019

Additional paid-in capital

1 unchanged sentence

Retained earnings

Treasury shares ( 24,450,859 at March 31, 2020 and December 31, 2019, at cost)

Treasury shares ( 24,450,859 at June 30, 2020 and December 31, 2019, at cost)

( 1,253,926 )

6 unchanged sentences

(in thousands)

Three Months Ended

Six Months Ended

Cash flows from operating activities

8 unchanged sentences

Provision for bad debts and inventory obsolescence

Gain on involuntary conversion of assets

Share-based compensation expense

7 unchanged sentences

Net cash provided by (used in) operating activities

( 1,328,380 )

Cash flows from investing activities

7 unchanged sentences

Proceeds from long-term debt

Common share issuance proceeds, net

Proceeds from employee related plans

1 unchanged sentence

Purchases of treasury shares

Early redemption premium

Deferred financing fees

8 unchanged sentences

(in thousands)

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Comprehensive

1 unchanged sentence

Income (Loss)

Balance, March 31, 2020

( 1,253,926 )

Share-based compensation

Common share issuance proceeds, net

Net share settlement of restricted share units

Beneficial conversion feature

Other comprehensive income, net

Balance, June 30, 2020

( 1,253,926 )

Six Months Ended June 30, 2020

Comprehensive

Shareholders’

Income (Loss)

Balance, December 31, 2019

2 unchanged sentences

Issuance of shares under employee related plans

Common share issuance proceeds, net

Net share settlement of restricted share units

Beneficial conversion feature

Cumulative change in accounting policy

2 unchanged sentences

( 2,596,215 )

Balance, June 30, 2020

( 1,253,926 )

The accompanying notes are an integral part of these consolidated financial statements.

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Changes in Shareholders’ Equity - Continued

(in thousands)

Three Months Ended June 30, 2019

Comprehensive

Shareholders’

Income (Loss)

Balance, March 31, 2019

( 1,104,062 )

Three Months Ended March 31, 2019

Share-based compensation

Issuance of shares under employee related plans

Treasury shares

Net share settlement of restricted share units

Other comprehensive loss, net

Balance, June 30, 2019

( 1,104,137 )

Six Months Ended June 30, 2019

Comprehensive

6 unchanged sentences

Net share settlement of restricted share units

Other comprehensive income, net

Balance, March 31, 2019

Other comprehensive loss, net

Balance, June 30, 2019

( 1,104,137 )

13 unchanged sentences

We are a leading global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands.

As of March 31, 2020, we had 28 ships with approximately 59,150 Berths and had orders for nine additional ships to be delivered through 2027, subject to certain conditions.

As of June 30, 2020, we had 28 ships with approximately 59,150 Berths and had orders for nine additional ships to be delivered through 2027, subject to certain conditions.

Due to the novel coronavirus (“COVID-19”), we have temporarily suspended global cruise voyages through October 31, 2020.

We refer you to Note 2 – “Summary of Significant Accounting Policies” for further information.

We have one Explorer Class Ship on order for delivery in 2023.

2 unchanged sentences

These additions to our fleet will increase our total Berths to approximately 82,000 .

We expect that the effects of the novel coronavirus (“COVID-19”) on the shipyards where our ships are under construction (or will be constructed) will result in delays in ship deliveries and such delays may be prolonged.

The impacts of COVID-19 on the shipyards where our ships are under construction (or will be constructed) have resulted in some delays in expected ship deliveries, and the impacts of COVID-19 could result in additional delays in ship deliveries in the future, which may be prolonged.

Summary of Significant Accounting Policies

Liquidity and Management’s Plan

Due to the continued spread of COVID-19, growing travel restrictions and limited access to ports around the world, in March 2020, the Company implemented a voluntary suspension of all cruise voyages across its three brands, which has subsequently been extended through June 30, 2020.

On March 14, 2020, concurrent with our and the broader cruise industry’s suspension, the U.S.

Centers for Disease Control and Prevention (“CDC”) issued a No Sail Order through April 13, 2020.

On April 9, 2020, the CDC modified its existing No Sail Order to extend it until the earliest of (a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, (b) the date the Director of the CDC rescinds or modifies the No Sail Order or (c) 100 days after the order appears on the Federal Register, which would be July 24, 2020.

In addition, the duration of any voluntary suspensions we have implemented and resumption of operations outside of the United States will be dependent, in part, on various travel restrictions and travel bans issued by various countries around the world, as well as the availability of ports around the world.

On March 14, 2020, concurrent with our and the broader cruise industry’s original suspension, the U.S.

Centers for Disease Control and Prevention (“CDC”) issued a No Sail Order through April 13, 2020, which was subsequently extended through July 24, 2020.

On July 16, 2020, the CDC extended its No Sail Order until the earliest of (a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, (b) the date the Director of the CDC rescinds or modifies the No Sail Order based on specific public health or other considerations or (c) September 30, 2020.

In addition, the duration of any voluntary suspensions we have implemented and the resumption of operations outside of the United States will be dependent, in part, on the severity and duration of the COVID-19 pandemic, the status of the CDC’s No Sail Order, the lifting of various travel restrictions and travel bans issued by various countries around the world, as well as the availability of ports around the world.

Significant events affecting travel, including COVID-19, typically have an impact on the demand for cruise vacations, with the full extent of the impact generally determined by the length of time the event influences travel decisions.

We believe the ongoing effects of COVID-19 on our operations and global bookings have had, and will continue to have, a significant impact on our financial results and liquidity, and such negative impact may continue well beyond the containment of such an outbreak.

Due to the unknown duration and extent of the outbreak, travel restrictions and advisories, the potential unavailability of ports and/or destinations, unknown cancellations and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, the full effect on our financial performance cannot be quantified at this time, but we expect to report a net loss for the year ending December 31, 2020.

Subsequent to March 31, 2020, we have taken steps to improve our liquidity through securing deferrals of existing debt amortization, including through available export credit agencies and related governments, as discussed more fully under Note 8 – “Long-Term Debt”.

The Company has received additional financing through debt and equity transactions totaling $ 1.95 billion in proceeds after underwriting fees.

The Company expects to receive another $ 400.0 million from the transaction with L Catterton upon the satisfaction of certain customary closing conditions.

Refer to Note 15 – “Subsequent Events” for further information on the equity financing.

The Company has also undertaken several proactive measures to mitigate the financial and operational impacts of COVID-19, through the reduction of capital expenditures and operating expenses.

may continue well beyond the containment of such an outbreak.

Due to the unknown duration and extent of the COVID-19 pandemic, travel restrictions and advisories, the potential unavailability of ports and/or destinations, unknown cancellations and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, the full effect on our financial performance and financial condition cannot be quantified at this time, but we expect to report a net loss for the year ending December 31, 2020.

Since March 2020, we have taken several actions to bolster our financial condition while our global cruise voyages are suspended.

In March 2020, NCLC borrowed the full amount of $ 1.55 billion under its $ 875 million Revolving Loan Facility and its $ 675 million Epic Credit Facility, dated as of March 5, 2020.

We have taken additional measures to improve our liquidity by refinancing existing debt amortization, including under our agreements with export credit agencies and related governments, and by extending the maturities and refinancing amortization under other agreements, which has resulted in approximately $ 1.6 billion of payment deferrals.

See Note 8 – “Long-Term Debt” for further information.

Through June 30, 2020, the Company received additional financing through various debt financings and an equity offering totaling $ 2.4 billion in gross proceeds.

The equity offering resulted in 41,818,181 shares being issued in exchange for gross proceeds of $ 460 million.

See Note 8 – “Long-Term Debt” for further information on the debt financings.

Subsequent to June 30, 2020, the Company received another $ 1.5 billion in gross proceeds from additional debt financings and an additional equity offering, of which approximately $ 675 million was used to repay in full and terminate the Epic Credit Facility.

Refer to Note 8 – “Long-Term Debt” for further information on the debt financings and Note 16 – “Subsequent Events” for further information on the equity financing.

The Company has also undertaken several proactive cost reduction and cash conservation measures to mitigate the financial and operational impacts of COVID-19, through the reduction of capital expenditures and operating expenses, including food, fuel, insurance, port charges and reduced crew manning of vessels during the suspension, resulting in lower crew payroll expense.

In accordance with Accounting Standards Update (“ASU”) No.

2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40):

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

Based on the actions the Company has taken as described above and our resulting current resources, the Company has alleviated the substantial doubt previously disclosed and has sufficient liquidity to satisfy our obligations over the next twelve months and maintain minimum levels of liquidity as required by certain of our debt agreements.

2 unchanged sentences

Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year.

Historically, demand for cruises has been strongest during the Northern Hemisphere’s summer months, although demand for cruises during the summer months of 2020 are expected to continue to be adversely impacted by the COVID-19 pandemic.

The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019, which are included in our most recent Annual Report on Form 10-K filed with the SEC, as updated by our Current Report on Form 8-K filed on May 5, 2020.

Historically, demand for cruises has been strongest during the Northern Hemisphere’s summer months;

however, demand for cruises during the summer months of 2020 has been materially adversely impacted by the COVID-19 pandemic.

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current period presentation.

Earnings Per Share

Earnings (Loss) Per Share

A reconciliation between basic and diluted earnings per share was as follows (in thousands, except share and per share data):

Three Months Ended

Six Months Ended

Net income (loss)

5 unchanged sentences

Diluted earnings (loss) per share

For the three months ended March 31, 2020 and 2019, a total of 7.0 million and 5.5 million shares, respectively, have been excluded from diluted weighted-average shares outstanding because the effect of including them would have been anti-dilutive.

For the three months ended June 30, 2020 and 2019, a total of 59.2 million and 3.6 million shares, respectively, and for the six months ended June 30, 2020 and 2019, a total of 33.1 million and 4.5 million shares, respectively, have been excluded from diluted weighted-average shares outstanding because the effect of including them would have been anti-dilutive.

Foreign Currency

1 unchanged sentence

We remeasure assets and liabilities denominated in foreign currencies at exchange rates in effect at the balance sheet date.

Gains or losses resulting from transactions denominated

in other currencies are recognized in our consolidated statements of operations within other income, net.

We recognized a gain of $ 19.9 million and a loss of $ 1.0 million for the three months ended March 31, 2020 and 2019, respectively, related to transactions denominated in other currencies.

Gains or losses resulting from transactions denominated in other currencies are recognized in our consolidated statements of operations within other income, net.

We recognized a loss of $ 10.2 million and $ 3.3 million for the three months ended June 30, 2020 and 2019, respectively, and a gain of $ 9.7 million and a loss of $ 4.3 million for the six months ended June 30, 2020 and 2019, respectively, related to transactions denominated in other currencies.

Depreciation and Amortization Expense

13 unchanged sentences

Three Months Ended

Six Months Ended

North America

15 unchanged sentences

Receivables from customers are included within accounts receivable, net.

As of March 31, 2020 and December 31, 2019, our receivables from customers were $ 17.3 million and $ 15.3 million, respectively.

In March 2020, our brands launched new cancellation policies to permit our guests to cancel cruises which are not part of the Company’s temporary suspension of voyages up to 48 hours prior to embarkation and receive a refund in the form of a credit to be applied toward a future cruise.

These programs are currently in place for cruises booked through specific time periods specified by brand, and for cruises scheduled to embark through either September 30 or December 31, 2020, depending on the brand.

As of June 30, 2020 and December 31, 2019, our receivables from customers were $ 4.5 million and $ 15.3 million, respectively.

Beginning in March 2020, our brands launched new cancellation policies to permit our guests to cancel cruises which are not part of the Company’s temporary suspension of voyages up to 48 hours or 15 days, depending on the brand, prior to embarkation and receive a refund in the form of a credit to be applied toward a future cruise.

These programs are currently in place for cruises booked through specific time periods specified by brand, and for cruises scheduled to embark through specified time periods, depending on the brand.

The future cruise credit is valid for any sailing through December 31, 2022, and we may extend this offer.

2 unchanged sentences

Our contract liabilities are included within advance ticket sales.

As of March 31, 2020 and December 31, 2019, our contract liabilities were $ 0.2 billion and $ 1.4 billion, respectively.

Of the amounts included within contract liabilities as of March 31, 2020, approximately 60 % were refundable in accordance with our cancellation policies.

For the three months ended March 31, 2020, $ 0.9 billion of revenue recognized was included in the contract liability balance at the beginning of the period.

For cruise vacations that had been cancelled by us as of March 31, 2020, approximately $ 92.0 million in costs to obtain these contracts, consisting of protected commissions and credit card fees, were recognized in earnings during the three months ended March 31, 2020.

As of June 30, 2020 and December 31, 2019, our contract liabilities were $ 66.1 million and $ 1.4 billion, respectively.

Of the amounts included within contract liabilities as of June 30, 2020, approximately 40 % were refundable in accordance with our cancellation policies.

For the six months ended June 30, 2020, $ 0.9 billion of revenue recognized was included in the contract liability balance at the beginning of the period.

For cruise vacations that had been cancelled by us due to COVID-19, approximately $ 38.6 million and $ 130.6 million in costs to obtain these contracts, consisting of protected commissions and credit card fees, were recognized in earnings during the three and six months ended June 30, 2020, respectively.

Intangible Assets

We evaluate goodwill and tradenames for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable.

In March 2020, the Company announced a voluntary suspension of all cruise voyages for its three brands, which has subsequently been extended through June 30, 2020.

In March 2020, the Company announced a voluntary suspension of all cruise voyages for its three brands, which has subsequently been extended through October 31, 2020.

Due to the temporary suspension of operations and decline in our stock price, we performed interim goodwill and tradename impairment tests as of March 31, 2020.

We refer you to Note 9 – “Fair Value Measurements” for information on our valuation assumptions.

The changes in the carrying amount of goodwill for each reporting unit for the three months ended March 31, 2020 are as follows (in thousands):

We refer you to Note 9 – “Fair Value Measurements and Derivatives” for information on our valuation assumptions.

The changes in the carrying amount of goodwill for each reporting unit for the six months ended June 30, 2020 are as follows (in thousands):

Reporting Unit

2 unchanged sentences

( 1,290,797 )

Balance, March 31, 2020

As of March 31, 2020, we impaired our tradenames for Oceania Cruises and Regent Seven Seas Cruises by $ 170.0 million and $ 147.0 million, respectively.

Balance, June 30, 2020

We also impaired our tradenames for Oceania Cruises and Regent Seven Seas Cruises by $ 170.0 million and $ 147.0 million, respectively.

Following these impairments, the carrying value of our tradenames was $ 500.5 million.

The carrying amounts of intangible assets subject to amortization are included within other long-term assets.

The gross carrying amounts of intangible assets, the related accumulated amortization, the net carrying amounts and the weighted-

average amortization periods of the Company’s intangible assets are listed in the following tables (in thousands, except amortization period):

March 31, 2020

The gross carrying amounts of intangible assets, the related accumulated amortization, the net carrying amounts and the weighted-average amortization periods of the Company’s intangible assets are listed in the following tables (in thousands, except amortization period):

June 30, 2020

Gross Carrying

9 unchanged sentences

Three Months Ended

Six Months Ended

Amortization expense

1 unchanged sentence

Year Ended December 31,

In April 2020, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of COVID-19.

In this guidance, entities can elect not to apply lease modification accounting with respect to such lease concessions and instead, treat the concession as if it was a part of the existing contract.

The Company has elected to not evaluate leases under the lease modification accounting framework for concessions that result from effects of the COVID-19 pandemic.

In relation to our rights to use port facilities, we have elected the approach consistent with resolving a contingency, which allows us to remeasure the lease liability and recognize the amount of change in the lease liability as an adjustment to the carrying amount of the associated right-of-use asset.

As the full amount of the concession will not be determinable until the force majeure period under the related arrangements have ended, the

contingency has not been resolved as of June 30, 2020.

During the contingency period, we are recognizing lease expense for these port facilities as incurred.

Lease balances were as follows (in thousands):

Balance Sheet location

March 31, 2020

June 30, 2020

December 31, 2019

14 unchanged sentences

Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) for the three months ended March 31, 2020 was as follows (in thousands):

Three Months Ended March 31, 2020

Accumulated other comprehensive income (loss) for the six months ended June 30, 2020 was as follows (in thousands):

Six Months Ended June 30, 2020

Comprehensive

4 unchanged sentences

Accumulated other comprehensive income (loss) at end of period

Accumulated other comprehensive income (loss) for the three months ended March 31, 2019 was as follows (in thousands):

Three Months Ended March 31, 2019

Accumulated other comprehensive income (loss) for the six months ended June 30, 2019 was as follows (in thousands):

Six Months Ended June 30, 2019

Comprehensive

1 unchanged sentence

Accumulated other comprehensive income (loss) at beginning of period

Current period other comprehensive income before reclassifications

Current period other comprehensive loss before reclassifications

Amounts reclassified into earnings

4 unchanged sentences

Property and Equipment, net

Property and equipment, net increased $ 432.2 million for the three months ended March 31, 2020 primarily due to the delivery of Seven Seas Splendor in January 2020 and ship improvement projects slightly offset by a $ 25.4 million impairment of projects that will not be completed, which has been recognized in depreciation and amortization expense.

Property and equipment, net increased $ 353.2 million for the six months ended June 30, 2020 primarily due to the delivery of Seven Seas Splendor in January 2020 and ship improvement projects slightly offset by a $ 25.5 million impairment of projects that will not be completed, which has been recognized in depreciation and amortization expense.

Long-Term Debt

As of March 31, 2020, NCLC had borrowed $ 875 million under its existing Revolving Loan Facility maturing on January 2, 2024.

As of March 31, 2020 borrowings under the Revolving Loan Facility bear interest at LIBOR plus a margin of 1.25 %.

In March 2020, NCLC entered into a $ 675 million revolving credit facility (“ Epic Credit Facility”) maturing on March 4, 2021, with JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, and certain other lenders party thereto.

NCLC has borrowed $ 675 million under the facility, which bears interest at LIBOR plus a margin of 0.80 % .

The facility is secured by Norwegian Epic, Ltd.

In April 2020, NCLC entered into an incremental assumption agreement, which supplements the Epic Credit Facility.

The incremental assumption agreement extended the maturity date of the revolving facility commitments under the Epic Credit Facility to March 3, 2022 following the consummation of the successful debt and equity financing, which resulted in aggregate gross proceeds greater than the amount required for the extension.

The revolving facility loans will accrue interest at a per annum rate based on LIBOR plus a margin of 1.75 % in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 0.75 % in the case of base rate loans.

In April 2020, NCLC amended $ 386 million of export credit backed facilities that finance Norwegian Breakaway, Norwegian Getaway, Norwegian Escape, Norwegian Joy, Norwegian Bliss and Norwegian Encore to incorporate the terms of a 12 -month debt holiday initiative offered to the cruise industry by Euler Hermes Aktiengesellschaft (“Hermes”), the official export credit agency of Germany.

Revolving Credit Facilities

In March 2020, NCLC had borrowed the full amount of $ 875 million under its existing Revolving Loan Facility maturing on January 2, 2024.

As of June 30, 2020 borrowings under the Revolving Loan Facility bear interest at LIBOR plus a margin of 1.50 %.

In March 2020, NCLC entered into a $ 675 million revolving credit facility maturing on March 4, 2021, with JPMorgan Chase Bank, N.A., as administrative agent and as collateral agent, and certain other lenders party thereto.

NCLC borrowed $ 675 million under the Epic Credit Facility, which bore interest at LIBOR plus a margin of 0.80 % .

The facility was secured by Norwegian Epic, Ltd.

In April 2020, NCLC entered into an incremental assumption agreement which extended the maturity date of the revolving facility commitments under the Epic Credit Facility to March 3, 2022.

The revolving facility loans accrued interest at a per annum rate based on LIBOR plus a margin of 1.75 % in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 0.75 % in the case of base rate loans.

The Epic Credit Facility was repaid in July 2020 and terminated as discussed below.

Modifications

In April 2020, NCLC amended an aggregate amount of $ 386 million of export credit backed facilities that finance Norwegian Breakaway, Norwegian Getaway, Norwegian Escape, Norwegian Joy, Norwegian Bliss and Norwegian Encore to incorporate the terms of a 12 -month debt holiday initiative offered to the cruise industry by Euler Hermes Aktiengesellschaft (“Hermes”), the official export credit agency of Germany.

The debt holiday was initiated to provide interim debt service and financial covenant relief for borrowers during the current global COVID-19 pandemic with respect to their Hermes guaranteed financings.

8 unchanged sentences

After the end of the Deferral Period, the deferred amounts will amortize in eight equal semiannual installments.

Also, in April 2020, NCLC amended the $ 230 million credit agreement, dated as of January 10, 2019, with Nordea Bank ABP, New York Branch, as administrative agent, and certain other lenders.

The amendment extends the maturity date of the term loan by one year to January 10, 2022.

Also in April 2020, NCLC amended its $ 230 million credit agreement, dated as of January 10, 2019, with Nordea Bank ABP, New York Branch, as administrative agent, and certain other lenders.

The amendment extends the maturity date of the term loan to January 10, 2022.

From January 10, 2021 to January 10, 2022, the loan shall accrue interest at a per annum rate based on LIBOR plus a margin of 1.75 % in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 0.75 % in the case of base rate loans.

In May 2020, NCLC amended its $ 260 million credit agreement, dated as of May 15, 2019, with Bank of America, N.A., as administrative agent and collateral agent, and certain other lenders.

The amendment provides that (a) amortization payments due through May 1, 2021 will be deferred following the consummation of the successful debt and equity financing, which resulted in aggregate gross proceeds greater than the amount required for the extension and (b) the principal amount so deferred will constitute a separate tranche of loans under the facility (the “Deferred Jewel Loans”).

The Deferred Jewel Loans will accrue interest at a per annum rate based on LIBOR plus a margin of 2.50 % in the case

of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 1.50 % in the case of base rate loans.

The amendment provides that (a) amortization payments due through May 1, 2021 will be deferred following the consummation of certain debt and equity financings,

which resulted in aggregate gross proceeds greater than the amount required for the extension and (b) the principal amount so deferred will constitute a separate tranche of loans under the facility (the “Deferred Jewel Loans”).

The Deferred Jewel Loans will accrue interest at a per annum rate based on LIBOR plus a margin of 2.50 % in the case of Eurocurrency loans or at a per annum rate based on the base rate plus a margin of 1.50 % in the case of base rate loans.

After the end of the deferral period, the deferred loan payments will amortize in an aggregate principal amount equal to 25 % per annum in semiannual installments, and in the case of such payment due on the maturity date, an amount equal to the then unpaid principal amount of the Deferred Jewel Loans outstanding.

In addition, in May 2020, NCLH and NCLC entered into an investment agreement with an affiliate of L Catterton (the “Private Investor”), pursuant to which NCLC agreed to sell and issue to the Private Investor (the “Private Exchangeable Notes Transaction”) up to $ 400 million in aggregate principal amount of exchangeable senior notes due 2026 (the “Private Exchangeable Notes”).

The Private Exchangeable Notes Transaction is expected to close no later than May 29, 2020 upon the satisfaction of certain customary closing conditions.

The Private Exchangeable Notes will accrue interest at a rate of 7.0 % per annum for the first year post-issuance (which will accrete to the principal amount), 4.5 % per annum interest (which will accrete to the principal amount) plus 3.0 % per annum cash interest for the following four years and 7.5 % per annum in cash interest for the final year prior to maturity.

The Private Investor will have certain registration rights in respect of NCLH’s ordinary shares underlying the Private Exchangeable Notes and be subject to certain customary transfer, voting and standstill restrictions.

The Private Exchangeable Notes will be guaranteed by NCLH on a senior basis.

Holders may exchange their Private Exchangeable Notes at their option into redeemable preference shares of NCLC.

Upon exchange, the preference shares will be immediately and automatically exchanged, for each $ 1,000 principal amount of exchanged Private Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate.

The exchange rate will initially be approximately 82.6446 ordinary shares per $ 1,000 principal amount of Private Exchangeable Notes (equivalent to an initial exchange price of $ 12.10 per ordinary share), subject to future adjustment.

NCLC has the right to redeem all or a portion of the Private Exchange Notes at any time after the third anniversary of the issuance date at a price equal to 100 % of the accreted principal amount thereof if the market closing price of NCLH’s ordinary shares has been at least 250 % of the per share price implied by the exchange rate then in effect for at least 20 trading days during any 30 consecutive trading day period.

In May 2020, NCLC conducted a private offering of $ 675.0 million aggregate principal amount of 12.25 % senior secured notes due 2024 (the “Senior Secured Notes”) at 99 % original issue discount and a private offering of $ 862.5 million aggregate principal amount of 6.00 % exchangeable senior notes due 2024 (the “Exchangeable Notes”).

The Exchangeable Notes will be guaranteed by NCLH on a senior basis.

Holders may exchange their Exchangeable Notes at their option into redeemable preference shares of NCLC.

Upon exchange, the preference shares will be immediately and automatically exchanged, for each $ 1,000 principal amount of exchanged Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate.

The exchange rate will initially be 72.7273 ordinary shares per $ 1,000 principal amount of Exchangeable Notes (equivalent to an initial exchange price of approximately $ 13.75 per ordinary share), subject to adjustment.

The Senior Secured Notes will pay interest at 12.25 % per annum, semiannually on May 15 and November 15 of each year, commencing on November 15, 2020, to holders of record at the close of business on the immediately preceding May 1 and November 1, respectively.

NCLC entered into a Fifth Amended and Restated Credit Agreement, dated as of May 8, 2020, with a subsidiary of NCLC, as co-borrower and JPMorgan Chase Bank, N.A., as administrative agent, and lenders holding 87.57 % of the term loans outstanding (the “Term A Deferring Lenders”).

This revised facility provides that, among other things, (a) amortization payments due within the first year after effectiveness on the loans under the term A loans (the “Term A Loans”) held by the Term A Deferring Lenders will be deferred and (b) the principal amount so deferred will constitute a separate tranche of loans (the “Deferred Term A Loans”).

The Deferred Term A Loans will accrue interest (x) in the case of Eurocurrency loans, at a per annum rate based on LIBOR plus a margin of 2.50 % or (y) in the case of base rate loans, at a per annum rate based on the base rate plus a margin of 1.50 %.

After the end of the deferral period, the Deferred Term A Loans will amortize in an aggregate principal amount equal to 25 % per annum of the Deferred Term A Loans, in quarterly installments, and in the case of such payment due on the maturity date, an amount equal to the then unpaid principal amount of the Deferred Term A Loans outstanding.

The Term A Loans (other than the Deferred Term A Loans) that are held by the Term A Deferring Lenders shall constitute a separate class of loans (the “Legacy Term A Loans”), with the same terms as the Term A Loans under the Fourth Amended and Restated Credit Agreement, except that the amortization payments on the Legacy Term A Loans shall be deferred during the deferral period.

The Term A Loans that are held by lenders other than the Term A Deferring Lenders shall constitute a separate class of loans with the same terms as the Term A Loans under the Fourth Amended and Restated Credit Agreement.

In June 2020, NCLC amended the credit facilities secured by Seven Seas Explorer, Seven Seas Splendor, Riviera, Marina, Leonardo One and Leonardo Two to defer amortization with respect to certain of the debt outstanding under the agreements (the “Supplemental Agreements”).

The amendments for the Seven Seas Explorer, Seven Seas Splendor, Riviera, Marina, Leonardo One and Leonardo Two facilities summarized below provide $ 156 million of incremental liquidity to the Company through March 2021 and are subject to certain customary conditions.

The Supplemental Agreements of Seven Seas Explorer, Seven Seas Splendor, Riviera, and Marina provide that, among other things, (a) amortization payments due during the Deferral Period on the loans will be deferred and (b) the principal amount so deferred will constitute a separate tranche of loans (the “Deferred Loans”).

The Deferred Loans will accrue interest at a floating rate per annum based on six-month LIBOR plus a margin as follows:

Explorer newbuild loan

Splendor newbuild loan

Marina newbuild loan

Riviera newbuild loan

After the end of the Deferral Period, the Deferred Loans will amortize in an aggregate principal amount equal to 25 % per annum of the Deferred Loans, in semiannual installments.

Any breach of financial covenants under each respective facility during the Deferral Period under the Supplemental Agreements will not constitute an event of default.

In addition, consistent with our amendments to our Hermes-backed credit facilities described above, additional restrictions on restricted payments and certain other covenants were added.

The above noted amendments resulted in aggregate modification costs of $ 16.2 million and a loss on extinguishment of debt of $ 5.0 million, which are recognized in interest expense, net.

Secured Notes

In May 2020, NCLC conducted a private offering of $ 675.0 million aggregate principal amount of 12.25 % senior secured notes due May 15, 2024 (the “2024 Senior Secured Notes”) at 99 % original issue discount.

The 2024 Senior Secured Notes pay interest at 12.25 % per annum, semiannually on May 15 and November 15 of each year, commencing on November 15, 2020, to holders of record at the close of business on the immediately preceding May 1 and November 1, respectively.

NCLC may redeem the 2024 Senior Secured Notes, in whole or part, at any time prior to February 15, 2024, at a price equal to 100 % of the principal amount of the notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date and a “make-whole premium.” NCLC may redeem the 2024 Senior Secured Notes, in whole or in part, on or after February 15, 2024, at a price equal to 100 % of the principal amount of the notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date.

At any time on or prior to February 15, 2022, NCLC may choose to redeem up to 35 % of the aggregate principal amount of the Senior Secured Notes at a redemption price equal to 112.25 % of the principal amount of the Senior Secured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 65 % of the aggregate principal amount of the Senior Secured Notes issued remains outstanding following such redemption.

The Senior Secured Notes will be secured by first-priority interests in, among other things and subject to certain agreed security principles, shares of capital stock in certain subsidiary guarantors, two of our vessels, our material intellectual property and two islands that we use in the operations of our cruise business.

The Senior Secured Notes will also be guaranteed by our subsidiaries that own the property that will secure the Senior Secured Notes as well as certain additional subsidiaries whose assets will not secure the Senior Secured Notes.

The indenture governing the Senior

Secured Notes will include requirements that will, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness;

At any time prior to February 15, 2022, NCLC may choose to redeem up to 35 % of the aggregate principal amount of the 2024 Senior Secured Notes, with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 112.25 % of the principal amount of the 2024 Senior Secured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 65 % of the aggregate principal amount of the 2024 Senior Secured Notes issued remains outstanding following such redemption.

The 2024 Senior Secured Notes are secured by first-priority interests in, among other things and subject to certain agreed security principles, shares of capital stock in certain subsidiary guarantors, two of our vessels, our material intellectual property and two islands that we use in the operations of our cruise business.

The 2024 Senior Secured Notes are also guaranteed by our subsidiaries that own the property that secures the 2024 Senior Secured Notes as well as certain additional subsidiaries whose assets will not secure the 2024 Senior Secured Notes.

The indenture governing the 2024 Senior Secured Notes includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness;

(ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments;

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(vi) grant or assume certain liens;

and (vii) consolidate, merge or transfer all or substantially all of our assets.

This revised facility provides that, among other things, (a) amortization payments due within the first year after effectiveness will be deferred and (b) the principal amount so deferred will constitute a separate tranche of loans (the “Deferred Term A Loans”).

The Term A Loans (other than the Deferred Term A Loans) shall constitute a separate class of loans (the “Legacy Term A Loans), with the same terms as the Term A Loans under the Fourth Amended and Restated Credit Agreement, except that the amortization payments on the Legacy Term A Loans shall be deferred during the deferral period.

As a result of the aforementioned executed amendments, including those with contingent conditions that were satisfied on May 8, 2020, we have reclassified $ 1.4 billion of debt which was originally classified as a current liability based on the contractual maturities outstanding at March 31, 2020 to long-term debt.

The following are scheduled principal repayments on long-term debt including finance lease obligations as of March 31, 2020 for each of the next five years (in thousands):

April 1, 2020 - March 31, 2021

April 1, 2021 - March 31, 2022

April 1, 2022 - March 31, 2023

April 1, 2023 - March 31, 2024

April 1, 2024 - March 31, 2025

We are in the process of seeking consents to amend our export credit backed facilities to incorporate the terms of a 12-month debt holiday initiative offered to the cruise industry by Servizi Assicurativi del Commercio Estero (“SACE”), the official ECA of Italy, to refinance the amortization payments on such facilities, but we cannot guarantee the outcome of that process.

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

Subsequent to March 31, 2020, as part of the Hermes debt holiday we have obtained lender consents to waive financial covenants for the Deferral Period.

and (vii) consolidate, merge or transfer all or substantially all of their assets.

Exchangeable Notes

In May 2020, NCLC conducted a private offering of $ 862.5 million aggregate principal amount of 6.00 % exchangeable senior notes due May 15, 2024 (the “2024 Exchangeable Notes”).

The 2024 Exchangeable Notes are guaranteed by NCLH on a senior basis.

Holders may exchange their 2024 Exchangeable Notes at their option into redeemable preference shares of NCLC.

Upon exchange, the preference shares will be immediately and automatically exchanged, for each $ 1,000 principal amount of exchanged 2024 Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate.

The exchange rate will initially be 72.7273 ordinary shares per $ 1,000 principal amount of 2024 Exchangeable Notes (equivalent to an initial exchange price of approximately $ 13.75 per ordinary share).

The maximum exchange rate is 89.4454 and reflects potential adjustments to the initial exchange rate, which would only be made in the event of certain make-whole fundamental changes or tax redemption events.

The maximum exchange rate referred to above is also subject to adjustment for any stock split, stock dividend or similar transaction.

The 2024 Exchangeable Notes pay interest at 6.00 % per annum, semiannually on May 15 and November 15 of each year, commencing on November 15, 2020, to holders of record at the close of business on the immediately preceding May 1 and November 1, respectively.

In May 2020, NCLH and NCLC entered into an investment agreement with an affiliate of L Catterton (the “Private Investor”), pursuant to which NCLC agreed to sell and issue to the Private Investor (the “Private Exchangeable Notes Transaction”) up to $ 400 million in aggregate principal amount of exchangeable senior notes due June 1, 2026 (the “Private Exchangeable Notes”).

The Private Exchangeable Notes Transaction closed on May 28, 2020.

The Private Exchangeable Notes accrue interest at a rate of 7.0 % per annum for the first year post-issuance (which will accrete to the principal amount), 4.5 % per annum interest (which will accrete to the principal amount) plus 3.0 % per annum cash interest for the following four years and 7.5 % per annum in cash interest for the final year prior to maturity.

The Private Investor has certain registration rights in respect of NCLH’s ordinary shares underlying the Private Exchangeable Notes and is subject to certain customary transfer, voting and standstill restrictions.

The Private Exchangeable Notes are guaranteed by NCLH on a senior basis.

Holders may exchange their Private Exchangeable Notes at their option into redeemable preference shares of NCLC.

The maximum exchange rate is 90.9090 and reflects potential adjustments to the initial exchange rate, which would only be made in the event of certain make-whole fundamental changes or tax redemption events.

The maximum exchange rate referred to above is also subject to adjustment for any stock split, stock dividend or similar transaction.

The Private Exchangeable Notes contain a beneficial conversion feature, which resulted from a significant increase in our share price between the execution of the agreement and the issuance of the notes.

A beneficial conversion feature is a nondetachable conversion feature that is “in-the-money” at the commitment date.

The in-the-money portion, also known as the intrinsic value of the option, is recorded in equity, with an offsetting discount to the carrying amount of convertible debt to which it is attached.

The discount is amortized to interest expense over the life of the debt with adjustments to amortization upon full or partial conversions of the debt.

The beneficial conversion feature for the Private Exchangeable Notes is $ 131.2 million and is recognized within additional paid-in capital.

The net carrying amounts of the liability components of our exchangeable notes consist of the following (in thousands):

Principal amount

Unamortized debt discount, including deferred financing fees

Net carrying value

The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 3.9 years and 5.9 years for the 2024 Exchangeable Notes and Private Exchangeable Notes, respectively.

The following table presents the interest expense recognized related to the exchangeable notes (in thousands):

Three and Six Months

Ended June 30, 2020

Interest expense, including amortization of debt discounts and coupon interest

The effective interest rate is 7.09 % and 17.45 % for the 2024 Exchangeable Notes and the Private Exchangeable Notes, respectively.

As of June 30, 2020, the if-converted value above par was $ 143.1 million on available shares of 33.1 million and $ 168.1 million on available shares of 62.7 million for the Private Exchangeable Notes and 2024 Exchangeable Notes, respectively.

Debt Repayments

The following are scheduled principal repayments on our long-term debt including finance lease obligations as of June 30, 2020 for each of the next five years (in thousands):

July 1, 2020 - June 30, 2021

July 1, 2021 - June 30, 2022

July 1, 2022 - June 30, 2023

July 1, 2023 - June 30, 2024

July 1, 2024 - June 30, 2025

Debt Covenants

At June 30, 2020, we were in compliance with all of our debt covenants.

As part of the Hermes debt holiday and the Supplemental Agreements, we have obtained lender consents to waive compliance with financial covenants for the Deferral Period.

If we do not continue to remain in compliance with our covenants, we would have to seek additional amendments to our covenants.

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Generally, if an event of default under any debt agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which could have a material adverse impact to our operations and liquidity.

July Offerings

In July 2020, NCLC conducted a private offering of $ 750.0 million aggregate principal amount of 10.25 % senior secured notes due February 1, 2026 (the “2026 Senior Secured Notes”).

The 2026 Senior Secured Notes pay interest at 10.25 % per annum, semiannually on February 1 and August 1 of each year, commencing on February 1, 2021, to holders of record at the close of business on the immediately preceding January 15 and July 15, respectively.

NCLC may redeem the 2026 Senior Secured Notes, in whole or part, at any time prior to August 1, 2023, at a price equal to 100 % of the principal amount of the notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date and a “make-whole premium.” NCLC may redeem the 2026 Senior Secured Notes, in whole or in part, on or after August 1, 2023, at the redemption prices set forth in the indenture for the 2026 Senior Secures Notes plus accrued and unpaid interest to, but excluding, the redemption date.

At any time prior to August 1, 2023, NCLC may choose to redeem up to 35 % of the aggregate principal amount of the 2026 Senior Secured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 110.25 % of the principal amount of the 2026 Senior Secured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 65 % of the aggregate principal amount of the 2026 Senior Secured Notes issued remains outstanding following such redemption.

NCLC used a portion of the proceeds from the 2026 Senior Secured Notes to repay the $ 675 million plus accrued and unpaid interest outstanding under the Epic Credit Facility, which was secured by the Norwegian Epic.

Following the termination of the Epic Credit Facility, the vessel owned and operated by Norwegian Epic, Ltd.

was released as collateral, thereby enabling the 2026 Senior Secured Notes and certain of the related guarantees to be secured by a first-priority security interest in, among other things and subject to certain agreed security principles, the Norwegian Epic.

The indenture governing the 2026 Senior Secured Notes includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness;

(ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments;

(iii) make investments;

(iv) consummate certain asset sales;

(v) engage in certain transactions with affiliates;

(vi) grant or assume certain liens;

and (vii) consolidate, merge or transfer all or substantially all of their assets.

Also in July 2020, NCLC conducted a private offering of $ 450.0 million aggregate principal amount of 5.375 % exchangeable senior notes due August 1, 2025 (the “2025 Exchangeable Notes”).

The 2025 Exchangeable Notes are guaranteed by NCLH on a senior basis.

Holders may exchange their 2025 Exchangeable Notes at their option into redeemable preference shares of NCLC.

Upon exchange, the preference shares will be immediately and automatically exchanged, for each $ 1,000 principal amount of exchanged 2025 Exchangeable Notes, into a number of NCLH’s ordinary shares based on the exchange rate.

The exchange rate will initially be 53.3333 ordinary shares per $ 1,000 principal amount of 2025 Exchangeable Notes (equivalent to an initial exchange price of approximately $ 18.75 per ordinary share).

The maximum exchange rate is 66.6666 and reflects potential adjustments to the initial exchange rate, which would only be made in the event of certain make-whole fundamental changes or tax redemption events.

The maximum exchange rate referred to above is also subject to adjustment for any stock split, stock dividend or similar transaction.

The 2025 Exchangeable Notes pay interest at 5.375 % per annum, semiannually on February 1 and August 1 of each year, commencing on February 1, 2021, to holders of record at the close of business on the immediately preceding January 15 and July 15, respectively.

Fair Value Measurements and Derivatives

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We do not anticipate non-performance by any of our significant counterparties.

As of March 31, 2020, we had fuel swaps and collars, which are used to mitigate the financial impact of volatility of fuel prices pertaining to approximately 1.2 million metric tons of our projected fuel purchases, maturing through December 31, 2023 .

As of March 31, 2020, we had fuel swaps which were not designated as cash flow hedges.

As of June 30, 2020, we had fuel swaps which are used to mitigate the financial impact of volatility of fuel prices pertaining to approximately 1.1 million metric tons of our projected fuel purchases, maturing through December 31, 2023 .

As of June 30, 2020, we had fuel swaps which were not designated as cash flow hedges.

Due to a decrease in forecasted fuel consumption resulting from voyage cancellations due to COVID-19, we released into earnings fuel hedges of approximately 63 thousand metric tons of fuel as these forecasted transactions were no longer probable of occurring.

The agreements mature through October 31, 2020 .

As of March 31, 2020, we had foreign currency forward contracts, matured foreign currency options and matured foreign currency collars which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros.

The agreements mature through December 31, 2020 .

As of June 30, 2020, we had foreign currency forward contracts, matured foreign currency options and matured foreign currency collars which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros.

The notional amount of our foreign currency forward contracts was € 2.0 billion, or $ 2.2 billion based on the euro/U.S.

dollar exchange rate as of March 31, 2020.

As of March 31, 2020, we had interest rate swaps and collars, which are used to hedge our exposure to interest rate movements and manage our interest expense.

The notional amount of our outstanding debt associated with the interest rate swaps and collars was $ 0.7 billion as of March 31, 2020.

dollar exchange rate as of June 30, 2020.

As of June 30, 2020, we had interest rate swaps and collars, which are used to hedge our exposure to interest rate movements and manage our interest expense.

The notional amount of our outstanding debt associated with the interest rate swaps and collars was $ 0.7 billion as of June 30, 2020.

The derivatives measured at fair value and the respective location in the consolidated balance sheets include the following (in thousands):

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Foreign currency contracts

Prepaid expenses and other assets

Other long-term assets

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The following table discloses the gross and net amounts recognized within assets and liabilities (in thousands):

March 31, 2020

June 30, 2020

December 31, 2019

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Income (Loss) into Income

March 31, 2020

March 31, 2019

March 31, 2020

March 31, 2019

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Fuel contracts

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Total gain (loss) recognized in other comprehensive income

Location of Gain

(Loss) Reclassified

from Accumulated

Amount of Gain (Loss) Reclassified

Amount of Gain (Loss)

Other Comprehensive

from Accumulated Other

Recognized in Other

Income (Loss) into

Comprehensive

Comprehensive Income

Income (Loss) into Income

June 30, 2020

June 30, 2019

June 30, 2020

June 30, 2019

Fuel contracts

Other income (expense), net

Foreign currency contracts

Depreciation and amortization

Interest rate contracts

Interest expense, net

Total gain (loss) recognized in other comprehensive income

The effects of cash flow hedge accounting on the consolidated statements of operations include the following (in thousands):

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

Three Months Ended June 30, 2020

Three Months Ended June 30, 2019

( Expense), net

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Fuel contracts

Six Months Ended June 30, 2020

Six Months Ended June 30, 2019

( Expense), net

Total amounts of income and expense line items presented in the consolidated statements of operations in which the effects of cash flow hedges are recorded

Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income

Fuel contracts

Foreign currency contracts

Interest rate contracts

Amount of loss reclassified from accumulated other comprehensive income (loss) into income as a result that a forecasted transaction is no longer probable of occurring

Fuel contracts

The effects of derivatives not designated as hedging instruments on the consolidated statements of operations include the following (in thousands):

Amount of Gain (Loss) Recognized in Income

Three Months Ended

Six Months Ended

Location of Gain (Loss)

Derivatives not designated as hedging instruments

Fuel contracts

Other income (expense), net

Long-Term Debt

As of March 31, 2020 and December 31, 2019, the fair value of our long-term debt, including the current portion, was $ 8,595.3 million and $ 6,957.8 million, respectively, which was $ 156.6 million lower and $ 31.3 million higher, respectively, than the carrying values.

As of June 30, 2020 and December 31, 2019, the fair value of our long-term debt, including the current portion, was $ 11,142.8 million and $ 6,957.8 million, respectively, which was $ 590.2 million higher and $ 31.3 million higher, respectively, than the carrying values, excluding deferred financing costs.

The difference between the fair value and carrying value of our long-term debt is due to our fixed and variable rate debt obligations carrying interest rates that are above or below market rates at the measurement dates.

The fair value of our long-term debt was calculated based on estimated rates for the same or similar instruments with similar terms and remaining maturities, considered to be Level 2 inputs in the fair value hierarchy.

Market risk associated with our long-term variable rate debt is the potential increase in interest expense from an increase in interest rates.

The fair value of our long-term revolving and term loan facilities was calculated based on estimated rates for the same or similar instruments with similar terms and remaining maturities.

The fair value of our exchangeable notes considers observable risk-free rates;

credit spreads of the same of similar instruments;

and share prices, tenors, and historical and implied volatilities which are sourced from observable market data.

The inputs are considered to be Level 2 in the fair value hierarchy.

Market risk associated with our long-term variable rate debt is the potential increase in interest expense from an increase in interest rates or from an increase in share values.

Goodwill and Tradenames

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The guidance was adopted with an effective date of January 1, 2020, and therefore, our interim goodwill impairment tests as of March 31, 2020 were performed using only a Step 1 test.

The Step 1 Test uses discounted future cash flows and other market data to determine the fair value of the reporting units, which are all considered Level 3 inputs.

Our discounted cash flow valuation reflects our principal assumptions of 1) forecasted future operating results and growth rates, which have been prepared under multiple scenarios and are probability weighted, 2) forecasted capital expenditures for fleet growth and ship improvements and 3) a weighted average cost of capital of market participants.

The Step 1 Test used discounted future cash flows and other market data to determine the fair value of the reporting units at March 31, 2020, which are all considered Level 3 inputs.

Our discounted cash flow valuation reflected our principal assumptions of 1) forecasted future operating results and growth rates, which have been prepared under multiple scenarios and are probability weighted, 2) forecasted capital expenditures for fleet growth and ship improvements and 3) a weighted average cost of capital of market participants.

Historically, our Step 1 Test consisted of a combined approach using discounted future cash flows and market multiples to determine the fair value of the reporting units.

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We believe that this approach is the most representative method to assess fair value as it utilizes expectations of long-term growth as well as current market conditions.

For the tradenames, we use the relief from royalty method, which uses the same forecasts and discount rates from the discounted cash flow valuation in the goodwill assessment along with a tradename royalty rate assumption.

We believe that we have made reasonable estimates and judgments.

For the tradenames, we used the relief from royalty method, which uses the same forecasts and discount rates from the discounted cash flow valuation in the goodwill assessment along with a tradename royalty rate assumption.

We believe that we made reasonable estimates and judgments.

However, a change in our estimated future operating cash flows may result in a decline in fair value in future periods, which may result in a need to recognize additional impairment charges.

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Share Option Awards

The following is a summary of option activity under NCLH’s Amended and Restated 2013 Performance Incentive Plan for the three months ended March 31, 2020:

The following is a summary of option activity under NCLH’s Amended and Restated 2013 Performance Incentive Plan for the six months ended June 30, 2020:

Number of Share Option Awards

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Forfeited and cancelled

Outstanding as of March 31, 2020

Outstanding as of June 30, 2020

Restricted Share Unit Awards

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Additionally, on March 2, 2020, NCLH granted 0.6 million performance-based restricted share units to certain members of our management team, which vest upon the achievement of certain pre-established performance targets established for the 2020 and 2021 calendar years and the satisfaction of an additional time-based vesting requirement that generally requires continued employment through March 1, 2023.

The following is a summary of restricted share unit activity for the three months ended March 31, 2020:

The following is a summary of restricted share unit activity for the six months ended June 30, 2020:

Average Grant

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Forfeited or expired

Non-vested as of March 31, 2020

Non-vested as of June 30, 2020

(1) Number of performance-based restricted share units included assumes maximum achievement of performance targets.

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Three Months Ended

Six Months Ended

Payroll and related expense

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Project Leonardo will introduce an additional six ships, each approximately 140,000 Gross Tons with approximately 3,300 Berths, with expected delivery dates from 2022 through 2027, subject to certain conditions.

For the Regent brand, we have an order for one Explorer Class Ship to be delivered in 2023, which will be approximately 55,000 Gross Tons and 750 Berths.

For the Regent brand, we have an order for one Explorer Class Ship to be delivered in 2023, which will be approximately 55,000 Gross Tons

and 750 Berths.

For the Oceania Cruises brand, we have orders for two Allura Class Ships to be delivered in 2023 and 2025.

Each of the Allura Class Ships will be approximately 67,000 Gross Tons and 1,200 Berths.

We expect that the effects of COVID-19 on the shipyards where our ships are under construction (or will be constructed) will result in delays in ship deliveries and such delays may be prolonged.

The combined contract prices of the nine ships on order for delivery as of March 31, 2020 was approximately € 7.1 billion, or $ 7.8 billion based on the euro/U.S.

dollar exchange rate as of March 31, 2020.

The combined contract prices of the nine ships on order for delivery as of June 30, 2020 was approximately € 7.1 billion, or $ 8.0 billion based on the euro/U.S.

dollar exchange rate as of June 30, 2020.

We have obtained export credit financing which is expected to fund approximately 80 % of the contract price of each ship, subject to certain conditions.

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Subsequently, two similar class action complaints were also filed in the United States District Court for the Southern District of Florida naming the same defendants.

These complaints assert claims, purportedly brought on behalf of a class of shareholders, under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and allege that the Company made false and misleading statements to the market and customers about COVID-19 and the impact on its

Each of the complaints seek unspecified damages and an award of costs and expenses, including reasonable attorneys’ fees, on behalf of a purported class of purchasers of our ordinary shares between February 20, 2020 and either March 11, 2020 or March 12, 2020.

We believe that the allegations contained in the complaints are without merit and intend to defend the complaints vigorously.

We cannot predict at this point the length of time that these actions will be ongoing or the liability, if any, which may arise therefrom.

On July 31, 2020, a consolidated amended class action complaint was filed by lead plaintiff’s counsel.

The complaint asserts claims, purportedly brought on behalf of a class of shareholders, under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, and allege that the Company made false and misleading statements to the market and customers about COVID-19.

The complaint seeks unspecified damages and an award of costs and expenses, including reasonable attorneys’ fees, on behalf of a purported class of purchasers of our ordinary shares between February 20, 2020 and March 10, 2020.

We believe that the allegations contained in the complaint are without merit and intend to defend the complaint vigorously.

We cannot predict at this point the length of time that this action will be ongoing or the liability, if any, which may arise therefrom.

In addition, in March 2020 the Florida Attorney General announced an investigation related to the Company’s marketing during the COVID-19 outbreak.

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Helms-Burton Act

In August 2019, two lawsuits were filed against Norwegian Cruise Line Holdings Ltd.

On August 27, 2019, two lawsuits were filed against Norwegian Cruise Line Holdings Ltd.

in the United States District Court for the Southern District of Florida under Title III of the Cuban Liberty and Solidarity (Libertad) Act of 1996, also known as the Helms-Burton Act.

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On April 14, 2020, the district court granted Havana Docks Corporation’s motion to reconsider and vacated its order dismissing the claim, allowing Havana Docks Corporation to file an amended complaint on April 16, 2020.

On April 24, 2020, we filed a motion seeking permission to appeal the district court’s order.

On April 24, 2020, we filed a motion seeking permission to appeal the district court’s order which was subsequently denied.

We believe we have meritorious defenses to the claims and intend to vigorously defend these matters.

As of March 31, 2020, we are unable to reasonably estimate any potential contingent loss from these matters due to a lack of legal precedence.

As of June 30, 2020, we are unable to reasonably estimate any potential contingent loss from these matters due to a lack of legal precedence.

In the normal course of our business, various other claims and lawsuits have been filed or are pending against us.

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Other Contingencies

The Company also has agreements with its credit card processors that govern approximately $ 1.3 billion at March 31, 2020 in advance ticket sales that have been received by the Company relating to future voyages.

The Company also has agreements with its credit card processors that govern approximately $ 0.9 billion at June 30, 2020 in advance ticket sales that have been received by the Company relating to future voyages.

These agreements allow the credit card processors to require under certain circumstances, including the existence of a material adverse change, excessive chargebacks and other triggering events, that the Company maintain a reserve which could be satisfied by posting collateral.

The Company is in discussions regarding the nature of collateral, if any, relating to these agreements.

Currently, we have agreed to provide a reserve consisting of $ 70 million of cash and preliminarily agreed to provide second priority liens on certain ships with a collective equity value of approximately $ 700 million based on appraisals as of December 31, 2019, which could be increased or decreased based on certain conditions.

If we do not meet an agreed upon minimum liquidity in the future, we may be required to pledge additional collateral and/or post cash reserves or take other actions that may reduce our liquidity.

Collateral may be released upon satisfaction of certain financial metrics.

Other Income (Expense), Net

For the three months ended March 31, 2020, other income (expense), net was income of $ 5.8 million primarily due to gains from foreign currency exchange offset by losses on fuel hedges released into earnings as a result of the forecasted transactions no longer being probable.

For the three months ended March 31, 2019, other income (expense), net was expense of $ 0.4 million primarily due to foreign currency exchange losses.

For the three months ended June 30, 2020, other income (expense), net consisted of an expense of $ 14.4 million primarily due to losses from foreign currency exchange and losses on fuel hedges released into earnings as a result of the forecasted transactions no longer being probable.

For the six months ended June 30, 2020, other income (expense), net consisted of expense of $ 8.6 million primarily due to losses on fuel hedges released into earnings as a result of the forecasted transactions no longer being probable offset by gains from foreign currency exchange.

For the three and six months ended June 30, 2019, other income (expense), net was income of $ 3.6 million and $ 3.2 million, respectively, primarily due to gains from insurance proceeds and a litigation settlement partially offset by foreign currency exchange losses.

Income Tax Benefit

For the three months ended March 31, 2020 and 2019, we had an income tax benefit of $ 6.2 million and $ 33.8 million, respectively.

For the three months ended March 31, 2020, the tax benefit is due to operating losses and the reversal of a valuation allowance.

For the three and six months ended June 30, 2020, we had an income tax benefit of $ 9.1 million and $ 15.3 million, respectively.

For the three and six months ended June 30, 2019, we had income tax expense of $ 6.1 million and an income tax benefit of $ 27.7 million, respectively.

For the three and six months ended June 30, 2020, the tax benefit is due to operating losses and the reversal of a valuation allowance.

During 2018, we implemented certain tax restructuring strategies that created our ability to utilize the net operating loss carryforwards of Prestige, for which we had previously provided a full valuation allowance.

As a result, we recorded a tax benefit of $ 35.7 million in connection with the reversal of substantially all of the valuation allowance in March 2019.

The Company is currently analyzing the impact of the recent financing transactions on its ability to utilize its net operating losses under Section 382 of the Internal Revenue Code.

Supplemental Cash Flow Information

For the three months ended March 31, 2020 and 2019, we had non-cash investing activities in connection with property and equipment of $ 12.0 million and $ 9.8 million, respectively.

For the six months ended June 30, 2020 and 2019, we had non-cash investing activities in connection with property and equipment of $ 7.2 million and $ 33.6 million, respectively.

Related Party Disclosures

NCLC, as issuer, NCLH, as guarantor, and U.S.

Bank National Association, as trustee are all parties to an indenture, dated May 28, 2020 (the “Indenture”) related to the Private Exchangeable Notes, which are currently held by the Private Investor.

The terms of the Indenture are more fully described under Note 8 — “Long-Term Debt”.

Based on the initial exchange rate, the Private Investor beneficially owned approximately 11 % of NCLH’s outstanding ordinary shares as of June 30, 2020.

The initial exchange rate in the Private Exchangeable Notes may be adjusted in the event of certain make-whole fundamental changes or tax redemption events (each, as described in the Indenture), but the maximum number of NCLH ordinary shares issuable upon an exchange in the event of such an adjustment would not exceed 46,577,947 .

The Private Exchangeable Notes also contain certain anti-dilution provisions that could subject the exchange rate to additional adjustment if certain events occur.

NCLH, NCLC and the Private Investor also entered into an investor rights agreement dated May 28, 2020 (the “Investor Rights Agreement”) which provides that, among other things, the Private Investor is entitled to nominate one person who will be appointed to the board of directors of NCLH until the first date on which the Private Investor no longer beneficially owns in the aggregate at least 50 % of the number of NCLH’s ordinary shares issuable upon exchange of the Private Exchangeable Notes beneficially owned by the Private Investor in the aggregate as of May 28, 2020 (subject to certain adjustments).

The Investor Rights Agreement also provides for customary registration rights for the Private Investor and its affiliates, including demand and piggyback registration rights, contains customary transfer restrictions and provides that the Private Investor and its affiliates are subject to a voting agreement with respect to certain matters during a specified period of time.

Subsequent Events

In May 2020, the Company offered 36,363,636 ordinary shares, par value $ 0.001 per share to the public at a price of $ 11.00 per share.

The underwriters were offered an option to acquire from us up to 5,454,545 additional shares, which they have exercised.

In July 2020, NCLH offered 19,166,667 ordinary shares, par value $ 0.001 per share to the public at a price of $ 15.00 per share, which includes 2,500,000 ordinary shares issued in connection with the underwriters’ full exercise of their option to acquire additional ordinary shares.

Underwriting discounts and commissions were $ 0.525 per share.

The net proceeds from the offering were $ 443.9 million after deducting the underwriters’ discounts and commissions.

Both NCLH and NCLC undertook a number of actions related to debt financing and equity-linked financing, which are described in Note 8— “Long-Term Debt”.

The net proceeds from the offering were $ 277.4 million after deducting the underwriters’ discounts and commissions, but before other fees and expenses.

Both NCLH and NCLC undertook actions related to debt financing and equity-linked financing in July 2020, which are described in Note 8 — “Long-Term Debt”.

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 1. Financial Statements