What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-11-09 · 246 added, 404 removed, 428 unchanged (60% of the section changed)

4 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

Passenger ticket

11 unchanged sentences

Total other operating expense

Operating income (loss)

Operating loss

( 1,824,061 )

3 unchanged sentences

Total non-operating income (expense)

Net income (loss) before income taxes

Net loss before income taxes

( 1,368,464 )

( 1,887,145 )

Income tax benefit (expense)

Net income (loss)

( 1,370,192 )

( 1,880,972 )

Weighted-average shares outstanding

Earnings (loss) per share

Loss per share

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

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Loss

(in thousands)

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

( 1,370,192 )

Other comprehensive income (loss):

( 1,880,972 )

Other comprehensive loss:

Shipboard Retirement Plan

Cash flow hedges:

Net unrealized gain (loss)

Net unrealized loss

Amount realized and reclassified into earnings

Total other comprehensive income (loss)

Total comprehensive income (loss)

Total other comprehensive loss

Total comprehensive loss

( 1,421,293 )

( 2,164,731 )

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

2 unchanged sentences

(in thousands, except share data)

September 30,

Current assets:

19 unchanged sentences

490,000,000 shares authorized;

300,070,311 shares issued and 275,619,452 shares outstanding at September 30, 2020 and 237,533,270 shares issued and 213,082,411 shares outstanding at December 31, 2019

369,932,865 shares issued and outstanding at March 31, 2021 and 315,636,032 shares issued and outstanding at December 31, 2020

Additional paid-in capital

Accumulated other comprehensive income (loss)

Retained earnings

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

( 1,253,926 )

Retained earnings (deficit)

( 1,660,011 )

5 unchanged sentences

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities

Net income (loss)

( 1,370,192 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

( 1,880,972 )

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization expense

1 unchanged sentence

Deferred income taxes, net

Loss on derivatives

(Gain) loss on derivatives

Loss on extinguishment of debt

9 unchanged sentences

Advance ticket sales

Net cash provided by (used in) operating activities

( 1,918,626 )

Net cash used in operating activities

Cash flows from investing activities

Additions to property and equipment, net

Cash received on settlement of derivatives

Cash paid on settlement of derivatives

2 unchanged sentences

Repayments of long-term debt

( 2,882,354 )

Proceeds from long-term debt

2 unchanged sentences

Net share settlement of restricted share units

Purchases of treasury shares

Early redemption premium

Deferred financing fees

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Effect of exchange rates on cash and cash equivalents

6 unchanged sentences

(in thousands)

Three Months Ended September 30, 2020

Comprehensive

Shareholders’

Income (Loss)

Balance, June 30, 2020

( 1,253,926 )

Share-based compensation

Issuance of shares under employee related plans

Common share issuance proceeds, net

Net share settlement of restricted share units

Other comprehensive income, net

Balance, September 30, 2020

( 1,253,926 )

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Comprehensive

2 unchanged sentences

Balance, December 31, 2020

( 1,253,926 )

Share-based compensation

2 unchanged sentences

Net share settlement of restricted share units

Beneficial conversion feature

Cumulative change in accounting policy

2 unchanged sentences

( 1,370,192 )

Balance, September 30, 2020

Balance, March 31, 2021

( 1,660,011 )

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 September 30, 2019

Three Months Ended March 31, 2020

Comprehensive

1 unchanged sentence

Income (Loss)

Balance, June 30, 2019

Balance, December 31, 2019

( 1,253,926 )

1 unchanged sentence

Issuance of shares under employee related plans

Treasury shares

Net share settlement of restricted share units

Cumulative change in accounting policy

Other comprehensive loss, net

Balance, September 30, 2019

( 1,880,972 )

Nine Months Ended September 30, 2019

Comprehensive

Shareholders’

Income (Loss)

Balance, December 31, 2018

Share-based compensation

Issuance of shares under employee related plans

Treasury shares

Net share settlement of restricted share units

Other comprehensive loss, net

Balance, September 30, 2019

( 1,880,972 )

Balance, March 31, 2020

( 1,253,926 )

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

12 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 September 30, 2020, we had 28 ships with approximately 59,150 Berths and had orders for nine additional ships to be delivered through 2027.

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

As of March 31, 2021, we had 28 ships with approximately 59,150 Berths and had orders for nine additional ships to be delivered through 2027.

Due to the novel coronavirus (“COVID-19”), we have temporarily suspended all global cruise voyages through June 2021 and announced a limited resumption of cruises beginning in July 2021.

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

6 unchanged sentences

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 December 31, 2020.

Additionally, Regent has suspended its 2021 World Cruise along with voyages departing through April 2021 on one ship and voyages in Australia through February 2021, Oceania Cruises has cancelled its World Cruise through May 18, 2021 and voyages in Australia through February 2021, and Norwegian has cancelled all voyages aboard three of its ships through March 30, 2021.

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 October 31, 2020.

On October 30, 2020, the CDC issued a Framework for Conditional Sailing Order (the “Conditional Order”) that introduces a phased approach for the resumption of passenger cruises.

These phases include:

● the establishment of laboratory testing of crew onboard cruise ships in U.S.

● simulated voyages designed to test a cruise ship operator’s ability to mitigate COVID-19 on cruise ships;

● a certification process;

● a return to passenger voyages in a manner that mitigates the risk of COVID-19 introduction, transmission or spread among passenger and crew onboard ships and ashore to communities.

The Conditional Order replaces the CDC’s No Sail Order that expired on October 31, 2020 and will remain in effect until the earlier of a) the expiration of the Secretary of Health and Human Services’ declaration that COVID-19 constitutes a public health emergency, b) the CDC Director rescinds or modifies the Conditional Order based on specific public health or other considerations, or c) November 1, 2021.

While the Conditional Order is an important step on the path to the safer and healthier resumption of cruising in the U.S., many uncertainties remain as to the specifics and timing of implementation, administration and costs of the requirements of the Conditional Order, some of which may be significant.

Additionally, pursuant to the Conditional Order, the CDC may issue additional requirements through technical instructions or orders as needed and the phases described above may be subject to change based on public health considerations, including the trajectory of the pandemic and the ability of cruise ship operators to successfully employ measures that mitigate the risk of COVID-19.

The duration of any voluntary suspensions we have implemented and the resumption of operations both inside and outside of the United States will be dependent, in part, on our ability to comply with the Conditional Order, the severity and duration of the COVID-19 pandemic, the lifting of various travel restrictions and travel bans issued by various countries and communities around the world, as well as the availability of ports.

We continue to expect a gradual phased relaunch of our ships after the voyage suspension period, with our ships initially operating at reduced occupancy levels.

The timing for bringing our ships back to service and percentage of fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, including further resurgences of COVID-19, our ability to comply with the Conditional Order, port availability, travel restrictions and advisories and our ability to re-staff our ships and implement new health and safety protocols.

Due to the continued spread of COVID-19, ongoing 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.

As of the date of this filing and through June 2021, we have temporarily suspended all global cruise voyages and announced a limited resumption of cruises beginning in July 2021.

Significant events affecting travel, including COVID-19, typically have an impact on 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 the pandemic.

Due to the unknown duration and extent of the COVID-19 pandemic, travel restrictions and advisories, uncertainties around our ability to comply with the Conditional Order, the potential unavailability of ports and/or destinations, unknown cancellations and timing of redeployments and a general impact on consumer sentiment regarding cruise travel, we cannot predict when our full fleet will be back in service at historical occupancy levels and, accordingly, the full effect on our financial performance and financial condition cannot be quantified at this time;

however, we will 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 then existing $ 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 September 30, 2020, the Company received additional financing through various debt financings and equity offerings in May and July 2020 totaling $ 3.9 billion in gross proceeds.

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

The equity offerings resulted in 60,984,848 shares being issued in exchange for gross proceeds of $ 747.5 million.

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, 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.

The quantitative liquidity analysis reflects management’s principal assumptions related to (i) the Company’s ability to operate and redeployment of the fleet not currently in service, (ii) forecasted cash collections for future voyages and (iii) forecasted liquidity requirements for ongoing operations.

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.

In January 2021, we amended our Senior Secured Credit Facility to further defer certain amortization payments due prior to June 30, 2022 and to waive certain financial and other covenants through December 31, 2022.

In February 2021, we amended certain of our export-credit backed facilities to further defer amortization payments through March 31, 2022, and we amended all of our export-credit backed facilities to suspend certain financial covenants through December 31, 2022.

In connection with such amendments of our Senior Secured Credit Facility and our export-credit backed facilities,

our minimum liquidity requirement was increased to $ 200 million and such requirement applies through December 31, 2022.

In March 2021, the Company received additional financing through various debt financings and an equity offering, collectively totaling approximately $ 2.7 billion in gross proceeds.

From the proceeds, approximately $ 1.5 billion was used to extinguish debt.

Refer to Note 6 – “Long-Term Debt” for further details of the above transactions.

In April 2021, we announced a limited relaunch of certain cruise voyages embarking outside of the U.S.

beginning in July 2021 with our ships initially operating at reduced occupancy levels.

The timing for bringing our ships back to service and the percentage of our fleet in service will depend on a number of factors including, but not limited to, the duration and extent of the COVID-19 pandemic, further resurgences and new variants of COVID-19, the availability, distribution, rate of public acceptance and efficacy of vaccines and therapeutics for COVID-19, our ability to comply with governmental regulations, port availability, travel restrictions, bans and advisories, and our ability to re-staff our ships and implement new health and safety protocols.

The estimation of our future cash flow projections includes numerous assumptions that are subject to various risks and uncertainties.

Upon the relaunch of cruise voyages, our principal assumptions for future cash flow projections include:

● Expected gradual phased relaunch at reduced occupancy levels;

● Forecasted cash collections primarily upon completion of future voyages and the payment of cash refunds for any further cancellations, in accordance with the terms of our credit card processing agreements (see Note 9 - “Commitments and Contingencies”);

● Expected incremental expenses for resumption of cruise voyages, including the maintenance of and compliance with additional health and safety protocols.

Due to the unknown duration and extent of the COVID-19 pandemic, travel restrictions, bans and advisories, uncertainties around our ability to comply with governmental regulations, the potential unavailability of ports and/or destinations, voyage cancellations and timing of redeployments, and a general impact on consumer sentiment regarding cruise travel, we cannot predict when our full fleet will be back in service at historical occupancy levels.

Until our phased relaunch begins, our projected liquidity requirements reflect our principal assumptions surrounding the costs of the announced limited relaunch of certain cruise voyages, ongoing operating costs during the suspension of cruise voyages, as well as liquidity requirements for financing costs and necessary capital expenditures, and our ability to continue to implement cash conservation strategies, including, but not limited to:

● Moving our ships that are not in service to minimum manning levels, which we expect would result in further reductions in crew payroll costs, fuel consumption, and maintenance costs;

● Further reductions in general operating expenses;

● Further reductions in discretionary capital expenditures including cancellation or reduction in scope of certain Dry-docks.

We cannot make assurances that our assumptions used to estimate our liquidity requirements will not change due to the unique and unpredictable nature of the pandemic.

Accordingly, the full effect of our suspension of cruise voyages on our financial performance and financial condition cannot be quantified at this time.

We have made reasonable estimates and judgments of the impact of COVID-19 within our financial statements and there may be material changes to those estimates in future periods.

We will report a net loss for the three months ending June 30, 2021 and expect to report a net loss until we are able to resume regular voyages, including for the year ending December 31, 2021.

Based on these actions and assumptions regarding the impact of COVID-19, and considering our available liquidity including cash and cash equivalents of $ 3.5 billion at March 31, 2021, we have concluded that after implementing the above cash conservation strategies, we have sufficient liquidity to satisfy our obligations for at least the next twelve months even in the event we do not resume cruise voyages during that period.

Subsequent to the liquidity assessment period (twelve months from the issuance of these financial statements), the Company may require additional liquidity to meet ongoing obligations, including debt amortization payments and ship milestone payments net of export-credit financing, of approximately $ 670 million that are due in July 2022 and its minimum liquidity covenant requirements.

The Company plans to take additional steps following the issuance of these financial statements to increase its liquidity, which may include additional debt and/or equity financing and potential further renegotiations of its debt amortization payments, newbuild payments and covenants.

The extent of these actions to increase the Company’s liquidity will be dependent in part on the timing of the resumption of cruise voyages, which despite the Company’s expectations for a limited relaunch beginning July 2021, is uncertain.

There can be no assurances that the Company will be successful in generating the additional liquidity necessary to meet its obligations beyond twelve months from the issuance of these financial statements on terms acceptable to the Company or at all.

If the Company is unable to satisfy or renegotiate its minimum liquidity covenant requirements, it could have a significant adverse effect on the Company’s business, financial condition and operating results.

Basis of Presentation

2 unchanged sentences

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

however, our cruise voyages were completely suspended during the summer months of 2020 due to 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 July 8, 2020.

however, our cruise voyages have been completely suspended since March 2020 due to 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, 2020, which are included in our most recent Annual Report on Form 10-K filed with the SEC on February 26, 2021.

Reclassifications

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

Earnings (Loss) Per Share

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

Loss Per Share

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

Three Months Ended

Nine Months Ended

September 30,

Net income (loss)

( 1,370,192 )

( 1,880,972 )

Basic weighted-average shares outstanding

1 unchanged sentence

Diluted weighted-average shares outstanding

Basic earnings (loss) per share

Diluted earnings (loss) per share

For the three months ended September 30, 2020 and 2019, a total of 124.0 million and 3.5 million shares, respectively, and for the nine months ended September 30, 2020 and 2019, a total of 63.4 million and 4.2 million shares, respectively, have been excluded from diluted weighted-average shares outstanding because the effect of including them would have been anti-dilutive.

Basic loss per share

Diluted loss per share

For the three months ended March 31, 2021 and 2020, a total of 120.8 million and 7.0 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 loss of $ 12.3 million and a gain of $ 9.9 million for the three months ended September 30, 2020 and 2019, respectively, and a loss of $ 2.6 million and a gain of $ 5.6 million for the nine months ended September 30, 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 (expense), net.

We recognized gains of $ 4.8 million and $ 19.9 million for the three months ended March 31, 2021 and 2020, respectively, related to transactions denominated in other currencies.

Depreciation and Amortization Expense

2 unchanged sentences

Recently Issued Accounting Guidance

In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”),- which reduces the number of accounting models for convertible debt instruments and enhances transparency in disclosures.

One model which is being eliminated is the bifurcation of embedded conversion features that are not accounted for separately as derivatives.

A convertible debt instrument previously accounted for under this model will be accounted for as a single liability measured at its amortized cost.

Adoption of the provisions of ASU 2020-06 are required for fiscal years beginning after December 15, 2021;

however, early adoption is permitted.

We will early adopt this guidance on January 1, 2021 on a modified retrospective basis.

As a result of the adoption, the beneficial conversion feature on the Private Exchangeable Notes (as defined and discussed in Note 8 – “Long-Term Debt”) which is included in additional paid-in-capital will be reclassified to long-term debt.

Any related interest which has been recognized will be adjusted through retained earnings.

Additional disclosures will be added as necessary.

In March 2020, the FASB issued ASU No.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2020-04, Reference Rate Reform (Topic 848):

2 unchanged sentences

Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2022.

We are currently evaluating the impact of ASU 2020-04 on our consolidated financial statements.

As of March 31, 2021, we have not adopted any expedients and exceptions under ASU 2020-04.

We will continue to evaluate the impact of ASU 2020-04 on our consolidated financial statements.

Revenue Recognition

3 unchanged sentences

Three Months Ended

Nine Months Ended

September 30,

North America

1 unchanged sentence

Total revenue

Amounts for the three months ended March 31, 2021 were excluded as the information was not meaningful.

North America includes the U.S., the Caribbean, Canada and Mexico.

12 unchanged sentences

Receivables from customers are included within accounts receivable, net.

As of September 30, 2020 and December 31, 2019, our receivables from customers were $ 4.1 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.

As of March 31, 2021 and December 31, 2020, our receivables from customers were $ 1.1 million and $ 1.0 million, respectively.

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.

The future cruise credits are not contracts, and therefore, guests who have elected this option are excluded from our contract liability balance;

Future cruise credits that have been issued are valid for any sailing through December 31, 2022, and we may extend this offer.

The future cruise credits are not contracts, and therefore, guests who elected this option are excluded from our contract liability balance;

however, the credit for the original amount paid is included in advance ticket sales.

Our contract liabilities are included within advance ticket sales.

As of September 30, 2020 and December 31, 2019, our contract liabilities were $ 33.4 million and $ 1.4 billion, respectively.

Of the amounts included within contract liabilities as of September 30, 2020, approximately 20 % were refundable in accordance with our cancellation policies.

For the nine months ended September 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 $ 15.5 million and $ 160.4 million in costs to obtain these contracts, consisting of protected commissions, including those paid to employees, and credit card fees, were recognized in earnings during the three and nine months ended September 30, 2020, respectively.

Intangible Assets

We evaluate goodwill and trade names 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 December 31, 2020.

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

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 nine months ended September 30, 2020 are as follows (in thousands):

Reporting Unit

Balance, December 31, 2019

Impairment loss

( 1,290,797 )

Balance, September 30, 2020

We also impaired our trade names 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 trade names 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):

September 30, 2020

Gross Carrying

Period (Years)

Customer relationships

Total intangible assets subject to amortization

December 31, 2019

Gross Carrying

Period (Years)

Customer relationships

Total intangible assets subject to amortization

The aggregate amortization expense for intangible assets is as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Amortization expense

The following table sets forth the Company’s estimated aggregate amortization expense for each of the five years below (in thousands):

Year Ended December 31,

As of March 31, 2021 and December 31, 2020, our contract liabilities were $ 29.3 million and $ 23.1 million, respectively.

Of the amounts included within advance ticket sales, the vast majority of deposits held were refundable in accordance with our cancellation policies and it is uncertain to what extent guests may request refunds.

Refunds payable to guests are included in accounts payable.

For the three months ended March 31, 2021, no revenue recognized was included in the contract liability balance at the beginning of the period.

The revenue recognized in the three months ended March 31, 2020 that was included in contract liabilities as of the beginning of the period was $ 0.9 billion.

For cruise vacations that had been cancelled by us due to COVID-19, approximately $ 14.8 million and $ 92.0 million in costs to obtain these contracts, consisting of protected commissions, including those paid to employees, and credit card fees, were recognized in earnings during the three months ended March 31, 2021 and 2020, respectively.

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

2 unchanged sentences

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 of September 30, 2020, our port facilities were remeasured with a downward adjustment of $ 9.4 million to both other long-term assets and accrued expenses and other liabilities.

During the three months ended March 31, 2021, our port facilities were remeasured with a downward adjustment of $ 5.2 million to both other long-term assets and accrued expenses and other liabilities.

Another $ 1.9 million was reclassified from accrued expenses and other liabilities to other long-term assets as a result of contractual extensions.

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

2 unchanged sentences

Balance Sheet location

September 30, 2020

March 31, 2021

December 31, 2020

14 unchanged sentences

Accumulated Other Comprehensive Income (Loss)

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

Nine Months Ended September 30, 2020

Accumulated other comprehensive income (loss) for the three months ended March 31, 2021 was as follows (in thousands):

Three Months Ended March 31, 2021

Comprehensive

4 unchanged sentences

Accumulated other comprehensive income (loss) at end of period

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

Nine Months Ended September 30, 2019

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

Three Months Ended March 31, 2020

Comprehensive

5 unchanged sentences

(1) We refer you to Note 7 – “Fair Value Measurements and Derivatives” for the affected line items in the consolidated statements of operations.

(2) Amortization of prior-service cost and actuarial loss reclassified to other income, net.

(2) Amortization of prior-service cost and actuarial loss reclassified to other income (expense), net.

(3) Includes $ 44.4 million of loss expected to be reclassified into earnings in the next 12 months.

Property and Equipment, net

Property and equipment, net increased $ 318.1 million for the nine months ended September 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 for the nine months ended September 30, 2020.

Long-Term Debt

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 September 30, 2020 borrowings under the Revolving Loan Facility bear interest at LIBOR plus a margin of 1.75 %.

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.

In July 2020, NCLC entered into a EUR 31.2 million loan facility for newbuild related payments.

The facility bears interest at a rate of 2.5 % per annum.

As of September 30, 2020, EUR 21.6 million was drawn under this facility, which matures on April 30, 2021.

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.

The amended agreements provide that, among other things, (a) amortization payments due from April 1, 2020 to March 31, 2021 (the “Deferral Period”) on the loans will be deferred and (b) the principal amounts so deferred will constitute separate tranches of loans under the facilities.

In January 2021, NCLC entered into an amendment agreement (the “First Amendment”), which amends the Amended and Restated Credit Agreement, dated as of May 8, 2020 (the “Fifth ARCA” and, as amended by the First Amendment, the “Senior Secured Credit Facility”).

The First Amendment provides that, among other things, (a) amortization payments due between the First Amendment effective date and prior to June 30, 2022 (the “First Amendment Deferral Period”) on the Legacy Term Loan A and Term Loan A-1 held by lenders that have consented to such deferral (the “First Amendment Deferring Lenders”) are deferred and such deferred principal amount constitutes a separate tranche of loans (the “Deferred Term Loan A-1”) and (b) the tranche of loans held by certain lenders (the “Fifth ARCA Deferring Lenders”) on which amortization payments due within the first year after effectiveness of the Fifth ARCA were deferred (the “Deferred Term Loan A”) of First Amendment Deferring Lenders were converted into Deferred Term Loan A-1 loans.

The class of loans constituting the Term Loan A Facility (other than the Deferred Term Loan A) held by the Fifth ARCA Deferring Lenders (the “Term Loan A-1”) and the class of loans constituting the portion of the Term Loan A

Facility that is held by lenders other than the Fifth ARCA Deferring Lenders (the “Legacy Term Loan A”) that were held by the First Amendment Deferring Lenders (other than amounts converted into the Deferred Term Loan A-1) constitute a separate tranche of loans (the “Term Loan A-2”), with the same terms as the Legacy Term Loan A and Term Loan A-1 under the Fifth ARCA, except that amortization payments on the Term Loan A-2 shall be deferred during the First Amendment Deferral Period and thereafter such Term Loan A-2 will amortize in an aggregate principal amount equal to approximately 5.88 % per annum and the interest rate for Term Loan A-2 shall be modified as described below.

The Deferred Term Loan A-1 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 First Amendment Deferral Period, the Deferred Term Loan A-1 will amortize in an aggregate principal amount equal to 25 % per annum of the Deferred Term Loan A-1 outstanding immediately after the consummation of the First Amendment, 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 Loan A-1 outstanding.

The Legacy Term Loan A, Term Loan A-1 and Deferred Term Loan A that were held by lenders other than the First Amendment Deferring Lenders constitute separate classes of loans and were unchanged.

The First Amendment resulted in deferred amortization payments aggregating approximately $ 70 million prior to June 30, 2022.

The First Amendment provides that, (a) from the First Amendment effective date to and including December 31, 2022 (the “Covenant Relief Period”) the testing of the loan to value, debt to capitalization and EBITDA to debt service covenants under the Senior Secured Credit Facility will be suspended and the free liquidity test will be replaced by a covenant to maintain at least $ 200 million in free liquidity, certified on a monthly basis.

During the Covenant Relief Period the interest rate for Term Loan A-2 and revolving loans held by Lenders that consented to the First Amendment will be LIBOR plus 2.00 % (or base rate plus 1.00 %) with decreases subject to a leverage-based pricing grid.

The First Amendment also makes certain other changes to the Senior Secured Credit Facility, including tightening certain of the baskets applicable to our ability to make certain asset dispositions, investments and restricted payments.

Additionally, in February 2021, NCLC amended all of its export-credit backed facilities to defer amortization payments aggregating approximately $ 680 million through March 31, 2022 and/or make certain changes in respect of covenants and undertakings contained therein.

The facilities that finance Norwegian Breakaway, Norwegian Getaway, Norwegian Escape, Norwegian Joy, Norwegian Bliss, Norwegian Encore, Seven Seas Explorer, Seven Seas Splendor, Riviera and Marina were amended to provide that, among other things, (a) amortization payments due from April 1, 2021 to March 31, 2022 (the “Second Deferral Period”) on the loans will be deferred and (b) the principal amounts so deferred will constitute separate tranches of loans under the facilities.

The separate tranches of loans will accrue interest at a floating rate per annum based on six-month LIBOR plus a margin as follows:

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€ 748.7 million Seahawk 2 term loan (Norwegian Encore)

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

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 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.

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

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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.

Consistent with our amendments to our Hermes-backed credit facilities described above, the Supplemental Agreements provide financial covenant relief and additional restrictions on restricted payments and certain other covenants were added.

The above modifications resulted in aggregate modification costs of $ 17.3 million and a loss on extinguishment of debt of $ 5.0 million, which are recognized in interest expense, net for the nine months ended September 30, 2020.

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 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.

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 repayment and termination of the Epic Credit Facility resulted in a loss on extinguishment of $ 5.5 million, which was recognized in interest expense, net for the three and nine months ended September 30, 2020.

The indentures governing the 2024 Senior Secured Notes and 2026 Senior Secured Notes include 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;

After the end of the Second Deferral Period, the deferred loans will amortize in an aggregate principal amount equal to 20 % per annum of the deferred loans, in semiannual installments.

In addition, all of NCLC’s export-credit backed facilities were amended to provide that, from the effective date of the amendments to and including December 31, 2022, certain of the financial covenants under such facilities will be suspended and the free liquidity test will be replaced by a covenant to maintain at least $ 200 million in free liquidity.

The amendments also made certain other changes to the facilities, including imposing further restrictions on NCLC’s ability to incur debt, create security, issue equity and make dividends and other distributions.

The amendments of the agreements described above resulted in aggregate modification expenses of $ 52.1 million, which is recognized in interest expense, net.

Unsecured Notes

In December 2020, NCLC conducted a private offering of $ 850.0 million aggregate principal amount of 5.875 % senior unsecured notes due March 15, 2026 (the “2026 Senior Unsecured Notes”).

In March 2021, NCLC completed an add-on offering of $ 575.0 million aggregate principal amount of additional 2026 Senior Unsecured Notes.

The 2026 Senior Unsecured Notes pay interest at 5.875 % per annum, semiannually on March 15 and September 15 of each year, to holders of record at the close of business on the immediately preceding March 1 and September 1, respectively.

NCLC may redeem the 2026 Senior Unsecured Notes, in whole or part, at any time prior to December 15, 2025, 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 Unsecured Notes, in whole or in part, on or after December 15, 2025, at a price equal to 100 % of the principal amount of the notes plus accrued and unpaid interest to, but excluding, the redemption date.

At any time and from time to time prior to December 15, 2022, NCLC may choose to redeem up to 40 % of the aggregate principal amount of the 2026 Senior Unsecured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 105.875 % of the principal amount of the 2026 Senior Unsecured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 60 % of the aggregate principal amount of the 2026 Senior Unsecured Notes issued remains outstanding following such redemption.

The proceeds from the March 2021 issuance were used to repay the $ 230.0 million Pride of America Credit Facility and the remaining $ 222.6 million of the Jewel Credit Facility.

The repayment of these debt agreements resulted in losses on extinguishment of debt of $ 1.1 million, which is recognized in interest expense, net.

In March 2021, NCL Finance, Ltd., an indirect, wholly-owned subsidiary of NCLH and NCLC, additionally conducted a private offering of $ 525.0 million aggregate principal amount of 6.125 % senior unsecured notes due March 15, 2028 (the “2028 Senior Unsecured Notes”).

The 2028 Senior Unsecured Notes pay interest at 6.125 % per annum, semiannually on March 15 and September 15 of each year, commencing on September 15, 2021, to holders of record at the close of business on the immediately preceding March 1 and September 1, respectively.

NCL Finance may redeem the 2028 Senior Unsecured Notes, in whole or part, at any time prior to December 15, 2027, 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.” NCL Finance may redeem the 2028 Senior Unsecured Notes, in whole or in part, on or after December 15, 2027, at a price equal to 100 % of the principal amount of the notes plus accrued and unpaid interest to, but excluding, the redemption date.

At any time and from time to time prior to March 15, 2024, NCL Finance may choose to redeem up to 40 % of the aggregate principal amount of the 2028 Senior Unsecured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 106.125 % of the principal amount of the 2028 Senior Unsecured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 60 % of the aggregate principal amount of the 2028 Senior Unsecured Notes issued remains outstanding following such redemption.

The indentures governing the 2026 Senior Unsecured Notes and 2028 Senior Unsecured Notes include 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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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”).

In August 2020, the FASB issued ASU No.

models for convertible debt instruments and enhances transparency in disclosures.

One model which is being eliminated is the bifurcation of embedded conversion features that are not accounted for separately as derivatives.

Each of the 2024 Exchangeable Notes, 2025 Exchangeable Notes, and Private Exchangeable Notes (as defined below) contain conversion options that may be settled with NCLH’s ordinary shares.

As the options will be both indexed to and settled in our ordinary shares, they are not accounted for separately as derivatives.

The Private Exchangeable Notes contained a beneficial conversion feature, which was recognized within additional paid-in capital with an offsetting discount to the carrying amount of the debt.

The discount was amortized to interest expense through December 31, 2020.

On January 1, 2021, we early adopted ASU 2020-06 using a modified retrospective approach.

As a result, the $ 131.2 million beneficial conversion feature previously recognized was reclassified from additional paid-in capital to long-term debt, and the discount amortization of $ 5.6 million was adjusted through retained earnings (deficit).

As of March 31, 2021, NCLC has outstanding $ 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.

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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.

Also 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.

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).

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.

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.

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.

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 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, to holders of record at the close of business on the immediately preceding May 1 and November 1, respectively.

As of March 31, 2021, NCLC also has outstanding $ 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.

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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.

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

September 30,

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 3.6 years, 4.8 years and 5.7 years for the 2024 Exchangeable Notes, 2025 Exchangeable Notes and Private Exchangeable Notes, respectively.

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

Ended September 30, 2020

Interest expense, including amortization of debt discounts and coupon interest

The effective interest rate is 7.07 %, 5.97 % and 15.54 % for the 2024 Exchangeable Notes, 2025 Exchangeable Notes and the Private Exchangeable Notes, respectively.

As of September 30, 2020, the if-converted value above par was $ 210.8 million on available shares of 62.7 million and $ 165.6 million on available shares of 33.1 million for the 2024 Exchangeable Notes and the Private Exchangeable Notes, respectively.

The 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, to holders of record at the close of business on the immediately preceding January 15 and July 15, respectively.

As of December 31, 2020, NCLC also had outstanding $ 414.3 million aggregate principal amount of exchangeable senior notes due June 1, 2026 (the “Private Exchangeable Notes”), which amount included interest that had accreted to the principal amount, which were held by an affiliate of L Catterton (the “Private Investor”).

The Private Exchangeable Notes accrued interest at a rate of 7.0 % per annum for the first year post-issuance (which accreted to the principal amount).

Holders were able to exchange their Private Exchangeable Notes at their option into redeemable preference shares of NCLC.

Upon exchange, the preference shares would 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 was initially 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).

The maximum exchange rate was 90.9090 and reflected 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.

In March 2021, NCLH completed an equity offering that resulted in 52,577,947 ordinary shares being issued for gross proceeds of $ 1.6 billion.

Approximately $ 1.0 billion of the cash proceeds from the offering were used to repurchase the Private Exchangeable Notes and extinguish the debt.

The resulting loss on extinguishment was $ 620.8 million, which is recognized in interest expense, net.

The following is a summary of NCLC’s convertible debt instruments as of March 31, 2021 (in thousands):

Financing Fees

2024 Exchangeable Notes

2025 Exchangeable Notes

The remaining period over which the unamortized deferred financing fees will be recognized as non-cash interest expense is 3.1 years and 4.3 years for the 2024 Exchangeable Notes and 2025 Exchangeable Notes, respectively.

The following is a summary of NCLC’s convertible debt instruments as of December 31, 2020 (in thousands):

Unamortized Debt

including Deferred

Financing Fees

2024 Exchangeable Notes

2025 Exchangeable Notes

Private Exchangeable Notes

In addition, as of December 31, 2020, we had recognized a $ 19.3 million premium for payment-in-kind interest as additional paid-in capital for the Private Exchangeable Notes.

The following provides a summary of the interest expense of NCLC’s convertible debt instruments (in thousands):

Ended March 31, 2021

Coupon interest

Amortization of deferred financing fees

The effective interest rate is 7.07 % and 5.97 % for the 2024 Exchangeable Notes and 2025 Exchangeable Notes, respectively.

As of March 31, 2021, the if-converted value above par was $ 868.1 million on available shares of 62.7 million and $ 212.2 million on available shares of 24.0 million for the 2024 Exchangeable Notes and the 2025 Exchangeable Notes, respectively.

Debt Repayments

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

The following are scheduled principal repayments on our long-term debt including finance lease obligations as of March 31, 2021 for each of the following periods (in thousands):

Remainder of 2021

Debt Covenants

At September 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.

We have received certain financial and other debt covenant waivers through December 31, 2022 and added new free liquidity requirements.

At March 31, 2021, taking into account such waivers, we were in compliance with all of our debt covenants.

If we do not continue to remain in compliance with our covenants, including following the expiration of any current waivers, we would have to seek additional amendments to our covenants.

However, no assurances can be made that such amendments would be approved by our lenders.

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.

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 would have a material adverse impact on our operations and liquidity.

Fair Value Measurements and Derivatives

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Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction.

If it is determined that the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in accumulated other comprehensive income (loss) is released to earnings.

If it is determined that the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in accumulated other

comprehensive income (loss) is released to earnings.

There are no amounts excluded from the assessment of hedge effectiveness and there are no credit-risk-related contingent features in our derivative agreements.

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

As of September 30, 2020, we had fuel swaps which are used to mitigate the financial impact of volatility of fuel prices pertaining to approximately 895 thousand metric tons of our projected fuel purchases, maturing through December 31, 2023 .

Beginning in July 2020, our fuel swaps designated as hedges for heavy fuel oil failed the effectiveness tests required for recognition within accumulated other comprehensive income (loss).

As a result, the change in fair value related to these fuel swaps have been recognized in other income (expense), net for the three months ended September 30, 2020.

As of September 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 111 thousand metric tons of fuel as these forecasted transactions were no longer probable of occurring.

The agreements mature through September 30, 2021 .

As of September 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.

As of March 31, 2021, we had fuel swaps which are used to mitigate the financial impact of volatility of fuel prices pertaining to approximately 366 thousand metric tons of our projected fuel purchases, maturing through December 31, 2023 .

On January 1, 2021, our fuel swaps designated as hedges for marine gas oil maturing through December 31, 2021 were dedesignated as cash flow hedges.

As of March 31, 2021, we had, in aggregate with previously dedesignated fuel swaps, approximately 405 thousand metric tons which were not designated as cash flow hedges maturing through December 31, 2022 .

As of March 31, 2021, 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 € 1.9 billion, or $ 2.2 billion based on the euro/U.S.

dollar exchange rate as of September 30, 2020.

As of September 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 September 30, 2020.

dollar exchange rate as of March 31, 2021.

As of March 31, 2021, 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 $ 0.6 billion as of March 31, 2021.

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

September 30,

Balance Sheet Location

1 unchanged sentence

Fuel contracts

Prepaid expenses and other assets

Other long-term assets

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Fuel contracts

Prepaid expenses and other assets

Other long-term assets

Accrued expenses and other liabilities

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

September 30, 2020

March 31, 2021

December 31, 2020

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Income (Loss) into

Comprehensive

Comprehensive Income

Income (Loss) into Income

September 30, 2020

September 30, 2019

September 30, 2020

September 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

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

September 30, 2020

September 30, 2019

September 30, 2020

September 30, 2019

Comprehensive Loss

Income (Expense)

(Loss) into Income (Expense)

March 31, 2021

March 31, 2020

March 31, 2021

March 31, 2020

Fuel contracts

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Interest expense, net

Total gain (loss) recognized in other comprehensive income

Total gain (loss) recognized in other comprehensive loss

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

Three Months Ended September 30, 2020

Three Months Ended September 30, 2019

Three Months Ended March 31, 2021

Three Months Ended March 31, 2020

( 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

Amount of gain recognized in income as a result of failing effectiveness tests

Fuel contracts

Nine Months Ended September 30, 2020

Nine Months Ended September 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

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

Fuel contracts

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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

Amount of gain recognized in income as a result of failing effectiveness tests

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

Nine Months Ended

September 30,

Location of Gain (Loss)

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Long-Term Debt

As of September 30, 2020 and December 31, 2019, the fair value of our long-term debt, including the current portion, was $ 12,022.1 million and $ 6,957.8 million, respectively, which was $ 869.5 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 as well as the beneficial conversion feature recognized on the Private Exchangeable Notes.

As of March 31, 2021 and December 31, 2020, the fair value of our long-term debt, including the current portion, was $ 13,911.7 million and $ 14,197.8 million, respectively, which was $ 1,478.7 million higher and $ 2,176.1 million higher, respectively, than the carrying values, excluding deferred financing costs.

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.

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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 Trade Names

Goodwill and trade names are nonfinancial instruments that are measured at fair value on a non-recurring basis.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles—Goodwill and Other (Topic 350) — Simplifying the Test for Goodwill Impairment, which simplifies the test for goodwill impairment by eliminating Step 2 from the goodwill impairment test.

Step 2 measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.

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 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.

However, for the March 31, 2020 Step 1 Test, the market multiples were used solely as a corroboratory approach given the impact of COVID-19 on the current year’s results, as of the valuation date, as well as prospective results including the lack of any guidance provided, which were not available for our peers.

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 trade names, 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 trade name 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.

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.

The carrying amounts reported in the consolidated balance sheets of all other financial assets and liabilities approximate fair value.

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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 nine months ended September 30, 2020:

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, 2021:

Number of Share Option Awards

3 unchanged sentences

Forfeited and cancelled

Outstanding as of September 30, 2020

Outstanding as of March 31, 2021

Restricted Share Unit Awards

On July 27, 2020, NCLH granted 2.5 million time-based restricted share unit awards to our employees, which vest on July 27, 2022.

Additionally, on July 27, 2020, NCLH granted 0.3 million performance-based restricted share units to certain members of our management team, which vest upon the achievement of certain non-financial performance hurdles and generally require continued employment through July 27, 2022.

On March 2, 2020, NCLH granted 2.4 million time-based restricted share unit awards to our employees, which vest in substantially equal annual installments over three years .

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 nine months ended September 30, 2020:

The following is a summary of restricted share unit activity for the three months ended March 31, 2021:

Average Grant

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Forfeited or expired

Non-vested as of September 30, 2020

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

Non-vested as of March 31, 2021

The compensation expense recognized for share-based compensation for the periods presented include the following (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Payroll and related expense

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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.

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

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

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.

The combined contract prices of the nine ships on order for delivery as of September 30, 2020 was approximately € 7.1 billion, or $ 8.3 billion based on the euro/U.S.

dollar exchange rate as of September 30, 2020.

The combined contract prices of the nine ships on order for delivery as of March 31, 2021 was approximately € 7.2 billion, or $ 8.4 billion based on the euro/U.S.

dollar exchange rate as of March 31, 2021.

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

11 unchanged sentences

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.

The complaint asserted 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 alleged that the Company made false and misleading statements to the market and customers about COVID-19.

The complaint sought 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.

On April 10, 2021, the case was dismissed and closed.

The plaintiffs have the right to appeal.

We believe that the allegations contained in the complaint were without merit and intend to defend the matter vigorously if appealed.

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.

8 unchanged sentences

The plaintiffs seek all available statutory remedies, including the value of the expropriated property, plus interest, treble damages, attorneys’ fees and costs.

On January 7, 2020, the United States District Court for the Southern District of

Florida dismissed the claim by Havana Docks Corporation.

On January 7, 2020, the United States District Court for the Southern District of Florida dismissed the claim by Havana Docks Corporation.

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.

1 unchanged sentence

On September 1, 2020, the Court entered an order staying all case deadlines and administratively closed the Garcia-Bengochea matter pending the outcome of the appeal in a related case brought by the same plaintiff.

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

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

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

these matters.

As of March 31, 2021, we are unable to reasonably estimate any potential contingent loss from these matters due to a lack of legal precedent.

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

6 unchanged sentences

Other Contingencies

The Company also has agreements with its credit card processors that govern approximately $ 1.0 billion at September 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.

Currently, we have had approximately $ 40 million of advanced ticket deposits withheld to satisfy these requirements and have provided a reserve consisting of $ 70 million of cash.

We have also discussed providing second priority liens on certain ships with a collective equity value of approximately $ 700 million based on appraisals as of December 31, 2019.

Until these discussions are finalized, a significant portion of incoming advance ticket deposits are being withheld and will be released upon satisfactory perfection of the liens.

These discussions are ongoing, and any cash reserve or collateral requested could be increased or decreased.

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.

The Company also has agreements with its credit card processors that govern approximately $ 1.1 billion at March 31, 2021 in advance ticket sales that have been received by the Company relating to future voyages.

Although the agreements vary, these requirements may generally be satisfied either through a percentage of customer payments withheld or providing cash funds directly to the card processor.

Any cash reserve or collateral requested could be increased or decreased.

As of March 31, 2021, we had a reserve of approximately $ 580 million with a credit card processor recognized in other long-term assets.

Additionally, we are required to fund all refunds until further notice and 100 % of incoming advance ticket sales deposits with this credit card processor will be withheld and are not expected to be released until the credit card processor’s exposure is fully collateralized.

As of March 31, 2021, the exposure was approximately $ 840 million.

The reserve shortfall of approximately $ 260 million will decrease as refunds are funded, cruises are provided and amounts withheld by the credit card processor are allocated to the reserve rather than remitted to the Company.

We may be required to pledge additional collateral and/or post cash reserves or take other actions that may further reduce our liquidity.

Other Income (Expense), Net

For the three and nine months ended September 30, 2020, other income (expense), net consisted of an expense of $ 23.7 million and $ 32.3 million, respectively, 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 three months ended September 30, 2019, other income (expense), net was income of $ 10.3 million primarily due to foreign currency exchange gains.

For the nine months ended September 30, 2019, other income (expense), net was income of $ 13.4 million primarily due to gains from insurance proceeds and a litigation settlement and foreign currency exchange gains.

Income Tax Benefit (Expense)

For the three and nine months ended September 30, 2020, we had an income tax benefit of $ 3.8 million and $ 19.1 million, respectively.

For the three and nine months ended September 30, 2019, we had income tax expense of $ 11.2 million and an income tax benefit of $ 16.5 million, respectively.

For the three months ended September 30, 2020, the tax benefit is due to operating losses.

For the nine months ended September 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.

For the three months ended March 31, 2021, other income (expense), net consisted of income of $ 27.2 million primarily due to gains on fuel swaps not designated as hedges and foreign currency exchange.

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

Supplemental Cash Flow Information

For the nine months ended September 30, 2020 and 2019, we had non-cash investing activities consisting of changes in accruals related to property and equipment of $( 29.1 ) million and $ 17.4 million, respectively.

Additionally, during the nine months ended September 30, 2020, we received seller financing related to the acquisition of property and equipment resulting in both non-cash investing and financing activities of $ 11.9 million.

For the three months ended March 31, 2021 and 2020, we had non-cash investing activities consisting of changes in accruals related to property and equipment of $ 20.8 million and $ 12.0 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 over 10 % of NCLH’s outstanding ordinary shares as of September 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.

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

The terms of the Private Exchangeable Notes are more fully described under Note 6 — “Long-Term Debt”.

Based on the initial exchange rate, the Private Investor beneficially owned approximately 10 % of NCLH’s outstanding

ordinary shares as of December 31, 2020.

The initial exchange rate for the Private Exchangeable Notes could have been 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 have exceeded 46,577,947 .

The Private Exchangeable Notes also contained certain anti-dilution provisions that could have subjected the exchange rate to additional adjustment if certain events had occurred.

NCLH, NCLC and the Private Investor also entered into an investor rights agreement, dated May 28, 2020 (the “Investor Rights Agreement”), which provided that, among other things, the Private Investor was entitled to nominate one person for appointment to the board of directors of NCLH until the first date on which the Private Investor no longer beneficially owned 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 provided for customary registration rights for the Private Investor and its affiliates, including demand and piggyback registration rights, contained customary transfer restrictions and provided that the Private Investor and its affiliates were subject to a voting agreement with respect to certain matters during a specified period of time.

In a privately negotiated transaction among NCLH, NCLC and the Private Investor, NCLC agreed to repurchase all of the outstanding Private Exchangeable Notes for an aggregate repurchase price of approximately $ 1.0 billion (the “Repurchase”).

On March 9, 2021, in connection with the settlement of the Repurchase, the trustee cancelled the aggregate principal amount outstanding under the Private Exchangeable Notes and confirmed that NCLC had satisfied and discharged its obligations under the Indenture.

In connection with the Repurchase, we and the Private Investor agreed to terminate the Investor Rights Agreement effective upon the consummation of the Repurchase.

Notwithstanding the termination, we and the Private Investor agreed that certain provisions related to indemnification and expense reimbursement would survive in accordance with their terms.

Subsequent Event

In April 2021, agreements were executed to defer certain newbuild related payments as well as certain newbuild related debt amortization to July 2022.

The aggregate amount of payments that were deferred was approximately € 269.1 million, or $ 315.7 million based on the euro/U.S.

dollar exchange rate as of March 31, 2021.

The interest rate on the newbuild related payments was increased to 4.5 %.

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