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Item 1A. Risk Factors

2021-04-29 compared with 2020-11-04 · 305 added, 284 removed, 207 unchanged (74% of the section changed)

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Management’s Discussion and Analysis of Financial Condition and Results of Operations for a cautionary note regarding forward-looking statements.

The global COVID-19 pandemic has had, and will continue to have, a material adverse impact on our business and results of operations.

The global spread of COVID-19 and the unprecedented responses by governments and other authorities to control and contain the disease, has caused significant disruptions, created new risks, and exacerbated existing risks to our business.

We have been, and will continue to be, negatively impacted by the COVID-19 pandemic, including impacts that resulted from actions taken in response to the outbreak.

COVID-19 and Financial Risks

The COVID-19 pandemic has had, and will continue to have, a material adverse impact on our business, results of operations and liquidity.

The global spread of COVID-19, the unprecedented responses by governments and other authorities to control and contain the disease, including related variants, and challenges to global vaccination efforts, have caused significant disruptions, created new risks, and exacerbated existing risks to our business.

We have been, and will continue to be, negatively impacted by the COVID-19 pandemic, including impacts that resulted or may result from actions taken in response to the outbreak, including the occurrence and spread of related variants .

Examples of these include, but are not limited to:

travel bans and cruising advisories and the resulting temporary suspension of our Global Brands' operations, which is expected to continue until at least Decemeber 31, 2020, excluding sailings from Singapore, with Celebrity Cruises having also suspended their full 2020/21

Winter program in Australia and Asia and Azamara having suspended their 2020/21 Winter sailings throughout Australia and New Zealand, South Africa and South America;

travel bans and cruising advisories and the resulting temporary suspension of our Global Brands' operations, which is expected to continue through at least June 30, 2021, for most of our cruise operations;

restrictions on the movement and gathering of people;

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and disruptions to businesses in our supply chain.

In addition to the imposed restrictions affecting our business, the extent, duration, and magnitude of the COVID-19 pandemic’s effect on the economy and consumer demand for cruising and travel is still rapidly fluctuating and difficult to predict.

In addition to the imposed restrictions affecting our business, the extent, duration, and

magnitude of the COVID-19 pandemic’s effect on the economy and consumer demand for cruising and travel is still rapidly fluctuating and difficult to predict.

As such, these impacts may persist for an extended period of time or even become more pronounced, even after we are permitted to and/or begin to resume operations.

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• Operations:

Due to the global public health circumstances, we have decided to extend the suspension of sailings of our Global Brands' fleet through at least December 31, 2020, excluding Signapore.

It is uncertain as to whether we will need to suspend additional sailings and to what extent, although once such suspension ends, we still do not expect to return to normal sailings for some time.

The suspension of sailings and the expected reduction in demand for future cruising once we resume sailing has led to a significant decline in our revenues and cash inflows, which has required us to take cost and capital expenditure containment actions.

Consequently, we have reduced and furloughed our workforce, with approximately 23% of our U.S.

shoreside employee base being impacted and, except for the minimum safe manning shipboard crew required to operate the ships during the suspension of operations, our shipboard crew were notified that their contracts would end early and they would be notified about new assignments when operations resume in the future.

As a result of these actions, we may be challenged in rebuilding our workforce which could further delay our return to service.

In addition, we have reduced our planned capital spending through 2021, which may negatively impact our execution of planned growth strategies, particularly as it relates to investments in our ships, technology, and our expansion of land-based developments.

Furthermore, we have taken actions to monitor and mitigate changes in our supply chain, and port destination availability, which may strain relationships with our vendors and port partners.

On September 21, 2020, the Healthy Sail Panel, which was formed in June by the Company and Norwegian Cruise Line Holdings Ltd., submitted its report on recommendations to the U.S.

Centers for Disease Control and Prevention, which includes more than 70 detailed recommendations to protect the public health and safety of guests, crew and the communities where cruise ships call.

On October 30, 2020, the CDC issued the Conditional Order, which replaces the current “no sail” order that expired on October 31, 2020.

While the Conditional Order represents an important step in our return to service, 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.

Further, the Conditional Order contemplates that the CDC may issue additional requirements through technical instructions or orders as needed and that the phases required to resume operations will be further determined based on public health considerations, including the trajectory of the pandemic and the ability of the Company and other cruise ship operators to successfully employ measures that mitigate the risk of COVID-19.

Due to the global public health circumstances, we have decided to extend the suspension of sailings of our Global Brands' fleet through at least June 30, 2021, for most of our cruise operations.

We have begun certain limited operations and have announced additional, limited cruise operations, in each case, outside of the U.S.

with reduced guest occupancy, modified itineraries, and enhanced health, safety and vaccination protocols for our crew and guests.

There is no assurance that our return to service efforts will be successful and without material setbacks.

It is possible that future COVID-19 outbreaks could occur onboard and, even if controlled and contained, it is uncertain as to whether we will need to suspend additional sailings and to what extent in such event.

An outbreak could result in possible illness among our guests and crew, incremental costs, guest refunds and negative publicity and media attention.

In addition, we may face challenges in executing our return to service plans from new homeports as a result of new and evolving operating protocols and possible changes in regulations in the countries in which we operate and plan to operate.

We continue to work with the U.S.

Center for Disease Control and Prevention (“CDC”), other U.S.

regulatory agencies and the Healthy Sail Panel (“HSP”) to develop a plan to return to service in consideration of global vaccination efforts.

For cruise ship operations in U.S.

waters, our return to service plan also considers the requirements of the CDC’s Framework for the Conditional Sailing Order (the “Conditional Order”), issued on October 30, 2020, including recently issued technical instructions under the Conditional Order.

This includes the CDC letter issued to members of the cruising industry on April 28, 2021 that provides clarifications to its previously issued technical instructions regarding several matters including port operations and COVID-19 testing and vaccination protocols.

While the Conditional Order and subsequent CDC guidance represents an important step in our return to service, 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.

In addition, the Conditional Order contains requirements that could negatively impact our results of operations, such as:

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port and local health authorities, which requires medical care agreements addressing evacuation to onshore hospitals, housing agreements with onshore facilities for isolation and quarantine of COVID-19 cases, and port agreements to limit the number of cruise ships at any single port.

Our ability to meet the requirements under the Conditional Order will determine the timing and implementation of our plans to return to service which we expect to be gradual.

We are currently reviewing the Conditional Order and assessing the uncertainties relating to the Conditional Order’s requirements.

Based on our initial assessment of these conditions or for other reasons, we may determine it necessary to further extend our voluntary suspension of our Global Brands’ cruise sailings which currently extends through at least December 31, 2020.

Our ability to meet the requirements under the Conditional Order will determine the timing and implementation of our plans to return to service for the rest of our operations, which we expect to be gradual.

We are currently reviewing and assessing the uncertainties relating to the Conditional Order’s requirements and are in dialogue with the CDC.

Based on our assessment of these conditions or for other reasons, we may determine it necessary to extend our voluntary suspension of our Global Brands’ cruise sailings which currently extends through at least June 30 , 2021, for most of our cruise operations.

It is difficult to predict our ability to meet the requirements of the Conditional Order and the costs associated with compliance, some of which could be significant.

The suspension of sailings and the expected reduction in demand for future cruising has led to a significant decline in our revenues and cash inflows, which has required us to take cost and capital expenditure containment actions.

Consequently, we have reduced and furloughed some of our workforce, with approximately 23% of our U.S.

shoreside employee base being impacted and, except for the minimum safe manning shipboard crew required to operate our ships subject to suspension of operations, our shipboard crew were notified that their contracts ended early and are gradually being notified about new assignments as operations resume over time.

As a result of these actions, we may be challenged in rebuilding and vaccinating our workforce which could further delay our return to service.

Furthermore, our efforts to vaccinate returning crew members could be hindered if vaccine availability does not keep pace with the timing of our phased return to service.

Furthermore, we have taken

actions to monitor and mitigate changes in our supply chain, and port destination availability, which may strain relationships with our vendors and port partners.

If we are unable to satisfy the requirements of the Conditional Order our operations may be negatively impacted and we could be exposed to reputational and legal risks.

Due to the unprecedented and uncertain nature of the COVID-19 pandemic and CDC guidance, it is difficult to predict the impact of further disruptions and their magnitude.

The impact of further disruptions may depend on how they coincide with the timing of when we seek to resume sailing.

In addition, we have never previously experienced a complete cessation of our cruising operations, and as a consequence, our ability to predict the impact of such a cessation on our brands and future prospects is limited and such impact is uncertain.

Due to the unprecedented and uncertain nature of the COVID-19 pandemic and CDC or Department of State guidance, it is difficult to predict the impact of further disruptions and their magnitude.

The impact of further disruptions may depend on how they coincide with the timing of when we seek to continue to resume sailing.

In addition, we had never previously experienced a complete cessation of our cruising operations, and as a consequence, our ability to predict the impact of such a cessation on our brands and future prospects is limited and such impact is uncertain.

• Results of Operations:

Our suspensions of sailings have materially impacted the results of our operations.

We have incurred and will continue to incur significant costs associated with cancellations as we accommodate passengers with

refunds and future cruise credits;

as well as continuing to assist our crew with their return home, food, housing, and medical needs.

In addition, although cruise operations are currently suspended, we have incurred and will likely continue to incur significant overhead costs associated with layup of our fleet and enhanced COVID-19 related sanitation procedures.

As we cannot control adverse media coverage and we cannot predict exactly when we will resume sailing operations, we are experiencing and may continue to experience weak demand for cruising for an undeterminable length of time and we cannot predict when we will return to pre-outbreak demand or fare pricing or if we will return to such levels in the foreseeable future.

We have incurred and will continue to incur significant costs associated with cancellations as we accommodate passengers with refunds and future cruise credits.

In addition, although the majority of our cruise operations are currently suspended, we have incurred and will likely continue to incur significant overhead costs associated with layup of our fleet and enhanced COVID-19 related cleaning, testing, vaccination and other mitigation procedures.

We may experience volatility in demand for cruising for an indeterminable length of time due to the uncertain nature of the COVID-19 pandemic and to ongoing concerns about health and safety, and we cannot predict when we will return to pre-outbreak demand or fare pricing or if we will return to such levels in the foreseeable future.

In turn, these negative impacts to our financial performance have resulted and may continue to result in impairments of our long-lived and intangible assets, which has influenced our decision making relating to early disposal, sale or retirement of assets.

For the nine months ended September 30, 2020, we incurred impairment charges and credit losses of $1.4 billion related to the impairment of goodwill and trademarks and trade names attributable to our Silversea Cruises reporting unit, and long-lived assets as well as credit losses on mostly receivables related to our sale of property and equipment.

Following the resumption of operations, our Global Brands and our Partner Brands may be subject to the continued impact of the COVID-19 pandemic.

Our Partner Brands, TUI Cruises and Hapag-Lloyd Cruises, resumed limited cruise operations outside of the U.S.

in July 2020 with cruises of short durations, with reduced occupancies and with limited or no ports of call.

Additionally, any future profitability will be impacted by increased debt service costs as a result of our liquidity actions.

The suspension of our sailings and the reduction in demand for future cruising has adversely impacted our liquidity as we have experienced a significant increase in refunds of customer deposits while cash inflows from new or existing bookings on future sailings has reduced sharply.

As a result, we have taken actions to increase our liquidity through a combination of capital and operating expense reductions and financing activities.

For instance, we borrowed an aggregate principal amount of $2.2 billion in March 2020 and an additional $150 million in May 2020 pursuant to a 364-day senior secured term loan.

In March 2020, we drew down all the remaining capacity of our revolving credit facilities for a total of $3.475 billion outstanding.

In May 2020, we issued $3.32 billion in Senior Secured Notes of which $1.0 billion is due in 2023 and $2.32 billion is due in 2025.

The previously mentioned $2.35 billion, 364-day senior secured loan was repaid in its entirety with a portion of the proceeds of these notes.

In June 2020, we issued $1.0 billion in senior unsecured notes which mature in 2023.

Also in June and October 2020, we issued $1.15 billion, and $575.0 million, respectively, in convertible notes which are convertible into shares of our common stock, cash, or a combination of common stock and cash, at our election after meeting certain conditions prior to March 15, 2023 and August 15, 2023, respectively.

The convertible notes mature in 2023.

In June 2020, we established a commercial paper facility for the purpose of issuing short-term, unsecured Sterling-denominated notes for purchase under the Joint HM Treasury and Bank of England’s COVID Corporate Financing Facility commercial paper program in an aggregate principal amount up to £300.0 million.

In August 2020, we obtained a one-year commitment for a $700 million senior guaranteed 364-day term loan facility which may be increased to $1.0 billion.

In October 2020, we issued approximately 9.6 million of shares of common stock for approximately $575.0 million.

We also agreed with certain of our lenders that we will not pay dividends or engage in stock repurchases for so long as our debt covenant waivers are in effect.

On August 24, 2020, Moody’s downgraded our senior unsecured rating from Ba2 to B2, and on August 31, 2020, S&P Global downgraded our senior unsecured rating from BB to B+.

On August 24, 2020, Moody’s also downgraded the Silversea Notes from Baa3 to Ba2 and on August 31, 2020, S&P downgraded Silversea Cruises' Notes from BBB- to BB and as a result, certain covenants of the indenture governing the Silversea Notes have been reinstated.

These downgrades reduce our ability to incur secured indebtedness by reducing the amount of indebtedness that we are permitted to secure, and may negatively impact our access to, and cost of, debt financing.

During the quarters ended June 30, 2020 and September 30, 2020, we obtained an interim debt service deferral and financial covenant holidays under certain of our export-credit backed loan facilities to generate a cumulative $0.9 billion of incremental liquidity which is to be repaid over a period of four years after the 12-month deferral period.

During the quarter ended March 31, 2021, we executed and amended various financing arrangements including the issuance of $1.5 billion in senior notes and the issuance of 16.9 million shares of common stock for approximately $1.5 billion.

Additionally, we extended the draw date for our $700 million 364-day facility for an additional year, extended more than $2.0 billion in debt and revolving credit due in 2022, and deferred $1.2 billion of debt amortization under our export-credit backed loan facilities over a five-year period starting in April 2022.

We have agreed with certain of our lenders that we will not pay dividends or engage in stock repurchases until after the third quarter of 2022.

Thereafter, in the event we declare a dividend or engage in stock repurchases we will need to repay the amounts deferred under our export credit facilities.

On February 25, 2021, S&P Global downgraded our senior unsecured rating from B+ to B, which had no financial impact, and downgraded our $3.32 billion Senior Secured Notes and Silversea Notes from BB to BB-.

This downgrade had no impact on the terms of the notes.

Our ability to raise additional financing, whether or not secured, could be limited if our credit rating is further downgraded, and/or if we fail to comply with applicable covenants governing our outstanding indebtedness, and/or if overall financial market conditions worsen.

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If we continue to raise additional funds through equity or convertible debt issuances, our shareholders could experience dilution of their ownership interest, and these securities could have rights, preferences, and privileges that are superior to that of holders of our ordinary shares.

If we raise additional funds by issuing debt, we may be subject to limitations on our operations due to restrictive covenants, which may be more restrictive than the covenants in our existing debt agreements, and we may be required to further encumber our assets.

If we raise additional funds by issuing debt, we may be subject to additional limitations on our operations due to restrictive covenants, which may be more restrictive than the covenants in our existing debt agreements, and we may be required to further encumber our assets.

Also, as a result of our additional debt issuances, we will require a significant amount of cash to service our debt and sustain operations.

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If adequate funds are not available on acceptable terms, or at all, we may be unable to fund our operations, or respond to competitive pressures, any of which could negatively affect our business.

There is no guarantee that financing will be

available in the future or that such financing will be available with similar terms or terms that are commercially acceptable to us.

Further, if any government agrees to provide us with disaster relief assistance, or other assistance due to the impacts of the COVID-19 pandemic, and we determine it is beneficial to seek such government assistance, it may impose restrictions on executive compensation, share buybacks, dividends, prepayment of debt and other similar restrictions until the aid is repaid or redeemed in full, which could significantly limit our corporate activities and adversely impact our business and operations.

There is no guarantee that financing will be available in the future or that such financing will be available with similar terms or terms that are commercially acceptable to us.

Further, if any government agrees to provide us with disaster relief assistance, or other assistance due to the impacts of the COVID-19 pandemic, and we determine it is beneficial to seek such government assistance, it may impose restrictions on executive compensation, share buybacks, dividends, prepayment of debt and other restrictions until the aid is repaid or redeemed in full, which could significantly limit our corporate activities and adversely impact our business and operations.

We cannot assure you that any more such disaster relief would be available to us.

Adverse worldwide economic or other conditions could result in prolonged reduction in the demand for cruises and passenger spending, adversely impacting our operating results, cash flows and financial condition including impairing the value of our goodwill, ships, trademarks and other assets and potentially affecting other critical accounting estimates where the change may be material to our operating results.

We may not be able to obtain sufficient financing or capital for our needs or may not be able to do so on terms that are acceptable or consistent with our expectations.

To fund our capital expenditures (including new ship orders), operations and scheduled debt payments, we have historically relied on a combination of cash flows provided by operations, drawdowns under available credit facilities, the incurrence of additional indebtedness and the sale of equity or debt securities in private or public securities markets.

Any circumstance or event which leads to a decrease in consumer cruise spending, such as worsening global economic conditions or significant incidents impacting the cruise industry, including the COVID-19 pandemic, negatively affects our operating cash flows and currently, we have no net cash flows from operations.

In the case of the COVID-19 pandemic and the resulting suspension of our operations, these circumstances have also resulted in credit rating downgrades.

Our ability to access additional funding as and when needed, our ability to timely refinance and/or replace our outstanding debt securities and credit facilities on acceptable terms and our cost of funding will depend upon numerous factors including, but not limited to, the strength of the financial markets, our recovery and financial performance, the recovery and performance of our industry in general and the size, scope and timing of our financial needs.

In addition, even where financing commitments have been secured, significant disruptions in the capital and credit markets could cause our banking and other counterparties to breach their contractual obligations to us or could cause the conditions to the availability of such funding not to be satisfied.

This could include failures of banks or other financial service companies to fund required borrowings under our loan agreements or to pay us amounts that may become due or return collateral that is refundable under our derivative contracts for hedging of fuel prices, interest rates and foreign currencies or other agreements.

If any of the foregoing occurs for a prolonged period of time it will have a long-term negative impact on our cash flows and our ability to meet our obligations cannot be guaranteed.

Our substantial debt could adversely affect our financial condition.

We have a substantial amount of debt and significant debt service obligations.

As of March 31, 2021, we had total debt of $20.9 billion.

Our substantial debt could have important negative consequences for us.

For example, our substantial debt could require us to dedicate a large portion of our cash flow from operations to service debt and fund repayments on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;

increase our vulnerability to adverse general economic or industry conditions;

limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate;

place us at a competitive disadvantage compared to our competitors that have less debt;

make us more vulnerable to downturns in our business, the economy or the industry in which we operate, including the current downturn related to COVID-19;

limit our ability to raise additional debt or equity capital in the future to satisfy our requirements relating to working capital, capital expenditures, development projects, strategic initiatives or other purposes;

restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities;

limit or restrict our ability to obtain and maintain performance bonds to cover our financial responsibility requirements in various jurisdictions for non-performance of guest travel, casualty and personal injury;

make it difficult for us to satisfy our obligations with respect to our debt;

and increase our exposure to the risk of increased interest rates as certain of our borrowings are (and may be in the future) at a variable rate of interest.

Despite our leverage, we may incur more debt, which could adversely affect our business.

We may incur substantial additional debt in the future.

Except for the restrictions under the indentures governing our Secured Notes (as defined below) and our 9.125% Senior Guaranteed Notes due 2023 (the “Unsecured Notes”) and certain of our other debt instruments, including our unsecured bank and export credit facilities, we are not restricted under the terms of our debt instruments from incurring additional debt.

Although the indentures governing the Secured Notes, the Unsecured Notes, and certain of our other debt instruments, including our unsecured bank and export credit facilities, contain restrictions on the incurrence of additional debt, these restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances the amount of debt that could be incurred in compliance with these restrictions could be substantial.

Our debt instruments do not and will not prevent us from incurring liabilities that do not constitute “Indebtedness” as defined therein.

In the event that we execute and borrow under the $700M commitment expiring on August 12, 2022 for a 364-day term loan facility, the credit agreement that would govern such term loan facility would impose substantially similar restrictions (including the related qualifications and exceptions) as are set forth in the indenture governing the Unsecured Notes.

If new debt is added to our existing debt levels, the related risks that we now face would increase.

As of March 31, 2021, we have commitments for approximately $10.6 billion of debt to finance the purchase of 10 ships on order by our Royal Caribbean International, Celebrity Cruises and Silversea Cruises brands, nine of which are guaranteed by the export credit agencies in the countries in which the ships are being built.

The ultimate size of each facility will depend on the final contract price (including change orders and owner’s supply) as well as fluctuations in the EUR/USD exchange rate.

The terms of existing debt financing gives, and any future preferred equity or debt financing may give, holders of any preferred securities or debt securities rights that are senior to rights of our common shareholders or impose more stringent operating restrictions on our company.

The holders of our existing debt have rights, preferences and privileges senior to those of holders of our common stock in the event of liquidation.

If we incur additional debt or raise equity through the issuance of preferred stock or convertible securities, the terms of the debt or the preferred stock issued may give the holders rights, preferences and privileges senior to those of holders of our common stock, particularly in the event of liquidation.

The terms of the debt may also impose additional and more stringent restrictions on our operations.

If we raise funds through the issuance of additional equity, the ownership percentage of our existing shareholders would be diluted.

Debt or equity financing may not be available to us on acceptable terms.

We will require a significant amount of cash to service our debt and sustain our operations.

Our ability to generate cash depends on many factors beyond our control, and we may not be able to generate cash required to service our debt.

Our ability to make scheduled payments on our debt service obligations or refinance our debt depends on our future operating and financial performance and ability to generate cash.

This will be affected by our ability to successfully implement our business strategy, as well as general economic, financial, competitive, regulatory and other factors beyond our control, such as the disruption caused by the COVID-19 pandemic.

If we cannot generate sufficient cash to meet our debt service obligations or fund our other business needs, we may, among other things, need to refinance all or a portion of our debt, obtain additional financing, delay planned capital expenditures or sell assets.

We cannot assure you that we will be able to generate sufficient cash through any of the foregoing.

If we are not able to refinance any of our debt, obtain additional financing or sell assets on commercially reasonable terms or at all, we may not be able to satisfy our obligations with respect to our debt.

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

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

Certain of our debt instruments, including our indentures and our unsecured bank and export credit facilities, limit our flexibility in operating our business.

For example, certain of our loan agreements and indentures restrict or limit our and our subsidiaries’ ability to, among other things:

incur or guarantee additional indebtedness;

pay dividends or distributions on, or redeem or repurchase capital stock and make other restricted payments;

make investments;

consummate certain asset sales;

engage in certain transactions with affiliates;

grant or assume certain liens;

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

Both our export credit facilities and our non-export credit facilities contain covenants that require us, among other things, to maintain a fixed charge coverage ratio of at least 1.25x and limit our net debt-to-capital ratio to no more than 62.5%.

Refer to Note 7 .

Debt to our consolidated financial statements under Item 1.

Financial Statements for further discussion on our covenants and existing waivers.

On February 25, 2021, S&P Global downgraded the Silversea Cruises’ Notes from BB to BB-, which had no impact with respect to the Silversea Cruises’ Notes.

The Silversea Notes are guaranteed by the Company on a senior unsecured basis.

Any event of default or acceleration of the indebtedness under the Silversea Notes could cause the borrowings under other of our debt instruments that contain cross-default provisions to be accelerated or become payable on demand.

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

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

Any future indebtedness may include similar or other restrictive terms.

In addition, our ability to comply with these covenants, and restrictions may be affected by events beyond our control.

These include prevailing economic, financial and industry conditions.

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

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

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

In these circumstances, our assets may not be sufficient to repay in full that indebtedness and our other indebtedness then outstanding.

In addition, our ability to maintain our credit facilities may also be impacted by changes in our ownership base.

More specifically, we may be required to prepay our bank financing facilities if any person acquires ownership of more than 50% of our common stock or, subject to certain exceptions, during any 24-month period, a majority of our board of directors is no longer comprised of individuals who were members of our board of directors on the first day of such period.

Our public debt securities also contain change of control provisions that would be triggered by a third-party acquisition of greater than 50% of our common stock coupled with a ratings downgrade, which would require us to offer to repurchase our public debt securities in the event of such change of control.

If we elect to settle conversions of our convertible notes, if any, in shares of our common stock or a combination of cash and shares of our common stock, conversions of our convertible notes may result in substantial dilution for our existing shareholders.

We have an aggregate principal amount of $1.725 billion in convertible notes outstanding.

The notes are convertible into shares of our common stock, cash, or a combination of common stock and cash, at our election.

Prior to March 15 and August 15, 2023, our convertible notes issued June 2020 and October 2020, respectively, will be convertible at the option of holders during certain periods only upon satisfaction of certain conditions.

Beyond those dates, the convertible notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding their maturity date.

If we elect to settle conversions of our convertible notes, if any, in shares of our common stock or a combination of common stock and cash, conversions of our convertible notes may result in significant dilution to our shareholders.

We did not declare dividends on our common stock in the quarter ended March 31, 2021 and do not expect to pay dividends on our common stock for the foreseeable future.

No cash dividends were declared on our common stock during the four consecutive quarters ended March 31, 2021.

We expect that any income received from operations will be devoted to our future operations and recovery.

We do not expect to pay cash dividends on our common stock for the foreseeable future due to our agreement with certain of our lenders not to pay dividends until the end of the third quarter 2022.

In addition, in the event we thereafter declare a dividend, we will need to repay our debt deferral.

Payment of dividends would, in any case, depend upon our profitability at the time, cash available for those dividends, and other factors as our board of directors may consider relevant.

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

A portion of our indebtedness bears interest at variable rates that are linked to changing market interest rates.

As a result, an increase in market interest rates would increase our interest expense and our debt service obligations.

As of March 31, 2021, we had approximately $6.9 billion of indebtedness that bears interest at variable rates.

This amount represented approximately 31.8% of our total indebtedness.

As of March 31, 2021, a hypothetical 1% increase in prevailing interest rates would increase our forecasted 2021 interest expense by approximately $40.9 million.

In addition, on July 27, 2017, the United Kingdom’s Financial Conduct Authority ("FCA"), which regulates the London Interbank Offered Rate (“LIBOR”), announced that it will no longer persuade or compel banks to submit LIBOR rates after 2021.

Also in 2017, the Alternative Reference Rates Committee, a steering committee comprised of, among other entities, large U.S.

financial institutions, selected the Secured Overnight Financing Rate (“SOFR”) as the rate recommended to replace U.S.

dollar LIBOR ("USD LIBOR").

SOFR measures the cost of borrowing cash overnight, backed by U.S.

Treasury securities.

SOFR is observed and backward-looking, which stands in contrast with LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members.

On December 4, 2020, ICE Benchmark Administration ("IBA"), the administrator of LIBOR, released a consultation disclosing its intent to cease publication of one-week and two-month USD LIBOR after December 31, 2021, but continue to publish the remaining tenors of USD LIBOR for an additional 18 months, through June 30, 2023.

These remaining tenors of USD LIBOR—overnight, one-month, three-month, six-month and 12-months—encompass the tenors referenced in our borrowings and interest rate swaps.

On March 5, 2021, the FCA confirmed that it will not require IBA to publish LIBOR beyond the dates proposed in the consultation.

regulators continue to encourage banks to cease entering into new contracts that use USD LIBOR as a reference rate by December 31, 2021.

However, uncertainty remains as many market participants await the development of term SOFR products, i.e., forward-looking rates, and benchmark providers are developing indices that might co-exist with SOFR.

If LIBOR ceases to exist, the level of interest payments on the portion of our indebtedness that bears interest at variable rates would be affected, which may materially impact the amount of our interest payments under such debt.

Further, if we, the agent or the lenders holding a majority of the outstanding loans or commitments under such indebtedness determine that a LIBOR rate is no longer available, that a specific date has been announced after which a LIBOR rate will no longer be made available, or that syndicated loans are being executed or amended to adopt a replacement rate, then the terms of such indebtedness will allow us and the applicable agent to amend such indebtedness to implement a replacement rate, subject to the negative consent of the lenders holding a majority of the outstanding loans or commitments.

Such replacement rate will give due consideration to any evolving or then-existing conventions for similar credit facilities, which may result in different than expected interest payments.

Macroeconomic, Business, Market and Operational Risks

Adverse worldwide economic or other conditions could reduce the demand for cruises and passenger spending, adversely impacting our operating results, cash flows and financial condition including impairing the value of our goodwill, ships,

trademarks and other assets and potentially affecting other critical accounting estimates where the change may be material to our operating results.

In addition to health and safety concerns, demand for cruises is affected by international, national, and local economic conditions.

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Any significant deterioration of international, national, or local economic conditions, including those resulting from geopolitical events and/or international disputes and the current economic and employment impact of the COVID-19 pandemic in countries where many of our customers reside, could result in a prolonged period of booking slowdowns, depressed cruise prices and/or reduced onboard revenues, even after the COVID-19 pandemic has ended and/or related health and safety concerns are reduced.

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

Additionally, the continued impact of COVID-19 on the financial markets is complicated and we cannot predict its effect on geopolitical events and/or international trade policies as countries attempt to mitigate the impact of the pandemic and as they re-open their economies or re-implement lockdown measures.

Additionally, uncertainties resulting from the United Kingdom’s recent exit from the European Union may impact our business.

Our operating costs could increase due to market forces and economic or geopolitical factors beyond our control.

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Reductions of cash flows used in the valuation analyses may result in the recording of an impairment charge to a reporting unit’s goodwill.

During the nine months ended September 30, 2020, we recognized a Silversea Cruises’ goodwill impairment loss of $576.2 million.

Impairments and Credit Losses to our consolidated financial statements under Item 1.

Financial Statements for further information.

Conducting business globally may result in increased costs and other risks.

We operate our business globally, which exposes us to a number of risks, including increased exposure to a wider range of regional and local economic conditions, volatile local political conditions, potential changes in duties and taxes, including changing and/or uncertain interpretations of existing tax laws and regulations, required compliance with additional laws and policies affecting cruising, vacation or maritime businesses or governing the operations of foreign-based companies, currency fluctuations, interest rate movements, difficulties in operating under local business environments, port quality and availability in certain regions, U.S.

and global anti-bribery laws or regulations, imposition of trade barriers and restrictions on repatriation of earnings.

Our future growth strategies increasingly depend on the growth and sustained profitability of international markets.

Factors that will be critical to our success in these markets include our ability to continue to raise awareness of our products and our ability to adapt our offerings to best suit rapidly evolving consumer demands.

This risk is further heightened by the COVID-19

pandemic, as authorities in many of these markets have implemented numerous measures to contain the spread and impact of COVID-19, such as travel bans and restrictions, shelter-in-place/stay-at-home orders, and other limitations on business activity, including business closures.

In addition, these measures could change unpredictably and/or could be scaled up or down in response to evolving intensity or resurgence of COVID-19 in or around these markets.

The execution of our planned growth strategies is dependent on meeting the governmental and regulatory measures and policies in each of these markets.

Our ability to realize our future growth strategy is highly dependent on our ability to satisfy country-specific policies and requirements in order to return to service, as well as meeting the needs of region specific consumer preferences as services come back online.

These factors may cause us to reevaluate some of our international business strategies.

Operating globally also exposes us to numerous and sometimes conflicting legal, regulatory and tax requirements.

In many parts of the world, including countries in which we operate, practices in the local business communities might not conform to international business standards.

These legal and regulatory requirements and standards may change in response to the COVID-19 pandemic, and there may be greater uncertainty as to the interpretation and enforcement of applicable laws and regulations, including those introduced in response to the COVID-19 pandemic.

We cannot guarantee consistent interpretation, application, and enforcement of rules and regulations put in place in response to the COVID-19 pandemic, which could place limits on our operations or increase our costs, as well as negatively impact our future growth strategies in our key growth markets.

We must adhere to policies designed to promote legal and regulatory compliance as well as applicable laws and regulations.

However, we might not be successful in ensuring that our employees, agents, representatives and other third parties with whom we associate throughout the world properly adhere to them.

In addition, we may be exposed to the risk of penalties and other liabilities if we fail to comply with all applicable legal and regulatory requirements introduced in response to the COVID-19 pandemic, which may be subject to frequent and rapid change.

Failure by us, our employees or any of these third parties to adhere to our policies or applicable laws or regulations could result in penalties, sanctions, damage to our reputation and related costs, which in turn could negatively affect our results of operations and cash flows.

We have operations in, and source passengers from, the United Kingdom and the European Union.

On January 31, 2020, the United Kingdom withdrew from the European Union and immediately entered an 11-month transition period.

Uncertainty during the transition period (including any impact that COVID-19 may have on the negotiations during this transition period) could lead to adverse effects on the economy of the United Kingdom, including the value of the British Pound, and the other economies in which we operate, making it more difficult to source passengers from these regions.

Additionally, if the withdrawal is not executed effectively, it could adversely affect tax, legal and regulatory regimes to which our business in the region is subject.

The withdrawal could also, among other potential outcomes, disrupt the free movement of goods, services and people between the United Kingdom and the European Union, if not executed effectively.

As a global operator, our business also may be impacted by changes in U.S.

policy or priorities in areas such as trade, immigration (including any continuation of any of the immigration policies put in place by the U.S.

government in response to the COVID-19 pandemic) and/or environmental or labor regulations, among others.

Depending on the nature and scope of any such changes, they could impact our domestic and international business operations.

Any such changes, and any international response to them, could potentially introduce new barriers to passenger or crew travel and/or cross border transactions, impact our guest experience and/or increase our operating costs.

If we are unable to address these risks adequately, our financial position and results of operations could be adversely affected, including impairing the value of our ships and other assets.

Price increases for commercial airline service for our guests or major changes or reduction in commercial airline service and/or availability could adversely impact the demand for cruises and undermine our ability to provide reasonably priced vacation packages to our guests.

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Events such as terrorist attacks, war (or war-like conditions), conflicts (domestic or cross-border), civil unrest and other hostilities, including an escalation in the frequency or severity of incidents, and the resulting political instability, travel restrictions and advisories, and concerns over safety and security aspects of traveling or the fear of any of the foregoing have had, and could have in the future, a significant adverse impact on demand and pricing in the travel and vacation industry.

view of our global operations, we are susceptible to a wide range of adverse events.

In view of our global operations, we are susceptible to a wide range of adverse events.

These events could also result in additional security measures taken by local authorities which may potentially impact access to ports and/or destinations.

Fluctuations in foreign currency exchange rates, fuel prices and interest rates could affect our financial results.

We are exposed to market risk attributable to changes in foreign currency exchange rates, fuel prices and interest rates.

Significant changes in any of the foregoing could have a material impact on our financial results, net of the impact of our hedging activities and natural offsets.

Our operating results have been and will continue to be impacted, often significantly, by changes in each of these factors.

The value of our earnings in foreign currencies is adversely impacted by a strong U.S.

In addition, any significant increase in fuel prices could materially and adversely affect our business as fuel prices not only impact our fuel costs, but also some of our other expenses, such as crew travel, freight, and commodity prices.

Mandatory fuel restrictions, such as the International Maritime Organization’s 2020 Low Sulphur Regulation (“IMO 2020”), may also create uncertainty related to the price and availability of certain fuel types potentially impacting operating costs and the value of our related hedging instruments.

Also, a significant increase in interest rates could materially impact the cost of our floating rate debt.

Furthermore, regulatory changes, such as the announcement of the United Kingdom’s Financial Conduct Authority to phase out LIBOR by the end of 2021, may adversely affect our portfolio of floating-rate debt and interest rate derivatives.

If LIBOR ceases to exist, we may need to renegotiate any credit agreements or interest rate derivatives agreements extending beyond 2021 that utilize LIBOR as a factor in determining the interest rate or hedge rate, which could adversely impact our cost of debt.

Changes in U.S.

or other countries’ foreign travel policy may affect our results of operations.

Changes in U.S.

foreign policy could result in the imposition of travel restrictions or travel bans on U.S.

persons to certain countries or result in the imposition of U.S.

travel advisories, warnings, rules, regulations or legislation that could expose us to penalties or claims of monetary damages.

The timing and scope of these changes are unpredictable, and they could cause us to cancel scheduled sailings, possibly on short notice, or could result in possible litigation against us.

This, in turn, could decrease our revenue, increase our operating costs and otherwise impair our profitability.

For instance, in June 2019, the U.S.

government announced that cruise ships would no longer be allowed to travel between the U.S.

This required us to change our high yielding Cuba sailings on short notice, which impacted our earnings.

Moreover, in May 2019, the U.S.

government activated Title III of the Cuban Liberty and Solidarity (Libertad) Act of 1996, popularly known as the Helms-Burton Act.

This allowed certain individuals whose property was confiscated by the Cuban government to sue in U.S.

courts anyone who “traffics” in the property in question.

The activation of Title III has resulted in litigation against us and others in the tourism industry.

Additionally, in the first quarter of 2020, the U.S.

Department of State, along with other governments, including Canada, issued travel advisories warning against cruise travel as a result of the COVID-19 pandemic and subsequently imposed restrictions on those entering the U.S.

and many nations imposed strict temporary restrictions on international travel.

This, combined with other factors, ultimately lead to the company voluntarily suspending the sailings of our fleet globally and may limit or slow our ability to resume operations in the near term.

In addition to the loss of revenues, our financial condition is affected by refund requests, future cruise credit issuances, and other costs associated with returning passengers and crew home safely.

Furthermore, many countries have adopted restrictions against U.S.

travelers and we currently cannot predict when those restrictions will be eased.

Disease outbreaks and an increase in concern about the risk of illness could adversely impact our business and results from operations.

Disease outbreaks and increased concern related to illness when travelling to, from, and on our ships could cause a drop in demand for cruises, guest cancellations, travel restrictions, an unavailability of ports and/or destinations, cruise cancellations, ship redeployments and an inability to source our crew, provisions or supplies from certain places.

Due to the complex and evolving nature of the COVID-19 pandemic we cannot predict the duration of the effect of the current pandemic, and the magnitude is dependent on the development of future events and responses from governments, other authorities, and individual consumers.

Disease outbreaks and increased concern related to illness when traveling to, from, and on our ships could cause a drop in demand for cruises, guest cancellations, travel restrictions, an unavailability of ports and/or destinations, cruise cancellations, ship redeployments and an inability to source our crew, provisions or supplies from certain places.

Due to the complex and evolving nature of the COVID-19 pandemic, we cannot predict the duration of the effect of the current pandemic, and the magnitude is dependent on the development of future events and responses from governments, other authorities, and individual

Our industry, including our passengers and crew, may be subject to enhanced health and safety requirements in the future which may be costly and take a significant amount of time to implement across our fleet and we may be subject to concerns that cruises are susceptible to the spread of infectious diseases such as COVID-19.

For example, local governments may establish their own set of rules for self-quarantines and/or require proof of individuals health status prior to or upon visiting.

These effects may extend beyond any resolution of the current COVID-19 pandemic through the development of a vaccine or effective therapeutic treatment, and the impact of any of these factors could have a material adverse effect on our business and results of operations.

In addition, the new operating protocols we are developing and any other health protocol we may develop or that may be required by law in the future in response to COVID-19 or other infectious diseases may be costly to implement and less effective than we expected in reducing the risk of infection and spread of such disease on our cruise ships, which will negatively impact our operations and expose us to reputational and legal risks.

For example, local governments may establish their own set of rules for self-quarantines and/or require proof of individuals health status or vaccination prior to or upon visiting.

These effects may extend beyond any resolution of the current COVID-19 pandemic through the distribution and roll-out of a vaccine or effective therapeutic treatment, and the impact of any of these factors could have a material adverse effect on our business and results of operations.

In addition, the new operating protocols we are developing and any other health protocol we may develop or that may be required by law in the future in response to COVID-19, and related variants, or other infectious diseases may be costly to implement and less effective than we expected in reducing the risk of infection and spread of such disease on our cruise ships, which will negatively impact our operations and expose us to reputational and legal risks.

Incidents on ships, at port facilities, land destinations and/or affecting the cruise vacation industry in general, and the associated negative media coverage and publicity, could affect our reputation and impact our sales and results of operations.

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In addition, the prices of labor and/or various commodities that are used in the construction of ships can be subject to volatile price changes, including the impact of fluctuations in foreign exchange rates.

Shipyards, their subcontractors, and/or our suppliers may encounter financial, technical or design problems when doing these jobs.

Shipyards, their subcontractors, and/or our suppliers may

encounter financial, technical or design problems when doing these jobs.

If materialized, these problems could impact the timely delivery or costs of new ships or the ability of shipyards to repair and upgrade our fleet in accordance with our needs or expectations.

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Although our ships can be redeployed, cruise sales and/or pricing may be impacted by the introduction of new ships into the marketplace, reductions in cruise capacity, overall market growth and deployment decisions of ourselves and our competitors.

As of December 31, 2019, a total of 67 new ships with approximately 159,000 berths were on order for delivery

through 2024 in the cruise industry, including 16 ships currently scheduled to be delivered to us.

As of March 31, 2021, a total of 109 new ships with approximately 219,300 berths were on order for delivery through 2027 in the cruise industry, including 11 ships currently scheduled to be delivered to us.

The further net growth in capacity from these new ships and future orders, without an increase in the cruise industry’s demand and/or share of the vacation market, could depress cruise prices and impede our ability to achieve yield improvement.

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Increased demand and competition for key ports of call or destinations, limitations on the availability or feasibility of use of specific ports of call and/or constraints on the availability of shore excursions and other service providers at such ports or destinations could adversely affect our results of operations.

Growing anti-tourism sentiments and environmental concerns related to cruising could adversely impact our operations.

Certain ports and destinations are facing a surge of both cruise and non-cruise tourism which, in certain cases, has fueled anti-tourism sentiments and related countermeasures to limit the volume of tourists allowed in these destinations.

In certain destinations, countermeasures to limit the volume of tourists are being contemplated and/or put into effect, including proposed limits on cruise ships and cruise passengers.

Potential restrictions in ports and destinations such as Venice, Barcelona or Key West, could limit the itinerary and destination options we can offer our passengers going forward.

Some environmental groups have also generated negative publicity about the environmental impact of the cruise vacation industry and are advocating for more stringent regulation of ship emissions at berth and at sea.

These anti-tourism sentiments and growing environmental scrutiny of the cruise industry and any related countermeasures could adversely impact our operations and financial results and subject us to increasing compliance costs.

We may lose business to competitors throughout the vacation market.

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In the event that we do not effectively market or differentiate our cruise brands from our competitors or otherwise compete effectively with other vacation alternatives and new or existing cruise companies, our results of operations and financial position could be adversely affected.

We may not be able to obtain sufficient financing or capital for our needs or may not be able to do so on terms that are acceptable or consistent with our expectations.

circumstance or event which leads to a decrease in consumer cruise spending, such as worsening global economic conditions or significant incidents impacting the cruise industry, including the COVID-19 pandemic, negatively affects our operating cash flows and currently, we have no cash flows from operations.

In the case of the COVID-19 pandemic and the resulting suspension of our operations, these circumstances have also resulted in credit rating downgrades.

See “—Adverse worldwide economic or other conditions could result in prolonged reduction in the demand for cruises and passenger spending, adversely impacting our operating results, cash flows and financial condition including potentially impairing the value of our goodwill, ships, trademarks and other assets and potentially affecting other critical accounting estimates where the change may be material to our operating results” and “—Incidents on ships, at port facilities, land destinations and/or affecting the cruise vacation industry in general, and the associated negative media coverage and publicity, could affect our reputation and impact our sales and results of operations” for more information.

Our ability to access additional funding as and when needed, our ability to timely refinance and/or replace our outstanding debt securities and credit facilities on acceptable terms and our cost of funding will depend upon numerous factors including, but not limited to, the recovery and strength of the financial markets, our financial performance, the performance of our industry in general and the size, scope and timing of our financial needs.

If any of the foregoing occurs for a prolonged period of time it will have a long-term negative impact on our cash flows and our ability to meet our obligations cannot be guaranteed.

Our substantial debt, and any additional debt we may incur, could adversely affect our financial condition and operational flexibility.

In addition, we will require a significant amount of cash to service our debt and sustain our operations.

Our ability to generate cash depends on many factors beyond our control, and we may not be able to generate cash required to service our debt.

We have a substantial amount of debt and significant debt service obligations.

As of September 30, 2020, we had total debt of $18.9 billion.

Our substantial debt could have important negative consequences for us.

increase our vulnerability to adverse general economic or industry conditions;

limit our flexibility in planning for, or reacting to, changes in our business or the industry in which we operate;

place us at a competitive disadvantage compared to our competitors that have less debt;

make us more vulnerable to downturns in our business, the economy or the industry in which we operate, including the current downturn related to COVID-19;

restrict us from making strategic acquisitions, introducing new technologies or exploiting business opportunities;

make it difficult for us to satisfy our obligations with respect to the notes and our other debt;

and increase our exposure to the risk of increased interest rates as certain of our borrowings are (and may be in the future) at a variable rate of interest.

In addition, we may incur substantial additional debt in the future.

If new debt is added to our existing debt levels, the related risks that we now face would increase.

We cannot assure that we will be able to generate sufficient cash through any of the foregoing.

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

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

Certain of our debt instruments, including our unsecured bank facilities, limit our flexibility in operating our business.

For example, certain of our loan agreements and indentures restrict or limit our and our subsidiaries’ ability to, among other things:

incur or guarantee additional indebtedness;

pay dividends or distributions on, or redeem or repurchase capital stock and make other restricted payments;

make investments;

consummate certain asset sales;

engage in certain transactions with affiliates;

grant or assume certain liens;

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

Refer to Note 7.

consolidated financial statements under Item 1.

Financial Statements for further discussion on our covenants and existing waivers.

On August 24, 2020, Moody’s downgraded the Silversea Notes from Baa3 to Ba2 and on August 31, 2020, S&P downgraded Silversea Cruises' Notes from BBB- to BB and as a result, certain covenants of the indenture governing the Silversea Notes have been reinstated, the application of which had been previously suspended unless and until any such downgrade occurred.

The reinstated covenants include, among other things, limitations on the ability of Silversea Cruises and its restricted subsidiaries to incur indebtedness, enter into transactions with affiliates (including Royal Caribbean and its subsidiaries that are not restricted subsidiaries of Silversea Cruises) and pay dividends and make other distributions from Silversea Cruises to Royal Caribbean, each of which may limit our ability to obtain funding and may decrease our operational and financial flexibility, including the ability to make upstream payments from Silversea Cruises and to provide funding support to Silversea Cruises.