Carnival Corporation is likely to see its stock trade lower after it was forced to pay a whopping 7.5% interest on top of interbank rates to borrow $2.8 billion to strengthen its balance sheet due to the economic impact of the coronavirus pandemic.

The senior secured term loans are comprised of two tranches issued against 96% of the face value of its shipping fleet, with the hefty interest rate a reflection of its recent credit rating downgrade to junk status by Standard & Poor’s earlier this month.

‘Carnival Corporation intends to use the net proceeds from the term loan facility for general corporate purposes, which includes the repayment of near-term debt maturities,’ the company said in a statement.

The beleaguered British-American cruise operator has been forced to shutdown amid the Covid-19 outbreak, with investors concerned that the industry may never set sail again so long as the coronavirus pandemic persists.

Carnival has already cancelled voyages on its lines, including P&O Cruises and Princess, through the peak summer season with the US and other countries banning ships from mooring.

Carnival Corporation posts $4.4 billion quarterly loss

Due to the challenging market conditions brought about by the coronavirus pandemic, Carnival’s share price is down 67% year-to-date, with the stock likely to fall further the longer its ships remain at a standstill.

In its second quarter (Q2), the cruise operator reported a $4.4 billion loss, down from a profit of $451 million in the same period last year, with the company warning investors of further losses to come.

‘The company is currently unable to provide an earnings forecast,’ Carnival Corporation said in a statement. ‘The pause in guest operations is continuing to have material negative impacts on all aspects of the company’s business.’

‘The longer the pause continues, the greater the impact on the company’s liquidity and financial expectations,’ the company added.

Carnival Corporation closed 6% higher on Monday at $16.78, with the stock falling below the $8 per share mark in April – a level the stock could return to if the Covid-19 pandemic persists.

Carnival Corporation extends pause of operations to September

Earlier this month, the cruise operator said that it will extend its operational pause of its cruises in North America until the end of September as a result of the coronavirus pandemic.

‘We have watched with great interest as commerce, travel and personal activities have begun to start back up, and once we do resume service, we will take all necessary steps to ensure the health and safety of our guests, crew and the communities we bring our ships to in order to maintain public confidence in our business,’ Carnival Cruise Line President Christine Duffy said in a letter to customers.

‘Nevertheless, we apologise for disrupting your vacation plans and appreciate your patience as we work through these decisions.’

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