Fitch Comments On Carnival Corporation

Friday, May 10, 2002
Fitch Ratings has maintained the Rating Watch Negative status on Carnival Corporation's 'A' senior note rating and 'F1' commercial paper rating due to the uncertainty surrounding the potential merger of Carnival Corporation and P&O Princess Cruises, which is currently pending regulatory review. The outcome of the review process is likely to be determined around mid-summer.

Operating fundamentals in the industry have rebounded more quickly than originally expected. Following the events of Sept. 11, net revenue yields were expected to decline approximately 15 percent during the first quarter of 2002 compared to the first quarter of 2001. However, CCL actually experienced a much less severe drop in net revenue yields, posting a decline of 7.5 percent. In addition, for the second, third and fourth quarters of 2002 advance bookings are currently running above last year's pace. Nevertheless, on a cumulative basis, advanced bookings and pricing are still below the prior year's comparable quarters primarily due to Sept. 11 and a change in booking patterns. The booking window has shifted closer in to the sailing date. CCL expects net revenue yields for the second and third quarters of 2002 to decline approximately 4-6 percent and increase slightly in the fourth quarter of 2002 compared to last year.

While operating trends have improved, CCL will take delivery of three new ships during 2002 (one ship went into service in Jan. 2002) in a weaker net revenue yield environment. CCL's major cruise competitors, Royal Caribbean and P&O Princess, are also taking on new capacity. Even with an improved economy, Fitch Ratings expects CCL will face a highly competitive pricing environment for the next few years as the new supply is absorbed, which may impact the company's ability to achieve its targeted 25 percent level of cash-on-cash return from the new ships. However, as the low-cost operator and with the company's strong balance sheet, Fitch believes CCL is best positioned to weather that environment. For the first quarter ended Feb. 28, 2002, CCL's credit profile remained solid. In particular, EBITDA/interest was 9.6 times and net debt to trailing 12 month EBITDA was 1.2x, up slightly from 1.0x at Nov. 30, 2001. Fitch expects CCL's net leverage to increase during the year as the company takes delivery of three new ships, but remain well below 2.0x. Fitch Ratings anticipates that CCL's shipbuilding program, which consists of 15 new vessels at an investment of approximately $6.6 billion, will be funded largely through a combination of free cash flow and periodic borrowings. This ambitious spending level is expected to prevent credit measures from improving significantly over existing levels during the next several years. Consequently, Fitch's ratings anticipate that debt/EBITDA will remain in the 1.5-1.8 times (x) range with EBITDA coverage of interest above 9x during the period of high capital spending. CCL's expansion investment is expected to increase the company's fleet size by approximately one-third in terms of ships, while adding roughly 60 percent of new berth capacity to the portfolio (excluding possible divestitures) through 2006.

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