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Investing.com -- S&P Global Ratings revised Carnival Corp’s outlook to positive from stable on Tuesday, citing the cruise operator’s strong performance and improved financial metrics.
The rating agency affirmed Carnival’s ratings and assigned a ’BB+’ rating to the company’s proposed $1.25 billion notes offering.
Carnival has outperformed S&P’s fiscal-year 2025 forecast, with strength in close-in bookings and onboard revenue during the third fiscal quarter ended August 31. This performance led management to raise its fiscal-year 2025 net yield and EBITDA guidance for the third time this year.
The company now expects to increase its net yields on a constant-currency basis by 5.3%, up from the previous forecast of 4.7%. S&P anticipates Carnival will expand its net yields by 6.2% on a current-dollar basis, compared with 3.9% in its prior forecast.
S&P now estimates Carnival will increase revenue by about 5.5% and EBITDA by about 14% in 2025, compared with its previous forecast for 8% EBITDA growth. The rating agency expects the company to improve its fiscal-year 2025 adjusted debt to EBITDA ratio to approximately 3.5x by year-end, down from the prior forecast of 3.8x.
The cruise operator has already booked nearly half of its 2026 inventory at historically high constant-currency prices for both its North America and Europe segments. Booking trends have strengthened since May, with higher booking volumes than last year and the pace of volume growth exceeding capacity expansion.
Carnival’s ship delivery schedule has slowed, with only one ship delivered in fiscal year 2025 and none scheduled for fiscal year 2026. The company has resumed ordering ships with one delivery scheduled annually from fiscal years 2027 through 2033, down from three to five deliveries annually in fiscal years 2018-2022.
The more measured approach to ship ordering supports Carnival’s strategy to repair its balance sheet and reduce debt. S&P expects this level of ship deliveries will enable the company to generate significant cash flow for deleveraging over the next few years.
In fiscal year 2025, Carnival prepaid $1 billion of debt and plans to redeem its outstanding $1.1 billion of convertible notes using a mixture of cash and equity. Under S&P’s base-case forecast, Carnival could reduce its leverage to 3x or below by the end of fiscal year 2026.
S&P could raise its rating on Carnival if the company can sustain adjusted net debt to EBITDA of less than 3.75x, funds from operations to total debt of more than 25%, and EBITDA interest coverage greater than 4.5x after incorporating a moderate to severe cyclical downturn.
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