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Investing.com -- Fitch Ratings has upgraded Carnival Corporation’s Long-Term Issuer Default Ratings to investment grade ’BBB-’ from ’BB+’ with a stable outlook, the rating agency announced Wednesday.
The upgrade follows Carnival’s refinancing of its 6.0% senior unsecured notes due 2029, which removes covenants that would release guarantees across unsecured bonds. Fitch also upgraded Carnival’s unsecured debt to ’BBB-’ from ’BB+’ while affirming its secured notes at ’BBB-’.
Fitch cited strong cruise demand as a key factor in the upgrade, noting that Carnival and its competitors have announced historically high bookings for both 2025 and 2026. The agency forecasts net yield growth of approximately 5.0% in 2025.
Carnival has significantly reduced its debt burden, which had increased substantially during the pandemic. Fitch expects debt to decline to $27 billion in 2025 from $35.6 billion in 2022. The company has also called its $1.1 billion convertible notes, which will be settled with $500 million in cash and shares.
Free cash flow is projected to grow to $1.6 billion in 2025 and increase "materially thereafter," according to Fitch. This improvement stems from EBITDA growth, lower interest costs from debt reduction, and decreased growth capital expenditures.
As the world’s largest cruise operator, Carnival holds the top market share in North American and European markets. Fitch considers the company’s scale a positive factor under normal operating conditions.
The rating agency expects industry capacity growth to remain moderate over the next several years, supporting net yield growth in the near term. Recent announcements of new ship builds will mostly not affect the market until the end of the decade.
Capital expenditures including new ship deliveries are expected to drop to $3.7 billion in 2025 and $3.6 billion in 2026. Fitch anticipates that free cash flow will be applied to debt reduction throughout the forecast period.
The agency does not expect any material shareholder returns until Carnival firmly establishes its investment-grade status.
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