Royal Caribbean upgraded to ’BBB’ by Fitch on strong metrics

Investing.com -- Fitch Ratings has upgraded Royal Caribbean Cruises Ltd.’s Long-Term Issuer Default Rating to ’BBB’ from ’BBB-’ with a Stable outlook, the agency announced Monday.

The upgrade reflects stronger-than-expected leverage metrics, continued debt reduction, and overall strength in the cruise industry. Fitch also upgraded the company’s senior unsecured bonds to ’BBB’ from ’BBB-’ and assigned a ’BBB’ rating to Royal Caribbean’s proposed senior unsecured note offering.

Royal Caribbean plans to use proceeds from the new senior unsecured note to finance the Celebrity Xcel ship, expected for delivery in the fourth quarter of 2025, and to refinance other debt. Fitch views this transaction positively, noting it could lead to lower interest costs and longer tenor.

The rating agency expects Royal Caribbean to maintain gross leverage in the low-3x range, aligning with the company’s sub-3.0x net leverage target, despite resumed dividend payments and share repurchases. The cruise operator now has a completely unsecured and non-guaranteed debt structure, increasing its financial flexibility during potential downturns.

Cruise demand remains robust with bookings for 2025 and 2026 showing higher average daily prices. Royal Caribbean expects net yields to increase by 3.5%-4.0% in 2025, with capacity growing by 5.5%. Onboard spending continues to drive revenue growth, supported by exclusive private destinations.

As the second-largest cruise operator globally, Royal Caribbean maintains significantly higher EBITDA margins (36%-37%) compared to competitors Carnival Corporation (25%-27%) and Norwegian Cruise Lines (25%-26%), according to Fitch estimates.

The company has a fully undrawn $6.4 billion revolver as of June 30, 2025, providing substantial liquidity. Fitch projects maintenance and non-shipbuilding capital expenditures at $600 million-$800 million annually, with higher spending in 2025 due to special projects.

For a potential future upgrade, Royal Caribbean would need to demonstrate sustainable positive cash flow applied to debt repayment, EBITDA leverage below 3.0x, and a cash flow from operations minus capital expenditures to debt ratio greater than 12.5%.

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