Viking Cruises Ltd. rating upgraded to ’BB’ at S&P amid strong performance, expected deleveraging

Investing.com -- S&P Global Ratings has upgraded the issuer credit rating of river and ocean cruise operator Viking Cruises Ltd. from ’BB-’ to ’BB’. The upgrade is due to the company’s strong performance and expected deleveraging. The outlook for Viking Cruises is stable.

Viking Cruises had sold approximately 88% of its capacity for 2025 by Feb. 23, 2025. The company’s forward booked position and higher pricing provide a clear view of the revenue and cash flow for 2025. It’s expected that Viking’s revenue, EBITDA, and cash flow will continue to increase and leverage will improve to the mid-1x area this year from about 2.6x at the end of 2024.

S&P Global Ratings also raised the issue-level ratings on Viking’s secured and unsecured debt by one notch. This positive outlook reflects the expectation that Viking’s forward booked position will support EBITDA and cash flow growth and continued deleveraging to the mid-1x area in 2025, including new ship deliveries.

The upgrade to ’BB’ reflects the expectation that Viking’s booked position for 2025 will support significant credit measure improvement, with leverage declining to mid-1x. As of Feb. 23, 2025, Viking’s 2025 advanced bookings are 26% above 2024 levels due to higher capacity, higher pricing, and the amount of inventory sold.

Viking is also set to benefit from new ship deliveries, including 10 new river ships and a new ocean ship set to join the fleet before the end of 2025. Viking had sold 89% of its 2025 river operating capacity and 87% of its ocean capacity as of Feb. 23, 2025. This revenue visibility and growth are expected to support significant cash flow generation and deleveraging in 2025.

Due to Viking’s strong forward booked position, leverage is expected to decline to the mid-1x area in 2025 from approximately 2.6x at the end of 2024. This supports the upgrade and provides a good cushion relative to the 4x leverage downgrade threshold for Viking at a ‘BB’ rating. Viking’s S&P Global Ratings-adjusted funds from operations (FFO) to debt are expected to improve to 50%-55% from about 27% in 2024.

Viking’s long booking window supports the view of its revenue and EBITDA trajectory despite the risk of a slowing economy. Preliminary bookings for 2026 are reportedly ahead of 2025. However, demand for future cruise bookings could decline due to stock market volatility that affects its target customer demographic, North Americans 55 years and older, and reduces their discretionary spending on travel.

Despite the base-case forecast for Viking’s 2025 leverage below the 3x upgrade threshold, the outlook is stable because financial policy constrains rating upside. As forward bookings provide visibility for significant free cash flow generation, the company is expected to add to its sizable cash balance, most of which is netted against debt balances, and increase its financial flexibility.

Viking is expected to prioritize reinvesting in the business mainly by ordering new ships to drive organic growth. In 2025, Viking will take delivery of one ocean ship and 10 river ships. Beyond 2025, Viking has eight ocean ships on order, with annual deliveries of one to two ships scheduled per year between 2026 and 2030. The company also has options for two additional ocean ships in both 2031 and 2032. The company also has ordered six river ships for delivery in 2026, two in 2027 and exercised its options for four in both 2027 and 2028.

The stable outlook reflects the expectation that Viking’s forward booked position will support EBITDA and cash flow growth and continued deleveraging to the mid-1x area. This provides sufficient cushion relative to the 4x downgrade threshold to accommodate expected new ship deliveries, modest operating volatility, and potential acquisitions or shareholder returns.

The rating could be lowered if Viking sustains adjusted leverage above 4x and FFO to debt below 20%. The rating could be raised if Viking sustains adjusted leverage below 3x; FFO to debt above 30%; and has sufficient cushion compared with these thresholds such that the company could sustain these measures during the next cyclical downturn, incorporating ship deliveries and potential shareholder returns or acquisitions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.