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Investors in Royal Caribbean Cruises Could Benefit from Keeping Company Afloat
Investors can get an extra yield of 5 percentage points from lending to Royal Caribbean Cruises for the next few years than they can get from U.S. Treasuries. That is up from just 1.5 percentage points from the end of last year.
The extra yield reflects the fact that cruise lines have stopped earning revenue ever since the pandemic forced them to dock all their ships. But that doesn’t necessarily mean the bonds should trade that cheaply, especially with vaccines on the way.
According to a new analysis from GMO, an asset manager, Royal Caribbean’s shareholders should be able to absorb the current rate of cash burn for years. Add in the collateral value of the ships and it’s possible that investors are getting a lot more yield than they would need to compensate them for the risk of credit losses.