Analysts confident Norwegian Cruise Line to go public in 2013

By Tom Stieghorst

Analysts last week were giving good odds that Norwegian Cruise Line will finally go public in 2013, and they predict that the resulting infusion of equity would give it the financial strength and flexibility to do other deals.

Norwegian filed with regulators on Jan. 2 to offer 23.5 million shares of stock at between $16 and $18 a share. It had filed a smaller offering in 2010 but withdrew that bid in July 2011.

Anne Gjoen, head of equity research at Handelsbanken Capital Markets, in Oslo, Norway, said Norwegian's story has developed positively since then, largely as a result of success with its new vessels.

"The cruise market as such seems also clearly improving, and therefore we find it more likely that the deal will be completed this time," Gjoen said.

By going public, Miami-based Norwegian would raise $375 million to $425 million to pay down debt and reduce interest costs. That would make it more profitable and attractive to business partners.

It also gives current co-owners Apollo Group and TPG Viking a mechanism to sell or reduce their combined 50% stake in Norwegian, the result of investing $1 billion in 2007.

"They're owned by private equity," said Sharon Zackfia, analyst at William Blair & Co. "Private equity needs to monetize sometime."

Neither Apollo nor TPG would get direct benefit from the stock sale, however. After the deal, the public would own about 12% of Norwegian Cruise Line Holdings Ltd.

NCL OwnershipApollo would own about 33%, down from its current 37.5%; TPG would own 11%, down from 12.5%, and Genting HK would own 44%, down from 50% now.Perhaps most importantly, Apollo would still control six of the nine seats on the board. (Click here or on the image, right, for a view of how the new ownership would break down.)

In practical terms, the stock sale would mean Norwegian would have more money because it has less interest expense. It plans to prepay $55 million of debt on its ships and could pay down some of its senior notes.

Norwegian would still be highly leveraged. It has debt of about $2.9 billion, about 145% of its $2 billion in equity. The comparable ratios at competitors are 90% at Royal Caribbean Cruises Ltd. and 37% at Carnival Corp.

Norwegian's debt prevents it from offering a dividend to investors, while both Carnival and Royal pay dividends.

But going public will give Norwegian more flexibility, said Rod McLeod, a consultant and former president of Norwegian.

A stock sale sets a firm value for the company, which can be used in negotiations for a variety of financial transactions, McLeod said. It would also help if Apollo Group were to make a deal that involves its other cruise asset, Prestige Cruise Holdings, which operates Regent Seven Seas Cruises and Oceania Cruises.

Unlike many of its past investments, Apollo is not unloading its shares in the public offering. McLeod said he thinks that's a sign a bigger payday might be waiting.

"What this tells me is that there's either a belief or a hope that they'll get in the market, and if they can delay selling, they'll be able to sell their shares at a higher price."

But to get there, Norwegian will have to perform.

"The most important thing will be the next year to 18 months," McLeod said. "When you go public, you've got to deliver on the numbers."

Norwegian in May will debut the Norwegian Breakaway, a 4,000-passenger vessel that will be a new class of ship, followed by Norwegian Getaway in early 2014 and a 4,200-passenger ship, currently termed Breakaway Plus, sometime in 2015.

For the 12 months ended Nov. 30, Norwegian earned $165.6 million on revenue of $2.26 billion.

Events could still derail Norwegian's plan. McLeod recalls attempting to take Norwegian public when he was president in 1987, only to be foiled by the Black Friday stock market crash.

And even if the deal goes through, McLeod said, there's no guarantee the stock will trade up.

"It will be a challenge," he said. "You've already got two very good [alternatives] if you're a person interested in investing in the cruise sector."

Follow Tom Stieghorst on Twitter @tstravelweekly. 

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