MIAMI -- Responding to growing concerns about its finances, Premier
Cruises said it will reduce its debt by $160 million and acquire
$21 million in new working capital.
Premier's chief operating officer, Jon Erik Nygaard, said the
steps will give Premier "a healthy balance sheet" and will enable
agents to book the line "with full confidence." Premier said the
reduction of its debt and addition of new working capital were part
of an agreement in principal with its bondholders, expected to be
implemented within two weeks.
The announcement came within days Standard & Poor's lowering
of the line's credit rating, raising questions about Premier's
continued financial viability.
In announcing the agreement with its bondholders, Premier
indicated that travel agents were beginning to book away from the
line. "The importance of this strategy is that it definitively
addresses the issue of financial concern that had begun to affect
our sales," said Nygaard.
The new plan eliminates any short-term risk that the company
will have to default on its $160 million debt and file for
bankruptcy, according to a Wall Street analyst who follows
Premier's bond issue. "The plan buys Premier time and should give
the agent community some comfort that the company's financial
stress is lowered to some degree," said John Maxwell, an analyst
for S.G. Cowen Securities, a unit of French financial company
Securite Generale. "There really isn't a risk of Chapter 11 at this
time," he said.
The $21 million of new credit is in place of new equity
financing that Premier was discussing with potential investors,
Nygaard said. He added that Premier chose the credit option because
"it provides the company with a significantly superior balance
The advantage of the new balance sheet, Nygaard said, is that it
eliminates any claim that the holders of Premier's $160 million in
debt have against the company's assets, including its six ships. In
exchange for giving up any claims on the assets, Nygaard disclosed,
the bondholders have agreed to accept a 65% equity interest in the
company. "We will be in a much better position because the
bondholders have [unlinked] their claims on the assets of the
company in return for equity," Nygaard said.
Under the recapitalization plan, Premier Cruises Ltd., which
issued the $160 million bonds in March, will form a new operating
company that will be given all the assets of the company without
the $160 million bond obligation, Nygaard said.
The new company, which will continue to do business as Premier
Cruises, will have the responsibility of paying dividends to
Premier Cruises Ltd., which the latter company will use to service
the interest on its $160 million debt issue, Nygaard said. But the
bondholders will not have any claim against the new operating
company, which will own Premier's ships, Nygaard said.