Standard & Poor's lifted Royal Caribbean Cruises Ltd.'s credit
rating from BBB- to BB+, making the company's bonds investment grade for the
first time.
The change followed an earlier move by Moody's Investor
Service to increase its rating on RCCL's senior unsecured debt in April from
Ba1 to Baa3. (The Baa3 rating means RCCL's bonds are judged to be
investment grade.)
Standard & Poor's said the new rating reflect its
expectation that solid cruise demand and pricing will allow the cruise company
to increase net yields across brands.
Achieving investment grade has been a longstanding goal at
RCCL. It means the company's bonds are no longer technically considered "junk
bonds."
Other things being equal, it means lower borrowing costs. It
also widens the number of funds and other investment vehicles that can own the
bonds, making them more tradable.
Moody's said its change acknowledges that RCCL's debt will
remain in its targeted range, in which it could pay off all borrowings with
annual cash flow in 3 to 3.5 years.
"The rating considers that while industrywide capacity
will increase, capacity expansion will remain at a rational level as a result
of supply constraints," Moody's said. "In addition, Moody's believes
that the value proposition of a cruise vacation will support continued
penetration of the vacation market by cruise operators."
Moody's said key credit risks include the highly seasonal
and capital-intensive nature of cruise companies.