S&P cuts ratings on cruise lines Carnival, Royal Caribbean

Shares of Carnival Corp. and PLC and Royal Caribbean Cruises Ltd. were down in morning trading after Standard & Poor’s Rating Services hit the cruise lines with a double whammy — credit rating downgrades and negative outlooks for 2009 and 2010.

Carnival (NYSE: CCL) was dropped to a BBB+ from an A- rating, while Royal Caribbean (NYSE: RCL) dropped to BB- from BB. The existing debt of both companies also was lowered one notch.

S&P credit analyst Ben Bubeck said in a media release that he is looking for an earnings decline “in the mid- to high teens” for Carnival — even with a 5 percent capacity increase this year — and an earnings decline in the mid-teens for Royal Caribbean.

The downgrade wasn’t a complete surprise, as S&P had put Royal Caribbean’s ratings on its CreditWatch list with negative implications on Jan. 30. That followed the company’s fourth quarter results and its forecast of 9 percent to 13 percent revenue declines during 2009.

The negative rating outlook reflects S&P’s continuing concerns that the weakened state of the economy and the pullback in consumer spending will challenge Royal Caribbean’s ability to fill its ships at profitable rates.

The rating anticipates that the company will be able to secure financing for the first of two Oasis-class ships on order but raises concerns about securing the about $1 billion financing commitment for the second one.

The negative outlook is somewhat offset by RCL's solid brands, according to S&P, as well as its relatively young and high-quality fleet of ships, the high barriers to entry in the cruise industry and an experienced management team.

Carnival executives were in flight, returning from a California meeting, and were unavailable for comment.

Royal Caribbean did not return a call for comment.

Both Carnival and Royal Caribbean have cruise ship departures from Tampa.

Carnival shares were down 48 cents to $22.66 in late morning trading. The 52-week high was $43.54 on April 2. The 52-week low was $14.85 on Nov. 21.

Royal Caribbean shares were down 38 cents to $8.93 in late morning trading. The 52-week high was $35.98 on April 1. The 52-week low was $5.40 on March 3.