Carnival Cruises isn't bailout-eligible, so it's making some desperate money moves
That classic awkward moment when... you realize you're not eligible for a much-needed gov bailout because you incorporated in Panama to pay lower wages/taxes. Few industries are struggling more than the cruise industry, and nearly no company has struggled as much as Carnival (with its multiple coronavirus-infected cruise ships). Good thing the $2T govt stimulus includes $500B for sinking corporations, right? Not for Carnival:
- For a company to qualify for the $$$ it has to be "created or organized in the US.” But Carnival is incorporated in Panama, which means it avoids paying almost any federal income tax.
- Many of the largest cruise operators are incorporated offshore: Royal Caribbean chose Liberia, and Norwegian opted for Bermuda. They can avoid paying the US minimum wage to most employees, many of whom aren't American citizens.
Carnival is in an (especially) bad situation... It has no customers for the foreseeable future, but also has huge debt payments to make. And — it likely won't be eligible for bailout money.
- So it's trying to borrow billions, and tapping almost all of its $3B credit line.
- It's also selling $3B in bonds. Carnival knows investors will think it's risky, so it's offering to pay a whopping 12.5% in interest to make the loan attractive.
- If Carnival can't pay them back when the bonds mature in 3 years, investors get to seize its massive ships as collateral. No one has the garage space for that.
Being offshore hurts during times like these... For years, Carnival has been reaping the extra profits from being incorporated outside the US. But now, with its business virtually non-existent, it could really use a little help from Uncle Sam. It likely won't be granted a slice of the $500B rescue pie. So it's forced to rack up a very risky amount of debt, hoping to survive until things return to normal.