Carnival Deemed Too Big to Fail, Rescued by the Fed

Mish

Carnival needed money. The Fed became the lender of last resort.

What constitutes "too big to fail" keeps getting smaller and smaller. 

It took Fed Intervention to save Carnival.

It was mid-March and the vultures were circling Carnival Corp., the largest cruise-line operator in the world.

That all changed on March 23 when the Federal Reserve defibrillated bond markets with an unprecedented lending program. Within days, Carnival’s investment bankers at JPMorgan Chase & Co. were talking to conventional investors such as AllianceBernstein Holding and Vanguard Group about a deal. By April 1, the company had raised almost $6 billion in bond markets, paying rates far below those executives had discussed just days earlier.

The previously unreported tale of Carnival’s rescue shows how effective the Fed has been in turning the debt spigot back on for large corporations. 

The idea of a cruise company raising so much new debt even as the pandemic worsened caught many by surprise. Nevertheless, fear of missing out attracted more investors. When Carnival officially sold a $4 billion bond on April 1, it had enough demand to cut the interest rate down to 11.5% and issue a $1.75 billion bond that could convert into stock.

Carnival could easily file for bankruptcy reorganization and reschedule debt payments.

One of my friends commented "This is just a play to save the equity, who are Trump’s friends."

OK but why would the Fed do this?

"Because he has appointed a ball-less group of wimps. It largely does what he wants. Particularly on a petty issue like this," replied my friend.

Hooray - Another fed-sponsored zombie.

Who's next?

Mish

Comments (64)
No. 1-25
Sechel
Sechel

I'm still fuming at Fed becoming a buyer of junk bonds. It's chicanery pure and simple. The Fed was not legally allowed to do so. Carnival benefited. What we saw with quantitative easing is that it wasn't a one time emergency measure but now part of the Fed's regular operations. When this crisis deepens or the next one is upon they'll be saying , "we need a bigger boat".

The Fed may ultimately wind up owning Carnival. Cruise ships seem to be even more dangerous than airplanes when it comes to pandemics , viruses and illnesses. There were stories making their regular appearance on the news even before Covid-19. Hard to see how this industry comes back

Sechel
Sechel

It gets worse.

A company in Georgia paid $6.5 million to resolve a Justice Department investigation — and, two weeks later, received a $10 million federally backed loan to help it survive the coronavirus crisis.

Another company, AutoWeb, disclosed last week that it had paid its chief executive $1.7 million in 2019 — a week after it received $1.4 million from the same loan program.

Tengen
Tengen

Carnival should bring back Kathie Lee Gifford to do a new commercial, where she and all the extras on deck are made up to look like an undead army.

Kathie Lee should sing a song too, but I'm not sure she has the chops to pull off "Zombie" by the Cranberries.

Sechel
Sechel

Just pulled up the article. A little mis-leading, Carnival was a beneficiary but not the intended target from what I can see.

FromBrussels
FromBrussels

...A government rescue operation should wipe out share holders and shave bondholders....in a normal world, anyway....

killben
killben

A cabal of scoundrels running the show in the guise of running the economy (central bankers) and running companies (corporate). Sad that we can only bemoan even when tax-payers money is used to pay them. Is it legal to spit on their faces?

JonSellers
JonSellers

The Fed isn't bailing out Carnival, it's bailing out the banks, PE firms, Hedge Funds, etc... that hold Carnival's debt. Those folks pay a whole bunch more in campaign contributions than you or I, so they deserve it.

Roger_Ramjet
Roger_Ramjet

If only we had an area in the law whereby a company could be temporarily shielded from creditors while the terms of their liabilities are renegotiated and perhaps discharged. Wouldn't that be a great idea?

Flatlaxity
Flatlaxity

As Muhammad El-Erian recently said in his a CNBC interview, the only thing worse than zombie companies is a zombie market.

George Phillies
George Phillies

This bailout is how the 17th century Dutch Republic ran itself down.

tokidoki
tokidoki

Where is this so called deflation?

Rbm
Rbm

Is it even an american company

Tony Bennett
Tony Bennett

"Who's next?"

...

Well, if want hoos yelling loudest today ... oil. Down 25%.

Some gems from today's Dallas Federal Reserve Texas mfg report (April) -

"The new orders index dropped 26 points to -67.0, its lowest reading since the survey began in 2004. Similarly, the growth rate of orders index fell to -62.2. The capacity utilization and shipments indexes fell to -54.5 and -56.6, respectively. The capital expenditures index declined 20 points to -54.3. Each of these April readings represents a historical low."

...

"The general business activity index inched down from -70.0 to -73.7, pushing to a new historical low."

...

"Prices and wages declined in April. The raw materials prices index posted a second negative reading in a row, falling from -5.9 to -19.6. The finished goods prices index dropped to -24.6 from -9.2. Both price indexes reached lows last seen in mid-2009. The wages and benefits index dipped into negative territory for the first time since the Great Recession, coming in at -2.7."

NewUlm
NewUlm

Business model = Don't pay US income tax, pay foreign workers $5 a day, feed Americans copious amounts of food, spread viruses with abandon, but list on US exchanges

Result = Free money from the Fed, no value for US taxpayers

frozeninthenorth
frozeninthenorth

Hold on, didn't all the cruise line shift to non-US jurisdiction (like Grand Cayman) to avoid US taxes...and now they are getting bailed out? I guess its a question of how much you gave to the GOP. A good old kleptocracy. It was bad in 2008 when all the bad players got bailed out and "thanked with bonus" for fu$king the economy, but this is priceless. Companies that went out of their way not to pay US taxes for years, who do not employ Americans are getting bailed-out.

Hedge funds should apply too while we are at it!

Sechel
Sechel

So Micky Arison is close to Trump so people are upset. But isn't the real problem is these programs were set up without oversight or more to the point that Trump refuses the oversight and the Senate lacks the will to hold him accountable? Remember Trump fired the IG that would have oversaw this program.

AWC
AWC

Even stawks are too big to fail. Hell, the fiat money system itself is too big to fail,,,,,,until it does.

Zardoz
Zardoz

Floating infection facilities, under foreign flags. Critical infrastructure!

JoeF1953
JoeF1953

Exactly what, other than click bait and comments by those two lazy to actually read the article, does any of this article have to do specifically with Carnival supposedly being 'rescued by the Fed?'

Sorry .... a business the size of Carnival needing to pay over 11% in bond interest to raise funds is not indicative of a 'rescue' package.

sangell
sangell

I'd like to see Carnival and its various subsidiaries criminally prosecuted. Australia has started a criminal investigation over the Ruby Princess. Florida should too as Carnival sent diseased passengers and crews there. Carnival has KNOWN since February 3rd when the Diamond Princess became a floating coronavirus hell it couldn't control outbreaks on its ships but it kept on selling passages and sailing its ships without regard to either passenger or port safety. Manslaughter if not outright murder charges should be brought against the captains and executives of this criminal company.

Jdog1
Jdog1

The Feds primary concern is the health of its member banks. If Carnival was heavily in debt to the banks, the Fed is going to do what it can to make sure they stay in business and do not default. The Fed is not the Federal Government, it is a corporations who's stockholders are the worlds biggest banks.

CautiousObserver
CautiousObserver

This is looking like a Cloward-Piven strategy for banks and big corporations. Load the system up with untenable debt to create a threat of implosion so big that lawmakers will grant bailouts to all responsible rather than face economic collapse. It is systematically stealing from the poor to give to the rich.

The whole thing stinks. The United States has no business claiming to be a "capitalist" country after this.

Carl_R
Carl_R

Umm, why does anyone care if Carnival fails, other than Carnival employees?

TumblingDice
TumblingDice

Mish asks who's next? Got me thinking. One of the best rock albums of all time.

The Who - Who's Next.
The song - Won't Get Fooled Again is on that album. The Fed didn't fool this cat.

Jdog1
Jdog1

So basically, Carnival now has additional debt service in the neighborhood of 700 million a year. Their net last year was 3 billion. They will undoubtedly loose money this year, and probably next. There is a very real possibility they will file bankruptcy and tell the bond holders to take a hike. And yet people buy the bonds. Why?


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