S&P upgrades NCL

S&P said it raised its issuer credit rating on NCL Corp. Ltd. to BB+ from BB. The outlook is stable.

At the same time, S&P raised its issue-level rating on NCL's $565 million (outstanding) senior notes due 2021 one notch to BB+, in line with the one-notch upgrade of the issuer credit rating. The recovery rating remains 3, reflecting an expectation for meaningful (50%-70%; rounded estimate 65%) recovery for lenders in the event of a payment default.

S&P also affirmed the BBB- issue-level rating on NCL's senior secured debt, consisting of an $875 million revolving credit facility, a $1.4 billion term loan A and a $375 million term loan B, all due 2021. The recovery rating remains 1, reflecting an expectation for very high (90%-100%; rounded estimate: 95%) recovery for lenders in the event of a payment default.

S&P said it is not raising the issue-level rating on the secured debt because S&P caps issue ratings for speculative-grade issuers at BBB- regardless of the recovery rating, since recovery is a smaller component of credit risk when default risk is more remote, particularly considering recovery prospects may be less predictable and more variable for issuers near the investment-grade threshold.

“The upgrade reflects our expectation that NCL's better EBITDA and cash flow will keep adjusted leverage in the mid- to low-3x area through 2019, despite increased shareholder returns,” S&P said in a news release.

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