Carnival (CCL Snr Unsec; B2 Pos/BB/BB Pos) Fitch initiates

Fitch initiated on it last week. Key point for us is it's not notching aggressively like Moody's, instead following S&P in leaving unsecured flat to LT rating while the secured are +2. Reminder Moody's gives Carnival +3/-1 vs. baseline; 4-notch difference despite co attempting to rid itself of the secured and is evidenced in recent paydowns.

We continue to recommend investors look at the CCL 29/30s alongside AFFP/FOY. Yes asset heavy but depreciation costs are similar to the airlines and margins are much better (market leader in cruises). No govvie support/links is the drawback.

Unlike FOY and AFFP, CCL it is targeting IG ratings making it a rising star hopeful. This is somewhat priced, but there is still room for it to go if it reaches IG; 30s at OAS+250/5% working out to 5yrs or low cash px 29s at OAS+230/4.7%.

It expects leverage to be at 5x this year with upgrade for BB+ ratings when "approaching 4.5x". It's noted potential for convertibles to be exchanged into equity to aid in deleveraging - it's priced/ITM on the 24s - the other is a '27. It's assumed FCF heads only to debt paydowns (comments during earnings call indic. of that). On operating performance it's assumed passenger growth of 10% this year, yields +9-11%, costs +4-5% and capex of $4.7b - all in line with consensus. It's assumption for capex of $3.5b/$3b in FY25/26 is higher than consensus at $2.9b/$2.1b though.

Last note on Carnival here.