Norwegian Cruise Line Holdings Ltd. is seeking a valuation for its initial public offering that’s in line with peers even as it carries almost double the debt relative to earnings as its largest rival.
The company, whose owners include Apollo Global Management LLC (APO:US), is seeking as much as $424 million in its IPO to pay down debt, regulatory filings (NCLH:US) show. The midpoint of the price range would give Norwegian an enterprise value of about $5.97 billion, or 11 times earnings before interest, taxes, depreciation and amortization in the year through September, according to data compiled by Bloomberg. That compares with 10 times Ebitda for Royal Caribbean Cruises Ltd. (RCL:US) and 12 for Carnival Corp.
Norwegian is tapping the public market to help repay debt that hasn’t changed much in the five years since its owners partnered with Apollo to reduce leverage and expand. At the same time, Norwegian’s share of the cruise market is no larger than 10 percent, compared with as much as 50 percent for Carnival (CCL:US) and 40 percent for Royal Caribbean, according to Morningstar Inc. This makes it more difficult to compete, according to Jaime Katz, a Morningstar analyst in Chicago.
“They’re a smaller player (NCLH:US) and obviously not a price setter in the business, so they’re at the mercy of Royal and Carnival’s pricing strategy,” Katz said in a telephone interview. Also, with less capacity than Carnival, and fewer itineraries, it has less flexibility to respond to changing market conditions or route popularity in an industry that is vulnerable to economic cycles and consumer sentiment, she said.
Norwegian is selling all of the stock in the IPO, representing a 12 percent stake, and plans to use the proceeds to reduce borrowings to $2.6 billion from almost $3 billion, filings show. A representative for Norwegian didn’t immediately return a call outside normal business hours seeking comment.
New York-based Apollo and Fort Worth, Texas-based TPG Capital together paid $1 billion for half of the cruise line’s equity in January 2008 to help reduce debt, which at the time totaled $3.2 billion, filings show. The firms later invested $50 million more, without changing their percentage ownership.
Norwegian’s ratio of total debt to trailing 12-month Ebitda of $539 million will be about 4.88 after the IPO, according to data compiled by Bloomberg, compared with 2.66 for Carnival. Miami-based Norwegian previously filed in October 2010 for a $250 million IPO, before scrapping the plans in July 2011, the data show.
Apollo will own about 33 percent of Norwegian after the IPO, and TPG will own about 11 percent, filings show. Genting Hong Kong Ltd., which owned the cruise line before the private- equity firms’ investment, will hold 44 percent after the offering.
The midpoint of the IPO price range would value all of Norwegian’s outstanding stock at $3.4 billion and Apollo’s and TPG’s stake at $1.5 billion, representing a 43 percent paper gain from the investment, according to data compiled by Bloomberg.
Since January 2008, when Apollo completed its investment in Norwegian, Carnival and Royal Caribbean, both based in Miami, have lagged the broader U.S. stock market. Carnival’s share price has fallen about 13 percent, and Royal Caribbean’s is down 12 percent, while the Standard & Poor’s 500 Index has gained less than 2 percent.
Norwegian, led by Chief Executive Officer Kevin Sheehan, operates 11 ships and plans to expand with several more over the next few years, according to the company’s filings. Norwegian generated $2.26 billion in revenue in the 12 months through September. The company operates trips to destinations including Europe, Alaska, Bermuda and Hawaii.
Carnival, the biggest cruise operator, with routes in North America, Europe, Asia and Australia, has about 100 ships, according to the company’s website.
By doing its offering now, Norwegian may be trying to take advantage of a pickup in demand for cruises as it introduces new ships to its fleet. Yield -- a measure of revenue that takes into account ship capacity and time spent on cruises -- was little changed at Norwegian last year, while Carnival and Royal Caribbean saw decreases of 3 percent to 4 percent, said Steven Wieczynski, an analyst at Stifel Financial Corp.
Yield this year at the larger competitors is expected to increase 2 percent to 4 percent, and Norwegian will keep pace, Wieczynski said. Norwegian advertises casual-attire cruises with flexible dining times to attract a diverse clientele and increase on-board spending, according to the company’s filing.
“They’re seeing very strong increases in demand,” Wieczynski said. “They’ve done a good job of drawing that customer on board who has never taken a cruise.”
Still, Norwegian’s size relative to competitors can be a disadvantage, Morningstar’s Katz said, because larger cruise lines have more flexibility to react to events that hit demand for the trips.
“The cruise industry is very cyclical,” Katz said. Carnival “has more itineraries and ability to redeploy in the marketplace.”
The shares will be listed on the Nasdaq Stock Market under the symbol NCLH. UBS AG and Barclays Plc are leading the offering.
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