TRANSPORTATION: Carnival; S&P upgrade
(CCL Unsec; B1 Pos/BB + Stable now/BB Pos) {CCL US Equity}
S&P upgrade o/n and we do expect Fitch to follow. S&P has stabilised the outlook as it is "unlikely" to move it into IG over the next year - company's comments last week are indicative it was targeting a move into IG this year. For those involved in the $ secured lines there was no upgrade - S&P will not move it above BBB- while issuer ratings remain in HY.
Outside ratings, catalyst ahead look balanced; potentially weaker macro that is yet to show vs. lower capex. On the former co has said NO slowdown in onboard spend even in March - impressive given it was running +10%yoy growth in 1Q (to-Feb) and is in contrast to US airlines weakness. On capex it has 1 ship delivery this year and none in '26 (after 3 in FY24/capex of $4.6b) - it has said freed up cash will help it continue deleveraging. In-line with that equity pay-outs remain on pause.
Net of above, thoughts unch from last week; €29s tad uninteresting, €30s have some room to tighten. A name to watch on any decompression.
S&P sees:
- revenue +4% and EBITDA +8% in FY25 (co's guidance is for +10% on latter - and will be seen as tad conservative/under guiding - equity consensus is at +12%)
- leverage to drop from 4.4x to 3.8x this year (upgrade threshold for IG is 3.75x)
- we see 4.3x to 4.0x, but S&P will bake in active debt paydowns. Co is guiding to another -$5b reduction in debt, if it does $2b this year then it would move down to 3.7x.
- FFO to Debt to rise from 19% to 21% this year (upgrade threshold for IG is 25%+)
- cash flow metrics boosted by the $ refi it has done which shaved $135m/yr in interest costs. Another $18m/yr saving from TL repricing.
- This is the higher buffer for upgrade and may explain why it has prioritising interest costs through MWC on two $ lines, both over 6pts above par.
- €30s are the next highest cash px but a MWC would still be a hefty +12pts above par and refi interest savings look small against that (~1.5pts/yr). We instead expect cash directed towards a pay-down without refi of the $1.35b (7.625%) 26s that are par callable from next month.
- The $500m (7%) 29s are similar +6.6pts above par for a MWC but the -1pt/yr saving on interest costs may not be enough motivation for it (recent MWC's saw -4.5pt/yr interest cut on refi).
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OUTLOOK: Price Signal Summary - EUROSTOXX50 Trend Needle Points North
- In the equity space, S&P E-Minis faded sharply off their recent highs, last week. The move down appears corrective - for now - and a bullish theme is intact. Attention is on the key resistance at 6178.75, the Dec 6 ‘24 high. A break of this hurdle would resume the primary longer-term uptrend. On the downside, initial key near-term support has been defined at 6014.00, the Feb 10 low. A breach would highlight a bearish development and expose 5935.50, the Feb 3 low.
- The trend direction in EUROSTOXX 50 futures remains up and last week’s climb to a new alltime high on the continuation contract, reinforces a bull theme. Note too that moving average studies are in a bull-mode set-up, highlighting a dominant uptrend and positive market sentiment. Sights are on 5574.57 next, a 2.382 projection of the Nov 21 - Dec 9 - 20 ‘24 price swing. Initial firm support to watch is 5379.97, the 20-day EMA.
BUNDS: /SWAPS: Long ASW Narrow A Touch, Debt Brake Uncertainty Lingers Post-Elex
A tweak to the debt brake cannot be ruled out following the German election, explaining this morning’s ~0.5bpsnarrowing in long-dated German ASWs vs. 3-month Euribor.
- However, concessions that Die Linke may demand to support any debt brake modifications continue to cloud the German fiscal outlook and issuance picture, limiting initial market follow through.
- Ultimately, our political risk team believes that Die Linke's opposition to voting with the AfD and support for broader fiscal loosening is likely to mean its lawmakers do not vote down a debt brake reform amendment.
- As such, fundamentals continue to point towards further long-dated ASW spread tightening, but already short positioning and ongoing fiscal uncertainty may limit tightening moves in the near-term.
- Zooming out, continued restraint when it comes to defence spending risks the scorn of U.S. President Trump, which could place further pressure on Germany, both politically and economically.
Fig. 1: German Bund & Buxl ASWs Vs. 3-Month Euribor
Source: MNI - Market News/Bloomberg
GILTS: /MONTH-END EXTENSIONS: UBS See Modest UK Index Extension At Month-End
UBS expect “the UK index to extend by ~0.05yr at month-end, which is slightly higher than the historical 3-year average end-Feb extension of ~0.03yr. The UK inflation-linked index is expected to contract at the end of this month.”
