It would be a mess should any of the cruise industry's largest players declare bankruptcy.
With a litany of subsidiaries, potential creditors and collateral — including private islands — insolvency proceedings would be extremely complex, according to Reorg Research distressed debt legal analyst Kevin Eckhardt.
"If these companies file, they could represent the most complex multi-jurisdictional insolvencies in the history of bankruptcy courts," Eckhardt said in a webinar about liquidity in the cruise industry and bankruptcy implications on Wednesday.
The coronavirus outbreak has battered the cruise industry, including the so-called "Big Three" of Carnival Corp, Royal Caribbean and Norwegian Cruise Line.
Huge loans
The companies have lost billions in equity value since the virus spread worldwide, forcing them to cancel all voyages and take out huge loans to provide enough liquidity to help pay their bills.
The figures, as calculated by Reorg, have Carnival borrowing $4bn backed by 86 ships; Norwegian $675m backed by two vessels, its two private islands and intellectual property; and Royal Caribbean a total of $3.3bn over two issuances backed by 28 vessels and intellectual property.
Viking Cruises, a private operator, took out $675m backed by 20 vessels and intellectual property.
Flag issues
Should any line seek to reorganise their businesses, it would become a "thorny and complex" issue, Eckhardt said.
Carnival, for example, has 23 of its collateral ships flying the Italian flag, 20 in Bermuda and 17 in Panama, among other flag states.
Any bankruptcy proceeding would have to take into account those laws, as well as the laws where the ships are located and the laws of the jurisdiction where the ships' registration companies were formed, and others.
This provides the companies some flexibility, Eckhardt and the other Reorg analysts said, but could also create complications with some creditors choosing to arrest ships to satisfy their claims.
Bankruptcy proceedings in the US put stays on all property, but foreign creditors without a US presence could ignore those orders as US courts have no way to enforce them.
Further, registered that have leased vessels to operators could see the contracts rejected in bankruptcy court, leaving creditors with a lien on a non-operating vessel that cannot be leased out again easily.
Carnival spokesman Roger Frizzell said the line has been able to secure more than $9bn to "carry our company into next year even in the highly unlikely event that no revenue is being recorded".
Royal Caribbean declined to comment.
Norwegian and Viking did not return requests for comment.
