Royal Caribbean Cruise Lines 2012 Annual Report Download - page 82

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
repairs as may be required. We have determined we
are not the primary beneficiary of this facility, as we
do not have the power to direct the activities that
most significantly impact the facility’s economic per-
formance. Accordingly, we do not consolidate this
entity and we account for this investment under the
equity method of accounting. As of December 31,
2012 and December 31, 2011, the net book value of
our investment in Grand Bahama, including equity
and loans, was approximately $59.3 million and $61.4
million, respectively, which is also our maximum expo-
sure to loss as we are not contractually required to
provide any financial or other support to the facility.
The majority of our loans to Grand Bahama are in
non-accrual status and the majority of this amount
was included within other assets in our consolidated
balance sheets. We received approximately $5.5 mil-
lion and $10.8 million in principal and interest payments
related to loans that are in accrual status from Grand
Bahama in 2012 and 2011, respectively, and recorded
income associated with our investment in Grand
Bahama. We monitor credit risk associated with these
loans through our participation on the Grand Bahama’s
board of directors along with our review of the Grand
Bahama’s financial statements and projected cash
flows. Based on this review, we believe the risk of loss
associated with these loans was not probable as of
December 31, 2012.
In conjunction with our acquisition of Pullmantur in
2006, we obtained a 49% noncontrolling interest
in Pullmantur Air, S.A. (“Pullmantur Air”), a small
air business that operates four aircraft in support
of Pullmantur’s operations. We have determined
Pullmantur Air is a VIE for which we are the primary
beneficiary as we have the power to direct the activi-
ties that most significantly impact its economic per-
formance and we are obligated to absorb its losses.
In accordance with authoritative guidance, we have
consolidated the assets and liabilities of Pullmantur
Air. We do not separately disclose the assets and
liabilities of Pullmantur Air as they are immaterial
to our December 31, 2012 and December 31, 2011
consolidated financial statements.
We have determined that TUI Cruises GmbH, our
50%-owned joint venture which operates the brand
TUI Cruises, is a VIE. As of December 31, 2012 and
December 31, 2011, our investment in TUI Cruises,
including equity and loans, was approximately $287.0
million and $282.0 million, respectively, and the
majority of this amount was included within other
assets in our consolidated balance sheets. In addition,
in conjunction with our sale of Celebrity Mercury to
TUI Cruises in 2011, we and TUI AG each guaranteed
the repayment of 50% of an €180.0 million 5-year bank
loan provided to TUI Cruises (refer to further details
below). This investment amount and the potential
obligations under this guarantee are substantially our
maximum exposure to loss. We have determined that
we are not the primary beneficiary of TUI Cruises.
We believe that the power to direct the activities that
most significantly impact TUI Cruises’ economic per-
formance are shared between ourselves and our joint
venture partner, TUI AG. All the significant operating
and financial decisions of TUI Cruises require the con-
sent of both parties which we believe creates shared
power over TUI Cruises. Accordingly, we do not con-
solidate this entity and account for this investment
under the equity method of accounting.
In connection with our sale of Celebrity Mercury
to TUI Cruises in 2011, we provided a debt facility
to TUI Cruises in the amount of up to €90.0 million.
The outstanding principal amount of the facility as
of December 31, 2012 was €68.6 million, or approxi-
mately $90.4 million based on the exchange rate at
December 31, 2012. The loan bears interest at the rate
of 9.54% per annum, is payable over seven years, is
50% guaranteed by TUI AG (our joint venture partner)
and is secured by second mortgages on both of TUI
Cruises’ ships, Mein Schiff 1 and Mein Schiff 2. In addi-
tion, we and TUI AG each guaranteed the repayment
of 50% of an €180.0 million 5-year bank loan provided
to TUI Cruises, of which €153.0 million, or approxi-
mately $201.7 million based on the exchange rate at
December 31, 2012, remains outstanding as of Decem-
ber 31, 2012, in connection with the sale of the ship.
The bank loan amortizes quarterly and is secured
by first mortgages on both Mein Schiff 1 and Mein
Schiff 2. Based on current facts and circumstances,
we do not believe potential obligations under this
guarantee are probable.
During 2011, TUI Cruises entered into a construction
agreement with STX Finland to build its first newbuild
ship, scheduled for delivery in the second quarter of
2014. TUI Cruises has entered into a credit agreement
for financing of up to 80% of the contract price of the
ship. The remaining portion of the contract price of
the ship will be funded through either TUI Cruises’
cash flows from operations or loans and/or equity
contributions from us and TUI AG. The construction
agreement includes certain restrictions on each of
our and TUI AG’s ability to reduce our current owner-
ship interest in TUI Cruises below 37.5% through the
construction period. In addition, the credit agreement
extends this restriction through 2019. In 2012, TUI
Cruises exercised their option under the agreement
with STX Finland to construct their second newbuild
ship, scheduled for delivery in the second quarter of
2015. TUI Cruises has secured a bank financing com-
mitment for 80% of the contract price of the second