Royal Caribbean Cruise Lines 2014 Annual Report Download - page 31

30 Royal Caribbean Cruises Ltd.
PART I
Our inability to satisfy the covenants required by our
credit facilities could adversely impact our liquidity.
Our debt agreements contain covenants, including
covenants restricting our ability to take certain actions
and financial covenants. In addition, our ability to make
borrowings under our available credit facilities is sub-
ject to the absence of material adverse changes in our
business. Our ability to maintain our credit facilities
may also be impacted by changes in our ownership
base. More specifically, we may be required to prepay
a majority of our debt facilities if (i) any person or
entity other than A. Wilhelmsen AS and Cruise Asso-
ciates and their respective affiliates (the “Applicable
Group”) acquires ownership of more than 33% of our
common stock and the Applicable Group owns less
of our common stock than such person or (ii) subject
to certain exceptions, during any 24-month period, a
majority of the Board is no longer comprised of indi-
viduals who were members of the Board on the first
day of such period. Certain of our outstanding debt
securities also contain change of control provisions
that would be triggered by the acquisition of greater
than 50% of our common stock by a person other
than a member of the Applicable Group coupled with
a ratings downgrade.
Our failure to comply with the terms of our debt facili-
ties could result in an event of default. Generally, if
an event of default under any debt agreement occurs,
then pursuant to cross default acceleration clauses,
our outstanding debt and derivative contract payables
could become due and/or terminated. In addition, in
such events, our credit card processors could hold
back payments to create a reserve. We cannot provide
assurances that we would have sufficient liquidity to
repay or the ability to refinance the borrowings under
any of the credit facilities or settle other outstanding
contracts if such amounts were accelerated upon an
event of default.
Incidents or adverse publicity concerning the cruise
vacation industry, unusual weather conditions and
other natural disasters or disruptions could affect our
reputation as well as impact our sales and results of
operations.
The ownership and/or operation of cruise ships, air-
planes, land tours, port facilities and shore excursions
involves the risk of accidents, illnesses, mechanical
failures, environmental incidents and other incidents
which may bring into question safety, health, security
and vacation satisfaction which could negatively impact
our reputation. Incidents involving cruise ships, and, in
particular the safety and security of guests and crew,
media coverage thereof, as well as adverse media
publicity concerning the cruise vacation industry have
impacted and could in the future impact demand for
our cruises and pricing in the industry. The consider-
able expansion in the use of social media and digital
marketing over recent years has compounded the
potential scope of the negative publicity that could
be generated by those incidents. If any such incident
occurs during a time of high seasonal demand, the
effect could disproportionately impact our results of
operations for the year. In addition, incidents involv-
ing cruise ships may result in additional costs to our
business, increasing government or other regulatory
oversight and, in the case of incidents involving our
ships, potential litigation.
Our cruise ships and port facilities may also be
adversely impacted by unusual weather patterns or
natural disasters or disruptions, such as hurricanes
and earthquakes. We are often forced to alter itiner-
aries and occasionally to cancel a cruise or a series
of cruises due to these or other factors, which could
have an adverse effect on our sales and profitability.
In addition, these and any other events which impact
the travel industry more generally may negatively
impact our ability to deliver guests or crew to our
cruises and/or interrupt our ability to obtain services
and goods from key vendors in our supply chain. Any
of the foregoing could have an adverse impact on our
results of operations and on industry performance.
The impact of disruptions in the global financial markets
may affect the ability of our counterparties and others
to perform their obligations to us.
The financial crisis of 2008, including failures of finan-
cial service and insurance companies and the related
liquidity crisis, disrupted the capital and credit markets.
A recurrence of these or similar disruptions could
cause our counterparties and others to breach their
obligations to us under our contracts with them. This
could include failures of banks or other financial serv-
ice companies to fund required borrowings under
our loan agreements or to pay us amounts that may
become due under our derivative contracts for hedg-
ing of fuel prices, interest rates and foreign currencies
or other agreements. If any of the foregoing occurs it
may have a negative impact on our cash flows, includ-
ing our ability to meet our obligations, our results of
operations and our financial condition.
An increase in capacity worldwide or excess capacity
in a particular market could adversely impact our
cruise sales and/or pricing.
Although our ships can be redeployed, cruise sales
and/or pricing may be impacted both by the introduc-
tion of new ships into the marketplace and by deploy-
ment decisions of ourselves and our competitors.
A total of 33 new ships with approximately 98,650
berths are on order for delivery through 2019 in the
cruise industry. The further growth in capacity from
these new ships and future orders, without an increase
in the cruise industry’s share of the vacation market,
could depress cruise prices and impede our ability to
achieve yield improvement.