Carnival Cruise Line was able to receive badly needed financing during the coronavirus pandemic thanks to unprecedented intervention by the Federal Reserve.
In early April, Carnival Cruise Line, which like other companies in the travel industry has had trouble surviving during the lockdown, issued $6billion worth of bonds at relatively low interest rates after an unprecedented debt purchase by the Fed, The Wall Street Journal reported.
The US central bank, arguably the most powerful financial institution on earth with more than $5.9trillion of assets on its books, has been intervening in money markets since last fall, when a cash shortage led to a jump in short-term borrowing rates.
Policymakers had planned this year to scale back operations in the market for repurchase agreements, or repo, through which dealers can borrow cash.
But as the economic threat posed by the coronavirus increased, the central bank pivoted to offering almost unlimited support in the overnight lending markets for cash.
The Federal Reserve’s intervention in the bond market enabled Carnival Cruise Line to obtain some $6billion of badly needed cash, according to The Wall Street Journal. Fed chair Jerome Powell is seen left. Carnival Corp Chairman Micky Arison is seen right
The Carnival-owned ship Carnival Magic is seen above docked at Port Canaveral, Florida, on April 4
Before the Fed’s intervention, Carnival, which is based in the Miami area, was having trouble finding a lender that would give it the billions of dollars in in cash it needed to weather the crisis, according to the Journal.
Carnival’s chairman is Micky Arison, son of company founder, the late Ted Arison.
The company, whose outlook appeared bleak, was in talks with hedge funds like Apollo Management Group, Elliott Management Group, and others who were offering high-interest loans.
These hedge funds are known as distressed debt investors who buy a company’s debt at a low price and then turn a handsome profit if the company turns around its fortunes.
Not only would these hedge funds buy the company’s debt, but in many cases they end up taking over the company altogether.
If a company goes bankrupt, the hedge funds who buy up masses amount of debt would be the first ones to get paid in a restructuring.
But after the Fed’s massive intervention in the lending markets, Carnival was able to secure $6billion through the bond markets at far more attractive interest rates than what was available just a few weeks beforehand.
The hospitality and travel industry has been hit hard by the coronavirus pandemic. In February, Japanese authorities ordered a Carnival-owned ship, the Diamond Princess, to be quarantined in Tokyo Bay after a large outbreak of COVID-19 on board. The ship is seen above on March 25
This will allow the Miami-based company, whose workforce numbers some 150,000 employees, to survive for the foreseeable future.
Since the Fed’s aggressive move into the lending markets, other massive companies have also managed to raise billions in financing, including Airbnb, Ford Motor Company, Delta Air Lines, and others.
In recent weeks, President Trump has spoken of the need to bail out the cruise industry, which has been particularly hit hard by the COVID-19 pandemic.
Last month, he told donors at Mar-a-Lago that he wanted to protect the cruise industry from the ravages of the pandemic, according to The Washington Post.
Trump’s ties to the cruise industry extend to his relationship with Arison, whose holdings also include the NBA’s Miami Heat.
Carnival has denied any suggestion that Arison’s ties to Trump enabled the company to receive preferential treatment. It also said the government has not given the firm any taxpayer funds.
‘The financing we received was tied to our global assets and strong financial track record, based on outstanding work from our financial team and bankers with absolutely no involvement or assistance from the US government,’ Carnival Cruise told DailyMail.com on Monday.
‘There was no government intervention whatsoever for our company or the cruise industry.’
Senator Bernie Sanders of Vermont, the independent who has argued against taxpayer-funded bailouts of large corporations, tweeted on Monday: ‘How in the hell does Carnival, a cruise ship company that pays virtually no federal income taxes, receive a bailout, but the Postal Service, the most popular government agency in America, does not?
‘The Post Office is essential. Cruise ships are not.’
Trump on Friday threatened to block federal aid for the US Postal Service unless it raises shipping rates for online companies like Amazon.com, prompting criticism that the move would hurt consumers relying more than usual on packages during the coronavirus outbreak.
The president has long accused the post office of charging too little for packages, saying that deliveries for Amazon and others cost the service money.
Amazon founder and CEO Jeff Bezos owns the Washington Post newspaper, which Trump has accused of unfair coverage of his administration.
‘The Postal Service is a joke. Because they’re handing out packages for Amazon and other internet companies, and every time they bring a package, they lose money on it,’ Trump told reporters in the Oval Office.
‘The Post Office should raise the price of a package by approximately four times.’
The president also accused post office officials of being ‘very cozy’ with big online merchants.
Arison, a billionaire, has donated money to both political parties over the years.
Carnival denies that it was able to obtain financing thanks to Arison’s ties to Trump. The two men are pictured alongside their wives at a Miami Heat basketball game in December 2005. From left: Arison; his wife, Madeleine; Trump; and his wife, Melania Trump
He and Trump were photographed together alongside their wives at a Heat basketball game in 2005.
In 2012, when the Heat won the NBA championship, Trump tweeted a congratulatory note to Arison.
Arison reportedly congratulated Trump on Twitter that same year for renovating his Trump National Doral golf club near Miami, though that tweet has since been deleted.
The business ties between the two men also extended to Trump’s previous full-time job – host of the NBC reality television show The Apprentice.
Senator Bernie Sanders on Monday accused Carnival of receiving a ‘bailout,’ but the company says it has received ‘absolutely no involvement or assistance from the US government’
In 2005, Trump presided over the launch of an ‘Apprentice Legend Cruise’ operated by Carnival.
Cast members from the show set sail on the vessel from New York to the Caribbean in a special promotional event.
In 2017, shortly after Trump was inaugurated as president, Carnival sponsored the two-part finale of the Apprentice spinoff, The New Celebrity Apprentice.
Carnival’s CEO, even made a cameo appearance on the show.
Trump is also known to have longstanding ties with lobbyists for the cruise industry, including Brian Ballard, a Trump fundraiser, and former Florida Attorney General Pam Bondi.
Bondi and Ballard were registered federal lobbyists for Carnival North American from February to August of last year, according to the Post.
While Carnival Corp’s business headquarters is in the Miami area, it is officially registered in Panama. According to its SEC filings, it acknowledges that it is ‘currently exempt from US federal income and branch profit taxes’
Earlier this month, when Trump announced a special task force which would examine ways to reopen the economy, he named Arison as one of its members.
Cruises received attention at the start of the outbreak after several reported multiple COVID-19 cases among passengers.
One of Carnival’s cruise liners, the Diamond Princess, was ordered into quarantine and lockdown in Tokyo Bay in February after several hundred passengers and crew fell ill with COVID-19.
At the time, it was the largest cluster of COVID-19 cases outside of Wuhan, China.
Since then, however, the outbreak has spread to nearly every corner of the earth, infecting millions.
This has forced cruise lines to shut down for the foreseeable future.
Despite Trump’s wishes, however, the cruise line operators did not receive any bailout money from the federal government as a result of the recently passed coronavirus relief measures.
During negotiations with Republicans, a key demand from Democrats, labor leaders, and environmentalists was to exclude cruise line operators from receiving assistance under the CARES Act, according to press reports.
Critics argue cruise lines should not be eligible for any taxpayer-funded bailouts since these companies incorporate overseas and fly under foreign flags in order to avoid paying taxes.
Arison’s company, Carnival, is registered in Panama.
Its SEC filing states that the firm ‘is currently exempt from US federal income and branch profit taxes.’
Earlier this month, an epidemiologist with the Centers for Disease Control and Prevention claimed Carnival Cruises helped fuel the coronavirus pandemic by still sailing its fleet of ships even when the company’s executive knew it was risky.
Cindy Friedman, the epidemiologist who is leading the CDC’s coronavirus cruise ship task force, told Bloomberg Businessweek in an explosive interview that the actions of Carnival Cruises amid the pandemic has put a ‘huge strain’ on the United States
Cindy Friedman, the epidemiologist who is leading the CDC’s coronavirus cruise ship task force, told Bloomberg Businessweek in an explosive interview that the actions of Carnival Cruises amid the pandemic has put a ‘huge strain’ on the United States.
‘If these ships had stopped sailing, our large team could all be working on helping states and local public health authorities with their community outbreaks,’ she said.
‘Nobody should be going on cruise ships during this pandemic, full stop.’
Friedman said several Carnival cruises still set off on their trips even after the company’s executives knew it would be risky due to the deadly coronavirus outbreaks.
Carnival CEO Arnold Donald defended the company’s response to the unfolding crisis, saying it was reasonable given it is an unprecedented global pandemic.
He compared Carnival’s response to COVID-19 to that of local governments across the United States, saying: ‘Each ship is a mini-city.’
President and CEO of Carnival Corporation, Arnold W. Donald (center), defended the company’s response to the unfolding crisis, saying it was reasonable given it is an unprecedented global pandemic
Donald said Carnival’s response should be judged alongside how New York, the White House coronavirus task force and other countries like Italy and China reacted to the pandemic.
‘We’re a small part of the real story. We’re being pulled along by it,’ he said.
‘This is a generational global event – it’s unprecedented. Nothing’s perfect, OK? They will say, “Wow, these things Carnival did great. These things, 20/20 hindsight, they could’ve done better”.’
Friedman, however, said maybe that ‘excuse’ would have been acceptable after Diamond Princess or Grand Princess voyages, but she has a hard time believing Carnival is ‘just a victim of happenstance’.
She acknowledged that it would have been difficult getting people from their ships to their home ports without infecting anyone else, but pointed out several Carnival ships didn’t start voyages until after the risks became apparent.
Arnold also argued that cruise ships don’t spread coronavirus more easily than other places, but the CDC epidemiologist said that was misleading.
She said coronavirus infection rates were nearly 20 percent on two Carnival ships.
Carnival’s executives became aware of the health crisis as early as January after Carnival’s innovation chief John Padgett had made contact with a manufacturer in Wuhan, which was the origin of the global outbreak.
‘The biggest thing about that – it’s a learning I don’t think I’ll ever forget, and we shared it with Arnold when we were talking – is that we actually had insight into the global situation much earlier than most,’ Padgett told Bloomberg.