Moody's Investors Service on Friday downgraded three senior note issues issued by Carnival Corporation Ltd. and Carnival UK Ltd. from Baa2 to Ba1 after the affected debt lost its secured status following the release of collateral. The move covers about $3.1 billion of notes in total.
The securities in question became unsecured after Carnival obtained a second investment-grade rating from another agency on June 25, 2026, which activated an indenture clause that released the security. The impacted issues are: $192 million of 7.875% notes due June 1, 2027; $2.4 billion of 4.0% notes due August 1, 2028; and $500 million of 7.00% notes due August 15, 2029.
Despite the downgrade of those specific secured notes, Moody's left Carnival's Ba1 corporate family rating and Ba1 senior unsecured rating unchanged. The ratings agency also retained a positive outlook on the company. Separately, Moody's said it left unchanged the Ba1 senior unsecured rating on the City of Long Beach, California's industrial revenue bond.
Moody's provided forward-looking financial metrics for Carnival, projecting that the firm's debt-to-EBITDA ratio will fall to near 3.5x by the end of fiscal 2026 and move closer to 3.0x by the end of 2027. The ratings firm expects operating margins in the mid-teens and described free cash flow as strong. Moody's also forecast that funds from operations plus interest to interest coverage will approach 6.0x at the end of 2026.
The company operates eight distinct brands and generated about 40% of the global ocean cruise industry's annual revenue, according to the same report. Carnival also operated the most ships in the market, representing 37% of industry capacity in 2025. On the liquidity front, Carnival reported cash and marketable securities totaling $2.2 billion as of May 31, 2026.
This rating action affects the legal status of the three note issues specified above and reflects the contractual effect of obtaining an additional investment-grade rating under the relevant indentures. Moody's maintained its broader view of the company's credit profile by keeping the corporate family rating and senior unsecured rating at Ba1 and preserving a positive outlook.
Key points
- Three Carnival senior note issues totaling about $3.1 billion were downgraded from Baa2 to Ba1 after collateral was released.
- Moody's maintained Carnival's Ba1 corporate family rating and Ba1 senior unsecured rating with a positive outlook.
- Moody's forecasts improving leverage metrics and coverage, with debt/EBITDA near 3.5x by end of fiscal 2026 and about 3.0x by end of 2027, and coverage approaching 6.0x.
Risks and uncertainties
- The release of collateral changed the legal priority of the three note issues, increasing exposure for holders of those notes - this specifically impacts debt markets and fixed-income investors.
- Projections of leverage and coverage depend on operating performance and cash generation; deviations from Moody's expectations could affect credit metrics - relevant to credit markets and lenders.
- Liquidity levels and market capacity positions are noted but the durability of cash and marketable securities balances may influence funding flexibility over time - affecting funding markets and investor confidence.