What constitutes “too big to fail” keeps getting smaller and smaller.
It took Fed Intervention to save Carnival.
It was mid-March and the vultures were circling Carnival Corp., the largest cruise-line operator in the world.
That all changed on March 23 when the Federal Reserve defibrillated bond markets with an unprecedented lending program. Within days, Carnival’s investment bankers at JPMorgan Chase & Co. were talking to conventional investors such as AllianceBernstein Holding and Vanguard Group about a deal. By April 1, the company had raised almost $6 billion in bond markets, paying rates far below those executives had discussed just days earlier.
The previously unreported tale of Carnival’s rescue shows how effective the Fed has been in turning the debt spigot back on for large corporations.
The idea of a cruise company raising so much new debt even as the pandemic worsened caught many by surprise. Nevertheless, fear of missing out attracted more investors. When Carnival officially sold a $4 billion bond on April 1, it had enough demand to cut the interest rate down to 11.5% and issue a $1.75 billion bond that could convert into stock.
Carnival could easily file for bankruptcy reorganization and reschedule debt payments.
One of my friends commented “This is just a play to save the equity, who are Trump’s friends.”
OK but why would the Fed do this?
“Because he has appointed a ball-less group of wimps. It largely does what he wants. Particularly on a petty issue like this,” replied my friend.
Hooray – Another fed-sponsored zombie.
Who’s next?
Mish
So basically, Carnival now has additional debt service in the neighborhood of 700 million a year. Their net last year was 3 billion. They will undoubtedly loose money this year, and probably next. There is a very real possibility they will file bankruptcy and tell the bond holders to take a hike. And yet people buy the bonds. Why?
Mish asks who’s next? Got me thinking. One of the best rock albums of all time.
The Who – Who’s Next.
The song – Won’t Get Fooled Again is on that album. The Fed didn’t fool this cat.
I might have heard wrong in the middle of all the bombast, but I always heard a line of that song as “And now the party on the left, is now the party on the right”
And I think Tumbling Dice is by some other ancient British rock band … ;>)
Umm, why does anyone care if Carnival fails, other than Carnival employees?
Privileged halfwits too incompetent to feed themselves unless being beneficiaries of funds The Fed steals from their betters, no doubt “owns” either Carnival debt or equity.
Which is what matters in bottom of the barrel kleptocracies.
bankruptcy does not mean employees will lose their job (unless its chapter 7) but owners will! Employees will be fine, probably not even lose a day’s wage…wait they’ve been furlowed already so that the CEO could get a big bonus
I’m guessing it would be/should be a severe organizational change. I can’t believe the cruise business will ever be the same. Even if it’s not complete Chapter 7, I would envision them at no more than 1/3 their current size.
This is looking like a Cloward-Piven strategy for banks and big corporations. Load the system up with untenable debt to create a threat of implosion so big that lawmakers will grant bailouts to all responsible rather than face economic collapse. It is systematically stealing from the poor to give to the rich.
The whole thing stinks. The United States has no business claiming to be a “capitalist” country after this.
The Feds primary concern is the health of its member banks. If Carnival was heavily in debt to the banks, the Fed is going to do what it can to make sure they stay in business and do not default. The Fed is not the Federal Government, it is a corporations who’s stockholders are the worlds biggest banks.
I’d like to see Carnival and its various subsidiaries criminally prosecuted. Australia has started a criminal investigation over the Ruby Princess. Florida should too as Carnival sent diseased passengers and crews there. Carnival has KNOWN since February 3rd when the Diamond Princess became a floating coronavirus hell it couldn’t control outbreaks on its ships but it kept on selling passages and sailing its ships without regard to either passenger or port safety. Manslaughter if not outright murder charges should be brought against the captains and executives of this criminal company.
Exactly what, other than click bait and comments by those two lazy to actually read the article, does any of this article have to do specifically with Carnival supposedly being ‘rescued by the Fed?’
Sorry …. a business the size of Carnival needing to pay over 11% in bond interest to raise funds is not indicative of a ‘rescue’ package.
Would you hand them your retirement savings in exchange for some vague promise of 11%, in a world with no Fed and where what you handed over was Gold which couldn’t be debased even if you left it safely sitting there?
Floating infection facilities, under foreign flags. Critical infrastructure!
I wouldn’t project about the importance of cruise ship industry just because I loath it along with the air travel “experience”.
It’s very important to provide bread and circuses for the sheep!
Hold on, didn’t all the cruise line shift to non-US jurisdiction (like Grand Cayman) to avoid US taxes…and now they are getting bailed out? I guess its a question of how much you gave to the GOP. A good old kleptocracy. It was bad in 2008 when all the bad players got bailed out and “thanked with bonus” for fu$king the economy, but this is priceless. Companies that went out of their way not to pay US taxes for years, who do not employ Americans are getting bailed-out.
Hedge funds should apply too while we are at it!
Trump already ruled out any bailouts for hedge funds.
“Hedge funds should apply too while we are at it!”
Who do you reckon “owns” the zombies. (As a necessary corollary to owning everything else, even if not more directly….)?
It’s not $5/day Venezuelans The Fed is robbing Americans to “save.”
“Hedge Funds” wouldn’t even exist sans Fed. All they are, are pure recipients of fat welfare checks stolen from their more productive betters. 100% so.
Come on don’t be a hypocrite, what only the GOP is under the thumb of corporations? If you believe that, I have a bridge to sell you in Brooklyn.
I can’t figure out if people like you are to stupid to see what’s going on or it’s just TDS.
I don’t like the guy but I sure as hell don’t think any politician has my back. The soon the people realize it’s a one part system the better.
The Green Party.
Ironicly , They gave slightly more to Democrats….look it up.
The Democrats are quite guilty of the same. Why do you think that they get so much money from the big corps and investment banks that they claim to hate? 😉
Business model = Don’t pay US income tax, pay foreign workers $5 a day, feed Americans copious amounts of food, spread viruses with abandon, but list on US exchanges
Result = Free money from the Fed, no value for US taxpayers
“Who’s next?”
…
Well, if want hoos yelling loudest today … oil. Down 25%.
Some gems from today’s Dallas Federal Reserve Texas mfg report (April) –
“The new orders index dropped 26 points to -67.0, its lowest reading since the survey began in 2004. Similarly, the growth rate of orders index fell to -62.2. The capacity utilization and shipments indexes fell to -54.5 and -56.6, respectively. The capital expenditures index declined 20 points to -54.3. Each of these April readings represents a historical low.”
…
“The general business activity index inched down from -70.0 to -73.7, pushing to a new historical low.”
…
“Prices and wages declined in April. The raw materials prices index posted a second negative reading in a row, falling from -5.9 to -19.6. The finished goods prices index dropped to -24.6 from -9.2. Both price indexes reached lows last seen in mid-2009. The wages and benefits index dipped into negative territory for the first time since the Great Recession, coming in at -2.7.”
Woo-hoo, isn’t that wonderful, no wonder stocks are up! Seriously, I like the guy who said if you want to see what the REAL economy is, look at oil.
It’s transitionary.
Expect a bounce back by Q1 next year.(said every year) ~ Some banker
The funnest part is the Russell 2000 is up almost 4%. That’s just down right funny.
Is it even an american company
As John Sellers pointed out, it doesn’t matter.
What dos matter, is that members of America’s worthless, utterly expendable leeching classes, will suffer if The Fed doesn’t rob enough innocent children into starvation, in order to artificially prop it up.
Remember, “robbing innocent children until they die of starvation in the streets, in order to hand the unearned loot to the undifferentiatedly incompetent, entirely useless, utterly expendable, leeching garbage piles constituting all of America’s current privileged class”; is a direct and accurate translation of the fashionable Newspeakian term: “providing temporary liquidity.”
Where is this so called deflation?
I disagree with mish on that one. I don’t think the master printers can let it happen.
There will be pockets of deflation but overall inflation is the only way.
Expect UBI by the end of the year.
This bailout is how the 17th century Dutch Republic ran itself down.
As Muhammad El-Erian recently said in his a CNBC interview, the only thing worse than zombie companies is a zombie market.
Yes.
Way too much propping up anything and everything to prop up the here and now … with no thought to future. I doubt much of any, if any, of these props can be taken away without tanking whatever they are propping. Welcome to Great Depression era “temporary” farm subsidies. Everywhere.
Take the hit now … and move on.
Bankruptcy works just fine. Except it makes a lot of rich people poorer. Absolutely can’t have any of that. J6p taxpayer must step into to further fuel wealth inequality.
Amerika is Great!
The only thing better than zombie companies is a zombie market if you have first access to money.
Fixed it for you.
If only we had an area in the law whereby a company could be temporarily shielded from creditors while the terms of their liabilities are renegotiated and perhaps discharged. Wouldn’t that be a great idea?
if only we had an independent non-governmental entity which acted as an official government entity for the benefit of the ultra wealthy under the guise of benefiting all. wouldn’t that be a grand idea?
We could also give them power to print money outside the federal government.
Now that’s a great idea.
The Fed isn’t bailing out Carnival, it’s bailing out the banks, PE firms, Hedge Funds, etc… that hold Carnival’s debt. Those folks pay a whole bunch more in campaign contributions than you or I, so they deserve it.
A cabal of scoundrels running the show in the guise of running the economy (central bankers) and running companies (corporate). Sad that we can only bemoan even when tax-payers money is used to pay them. Is it legal to spit on their faces?
…A government rescue operation should wipe out share holders and shave bondholders….in a normal world, anyway….
It should wipe out shareholders, bondholders, pensioners, vendors, leaseholders and all the rest, and then take over any possible productive assets.
The only reason for the population to ever be involved in rescuing an organization, is that the organization sits on things important enough for national security to not want it to be cut up and sold for scraps.
Otherwise, leave people alone to prosper AND perish as they please.
What you describe is a regular Chapter 11 bankruptcy.
Exactly
Think of the children you animal
Carnival should bring back Kathie Lee Gifford to do a new commercial, where she and all the extras on deck are made up to look like an undead army.
Kathie Lee should sing a song too, but I’m not sure she has the chops to pull off “Zombie” by the Cranberries.