WHO WILL END UP OWNING CRYSTAL AND GENTING’S CRUISE ASSETS?

Q – 1.25.22 – As one who works in the industry and has sailed Crystal a half dozen times, I would really appreciate it if you would let us know who you think will end up owning Crystal Cruises when this “liquidation” process is completed? I’ve tried to read about possible buyers but the information is confusing. What is your best guess as to the likely winner in Crystal’s and parent company Genting’s acquisition?

 

A –  At this stage, it is all purely speculative. Our feeling is that one new expedition ship with a rather revolutionary design,  five riverboats – four identical and one re-designed and double-wide, along with two older top-rated ships is a kind of investment-grade mixed bag. The Crystal Symphony is now 27 years old, her sister, the Serenity, is 19 years old. Neither ship is particularly fuel-efficient and ongoing maintenance could be an issue for a potential buyer. We do not wish to stir the Crystal rumor mill but we will try to offer some possible routes we think purchase might take.

It is our opinion that given its disparate parts, Crystal will not be sold in one piece. The riverboats and the Expedition ship are, with one exception, rather new products and would be attractive additions to any number of companies with the cash resources and access to equity to make the purchase. The cruise ships would likely go to a suitor looking for the well-priced tonnage and a brand name that is worth more than the ships themselves. There are several existing expedition lines that would love to expand their fleets quickly in anticipation of pent-up demand within the fastest-growing segment of the cruise community. So we could see several different sales to existing companies or hedge fund investment firms with an interest in a particular portion of the Crystal fleet. Here are some of the key players we think could be interested in owning some part of the Crystal name, mystique, and tonnage:

GENTING – There is always the possibility that the company will get rid of its hotel and casino assets and decide to try to keep the Crystal brand under reorganization perhaps to be sold post-Covid for a higher return. However, the resignation of Genting’s Chairman tells us this is now an unlikely scenario.

SYCAMORE PARTNERS –  We see Sycamore as one of the few Wall Street firms that could be interested in the entire Crystal inventory. They are currently searching for more quality tonnage after purchasing Azamara last year from Royal Caribbean. They wasted little time in purchasing the available Pacific Princess which matches the line’s other ships originally built for Renaissance Cruises. Sycamore has been actively pursuing ships and clearly believes there is value in growing their number of berths. They don’t personally manage the Azamara brand – leaving operations to the experienced team at V Ship Leisure. In our opinion, Sycamore is the one worth watching most closely.

THE NATIONAL INVESTMENT FUND – With the prestige that would come from owning all of Crystal’s assets, do not discount the possibility of a major Royal-family-backed investment group from the UAE or Saudi Arabia reaching out to acquire the entire brand. When they want something they can act quickly and cash reserves are only an issue in that they have to find ways to spend their money. Passenger shipping has eluded this part of the world and the interaction between the local governments and shipping lines calling at UAE ports has been generally positive. In most cases, the passenger terminals, several of them state-of-the-art, already exist. 

LINDBLAD/NATIONAL GEOGRAPHIC – Perhaps not the first name that comes to mind among many outside industry analysts but it would be wise to note that it was Lindblad that purchased the Crystal Yacht Esprit just last year. We do not feel that taking on 1900 cruise berths on two older ships is in Lindblad’s future, the line clearly would be motivated to purchase both the Endeavor as well, perhaps, Crystal’s top-tier riverboats.  We do have some questions regarding just how well Lindblad would be able to convert the well-heeled and affluent Rhine and Danube river ports into the kind of true expedition “adventure” cruising for which the line is known.

ROYAL CARIBBEAN OR NORWEGIAN CRUISE LINE –  Always possible because whoever owns Crystal will be just another smaller competitor but we do not see either brand expanding to purchase the older Crystal ships. This could, however, be the one-time-only opportunity should they wish to enter the riverboat market in Europe. We see this as a rather remote possibility given the margins on a 104-Guest riverboat product.  These are two lines that have demonstrated their feelings for “mature” vessels by getting rid of large portions of their older tonnage. 

MSC – This may be a dark horse worth watching. This family-owned Italian brand would likely love to own the MV Werften Shipyard in Germany, the debt-ridden asset that led to Genting’s immediate downfall.  But industry speculation is that MSC believes it can actually come to “dominate” the cruise industry. It has just launched the upscale Explora brand and it has never slowed down its ambitious shipbuilding agenda. Genting has a new ship, the Global Dream, that is three-quarters completed. Putting this 5,000 passenger ship, designed specifically for the Asian market, in China could do a great deal to spur MSC’s rapid growth in that part of the world.  We think MSC has to be considered one of the three top contenders for Genting’s and Crystal’s assets.

CARNIVAL – We don’t see it unless they are anxious to sail Europe’s rivers with fewer passengers than a Carnival Corp. Board Meeting. The cruise ships do not fit into the upscale Seabourn profile. Carnival would be looking for a lowering of its current debt with products that could generate fast turn-around returns. As the world’s largest cruise line, an acquisition by Carnival can never be ruled out, but we don’t see Crystal fitting inside their wheelhouse. 

AMA-AVALON-SCENIC-UNIWORLD-TAUCK  – The Crystal riverboat fleet could be a good fit for several of its major competitors. Tauck does not own its ships, so it would be unlikely they would directly make any new purchases. But other riverboat companies could be interested despite the fact that the four new-build Crystal riverboats were built to specifications that preclude them from sailing on the Duoro or Seine rivers. 

A MAJOR LUX HOTEL CHAIN – As Ritz Carlton enters the water with a yacht product, a competitor in the luxury market could see this as an opportunity to begin sailing boutique properties that float along Europe’s rivers. But this is, we believe, an unlikely scenario given the lost Covid revenue in the hotel sector. 

APOLLO GLOBAL MANAGEMENT –  Through its previous involvement in partial ownership and financing of NCL, Apollo has, over the years, shown that it has an appetite for investment in the cruise sector. The group has long felt that the cruise sector weathered the 2008 financial crises particularly well and returns in the years that followed showed clearly that this is a sector where money can be made. If Apollo’s Directors feel that the “price is right” we could see a buy-out opportunity take place fairly quickly. 

CERTARES MANAGEMENT –  These are likely some of the phones that are ringing first when it comes to a potential acquisition of Crystal’s cruise assets. Certares has experience in the leisure sector and has the funds to act quickly should a buying opportunity present itself. The worth of the Crystal brand would play into any decision but Wall Street watchers are placing Certares near the top of the list of those entities with the ability and the will to swoop in and make a well-placed financial bet on Crystal.  We do know that Certares’ CEO has stated publicly that his phones are “ringing off the hook” with unique sale opportunities. Crystal would be one of many in their range of vision to expand in the leisure sector.

KNIGHTSHEAD CAPITAL MANAGEMENT Two of our Wall street sources mentioned Knightshead as a long-shot possibility. This is a New York-based investment group that has specialized in distressed and “special situation” opportunities across a broad spectrum of industries. Adding the Crystal brand to their roster could have a significant cachet for the firm. It could also be a costly money pit.