There’s about to be a lot more Norwegian Cruise Line Holdings (NASDAQ:NCLH) stock trading on the open market. The country’s third-largest cruise line operator put out a prospectus after Wednesday’s market close, proposing the resale of up to 46.6 million shares. 

Norwegian Cruise Line won’t be receiving any money for the stock sale. An affiliate of private equity firm L Catterton, that back in May purchased $400 million in exchangeable notes due in 2026, is hoping to cash out of the debt. With Norwegian Cruise Line stock trading higher than the initial exchange price of $12.10 it’s hard to blame the affiliate for going for the quick score. The 46.6 million shares that account for both the exchangeable notes and the payment-in-kind interest would be worth more than $740 million based on Wednesday’s close. 

Secondary offering announcements have a way of knocking a stock down, so it won’t be a surprise if the private equity firm’s affiliate will have to settle for less. It will still be a big payday for a two-month bet. At least someone is making money on cruise lines today.

Inside of a stateroom with a balcony aboard the NCL Jewel.

Image source: Norwegian Cruise Line.

Timing is everything

This isn’t necessarily a bad move for Norwegian Cruise Line. It will get to swap out a chunk of debt, helping ease some of the burden of its leveraged situation. Shareholders won’t appreciate the dilution and the float, but this is ultimately about undoing a desperate decision in early May when it, along with larger rivals Carnival (NYSE:CCL) (NYSE:CUK) and Royal Caribbean (NYSE:RCL), were all giving up a lot to stay alive during the lull in sailings. 

The prognosis hasn’t necessarily improved for the industry. Norwegian Cruise Line has pushed out future sailings until October, and the others have extended their downtime through mid-September at the earliest. No one knows what the cruising experience will be like when passengers are cleared to go sailing again, and earlier this week Norwegian Cruise Line teamed up with Royal Caribbean to form a joint task force to drum up safety standards for the eventual resumption process. 

L Catterton’s affiliate may be kicking itself for not pushing this out when the stock hit a post-pandemic peak a month ago. The shares have fallen 41% since their June 8 highs. However, with so much that can go wrong for both the market and for the three individual cruise lines it’s hard to argue with the logic here. A big short-term gain is better than dealing with the uncertainties of what Norwegian Cruise Line’s creditworthiness will be in six years when the notes would mature.

If you’re a Norwegian Cruise Line investor you’re not going to like the optics. You may be tempted to follow the bailing affiliate into the selling process. The risks of ownership are still there, and amplified with unreliable restart dates and the global recession that will weigh on Norwegian Cruise Line, Carnival, and Royal Caribbean. Sometimes a secondary offering is a primary concern.