Carnival Deemed Too Big To Fail, Rescued By The Fed
Carnival needed money. The Fed became the lender of last resort.
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.
Hooray - Another fed-sponsored zombie.
Who's next?
I'm confused. I was told that Carnival Cruise lines isn't even an American owned company. If that's correct, why the hell are we bailing them out??
At some point the poor choices of management should indeed be allowed to cause failure. Mother nature runs a hard school, but fools will not learn in another. Likewise in the business world. Sometimes greed should not be rewarded. "To big to allow to fail" is not a good concept.
I used to think bailouts were a necessary evil until I heard this NPR podcast about the topic, it is very eye opening:
www.npr.org/.../episode-995-buybacks-and-bailouts