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The Viking Sun begins a Guinness World Record attempt at the longest world cruise from Greenwich Pier on Aug. 30 2020 in Greenwich, England.Eamonn M. McCormack/Getty Images

Canada Pension Plan Investment Board and a partner have pumped an extra US$500-million into a U.S. cruise line just as the hope of an eventual end to the COVID-19 pandemic promises to rescue their investment.

CPPIB and Texas-based private equity fund TPG Capital LP said their investment into the parent of Viking Cruises Ltd. will help the cruise operator reopen for business and build long-term value in the company. The two partners first bought into Viking in 2016, obtaining 17 per cent of the private company for US$500-million, just as it expanded from European riverboat cruises into ocean voyages and planned a Chinese expansion.

CPPIB chief executive officer Mark Machin often cited the pension plan’s investment in Viking as an example of its thematic approach – in this case, with the thesis that aging Americans, increasing in number, were likely to pay good money to see Europe via a cruise ship.

That was then. Viking, with 72 riverboats and six ocean liners, was the first major cruise company to suspend operations in March as COVID-19 began to wreak havoc on the industry, with tales of ships with coronavirus outbreaks unable to dock for fear of rampant transmission.

As revenue fell to zero and the cruise companies refunded deposits, the cash crunch arrived. Both S&P and Moody’s Investors Service downgraded the company’s debt – it has US$2.425-billion outstanding – saying it expected the ratio of borrowings to profits to top seven or eight, making it a highly leveraged company.

Moody’s says it assumes negative EBITDA -- or earnings before interest, taxes, depreciation and amortization -- in 2020 and “some recovery in 2021 and 2022.” Moody’s said the company’s revenue was US$2.1-billion in its fiscal 2019.

In May, Viking issued US$675-million in debt at interest rates of 13 per cent. According to Refinitiv’s International Financing Review news, Viking Cruises had to put up 20 river vessels and a first priority lien on all “material” intellectual property, including trademarks and its passenger database, as collateral.

S&P noted in its May downgrade that Viking’s habit of catering to older customers possibly made it more susceptible to a slow COVID-19 recovery. “This older customer demographic might be reluctant to resume travel quickly given the heightened risks that COVID-19 poses and the greater flexibility these customers have around the timing of travel. Furthermore, customers often have to fly to points of embarkation, further elevating travel fears.”

Viking said this week it will install full-scale laboratories on each of its ocean vessels, enabling it to test all crew members and passengers daily.

The news Monday of a potential COVID-19 vaccine from Pfizer sent the shares of publicly traded cruise lines soaring, with Norwegian Cruise Line Holdings Ltd., Royal Caribbean Group and Carnival Corp. all zooming between 25 per cent and 40 per cent. They gave back some of those gains in Tuesday trading.

Bill MacKenzie, CPPIB’s head of active fundamental equities, said in a statement that the pension manager has “strong conviction that Viking’s unique global offering in the cruise industry will continue to be sought out by many guests well into the future.”

Viking, CPPIB and TPG did not announce terms of the investment. Prior to the deal, the two investors owned 23 per cent of the company’s equity, according to Moody’s.

Torstein Hagen, who founded Viking in 1997, owns the remainder. Forbes estimated in September that he fell from second to 10th place in a ranking of Norway’s wealthiest people, with his net worth declining to an estimated US$2.1-billion from US$6.28-billion, according to Norwegian financial magazine Kapital.

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