Moody's Revises Carnvial Rating Outlook

Moody's Investors Service confirmed the A2 senior ratings of Carnival Corporation, but changed the rating outlook to negative reflecting the uncertain economic and industry conditions that the company faces in the wake of the attacks on the U.S. on September 11.

While Carnival's financial flexibility is strong, its ratings could come under pressure if significant and sustained consumer reluctance to take cruises results in a substantial drop in yield and cash flow from operations.

Moody's notes that Carnival currently maintains a large cash balance of $1.2 billion at 8/31/01.

This cash balance together with future earnings should enable the company to finance its shipbuilding program without having to increase debt levels.

Moody's believes the events of September 11th will further stress industry conditions that were already suffering from price weakness due to economic softness and capacity expansion within the industry.

Although the company's business conditions are improving day by day since the attack, the longer term impact on leisure travel patterns is still unknown.

The negative consequences of industry-wide capacity expansion may be softened somewhat by the exit of marginal cruise operators, evidenced by the recent bankruptcy filing by Renaissance.

The negative rating outlook captures the risk of significant deterioration in pricing and in the volume of travel in the context of a high fixed cost business.

Moody's expects Carnival to continue its focus on cost reduction and cash conservation in light of industry conditions.