Short Sellers Bank $279M Profit On Norwegian Bankruptcy Concerns

Norwegian Cruise Line Holdings Ltd NCLH shares crashed 22.4% on Tuesday after the company said it now has “serious doubt” it can navigate the coronavirus (COVID-19) shutdown and avoid bankruptcy. Norwegian is now down 80.2% overall in 2020 and has been a home run trade for short sellers.

Norwegian said it endured a $2 billion first-quarter loss and said it did not have enough liquidity to last another 12 months without a major cash infusion. On Wednesday, Norweigan announced it secured more than $2 billion in additional liquidity via a series of capital market transactions.

Tuesday’s Norwegian news also dragged down shares of its cruise line peers Carnival Corp CCL and Royal Caribbean Cruises Ltd RCL as investors contemplated the future of the industry. Cruise line short sellers profited more than $279 million collectively on Tuesday, according to S3 Partners analyst Ihor Dusaniwsky.

Sinking Cruise Stocks

Of the three cruise stocks, Norwegian has experienced the largest share price decline in 2020. However, Carnival has been the most heavily shorted of the three and the most profitable for short sellers, Dusaniwsky said.

Carnival’s short position stands at $1.42 billion compared to $1.17 billion for Royal Caribbean and just $380.3 million for Norwegian. Year to date, Carnival short sellers have earned an $821 million mark-to-market profit, while Royal Caribbean shorts are up $596.3 million and Norwegian shorts are up $273.2 million.

Collectively, short sellers have now earned a $1.69 billion profit on the three cruise stocks this year.

Despite the large profits, Dusaniwsky said short sellers have been significantly increasing their positions in all three stocks over the past 30 days.

“The most active stock on the short side is Norwegian, which is being hit with significant short selling today as short sellers are increasing their short exposure in anticipation of further price weakness in the stock,” Dusaniwsky said on Tuesday.

He said he anticipates cruise stock short interest will likely continue to spike throughout this week.

Benzinga’s Take

While most businesses are waiting patiently for an economic recovery, cruise lines are facing the real possibility that the health scare has permanently changed customer’s enthusiasm to pack into ship with thousands of other people for days at a time. Unlike air travel, which is somewhat essential for any long-distance travelers, cruises are strictly leisure activities and far from essential businesses.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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