The latest news posted October 10, 2008 about Norwegian’s new F3 ship-build by Cruise Critic clears up some of the questions about the ship's status. In a nutshell, speculation is Norwegian may only take delivery of one of the previously two ordered ships. It likely prefers to pay a stiff penalty as opposed to the full price tag for delivery of the second ship. The shipbuilder would then shop the partially completed second ship to another buyer.


The reason for this turn of events might be found in the seemingly unrelated world of private equity investment.  The price tag for delivery of the full two ships would come amid a rough time for Apollo Management, the private equity firm founded in 1990 by Leon Black.  It owns 50% of Norwegian (Regent Seven Seas Cruises and Oceania Cruises are under ownership of Prestige Cruise Holdings, Inc., a corporation also controlled by Apollo).  Oceania also has one new ship on order for 2010 and a second in 2011).

The recent stock market turn of events has squeezed many private equity firms who acquired companies in leveraged buyouts with low-cost debt. With revenue growth not materializing quickly enough to pay down the debt (due to a consumer spending slowdown) and refinancing difficult (due to the freeze on capital financing) many are struggling meet their obligations. To grow cash flows and pay down debt, they have to implement cost controls and cut new capital expenditures.

Recently, Apollo has seen several companies in its portfolio of holdings in trouble.  The home furnishings retailer Linens ‘n Things filed for liquidation.  Costume jewelry retailer Claire’s Stores and Realogy, parent of Century 21 and Coldwell Banker are reported by NY Times to be under pressure and closely watched by analysts.  Casino Harrah's has been slowly cutting jobs since early last year and may seek to amend credit agreements, according to a Deutsche Bank AG report. Lastly, a court ruled Apollo's chemical company Hexion (that was trying to back out of a $6.5 billion merger) honor terms of the agreement or face-uncapped damages for breach of contract.  Apollo forked over $540 million to help Hexion proceed on closing the court ordered deal.

All these events have transpired in the last few weeks.


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