UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

OR

☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-35784

NORWEGIAN CRUISE LINE HOLDINGS LTD.

(Exact name of registrant as specified in its charter)

Bermuda	98-0691007
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
7665 Corporate Center Drive, Miami, Florida 33126	33126
(Address of principal executive offices)	(zip code)

(305) 436-4000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Ordinary shares, par value $0.001 per share	NCLH	The New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ⌧    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes  ⌧    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ⌧	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ☐    No  ⌧

There were 424,165,139 ordinary shares outstanding as of April 30, 2023.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 6.	Exhibits	37
SIGNATURES		40

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

	Three Months Ended
	March 31,
	2023		2022
Revenue
Passenger ticket	$	1,208,841	$	342,455
Onboard and other		613,098		179,485
Total revenue		1,821,939		521,940
Cruise operating expense
Commissions, transportation and other		409,684		87,958
Onboard and other		119,697		32,550
Payroll and related		304,155		240,727
Fuel		194,868		135,509
Food		95,966		39,516
Other		156,048		199,153
Total cruise operating expense		1,280,418		735,413
Other operating expense
Marketing, general and administrative		336,013		296,207
Depreciation and amortization		194,790		179,076
Total other operating expense		530,803		475,283
Operating income (loss)		10,718		(688,756)
Non-operating income (expense)
Interest expense, net		(171,257)		(327,685)
Other income (expense), net		(8,955)		38,120
Total non-operating income (expense)		(180,212)		(289,565)
Net loss before income taxes		(169,494)		(978,321)
Income tax benefit (expense)		10,173		(4,393)
Net loss	$	(159,321)	$	(982,714)
Weighted-average shares outstanding
Basic		422,655,215		417,734,591
Diluted		422,655,215		417,734,591
Loss per share
Basic	$	(0.38)	$	(2.35)
Diluted	$	(0.38)	$	(2.35)

The accompanying notes are an integral part of these consolidated financial statements.

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Comprehensive Loss

(Unaudited)

(in thousands)

	Three Months Ended
	March 31,
	2023		2022
Net loss	$	(159,321)	$	(982,714)
Other comprehensive income (loss):
Shipboard Retirement Plan		64		2,476
Cash flow hedges:
Net unrealized gain (loss)		(18,475)		39,304
Amount realized and reclassified into earnings		(9,874)		(7,502)
Total other comprehensive income (loss)		(28,285)		34,278
Total comprehensive loss	$	(187,606)	$	(948,436)

The accompanying notes are an integral part of these consolidated financial statements.

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Norwegian Cruise Line Holdings Ltd.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)

	March 31,		December 31,
	2023		2022
Assets
Current assets:
Cash and cash equivalents	$	700,600	$	946,987
Accounts receivable, net		259,289		326,272
Inventories		145,948		148,717
Prepaid expenses and other assets		538,833		450,893
Total current assets		1,644,670		1,872,869
Property and equipment, net		14,508,426		14,516,366
Goodwill		98,134		98,134
Trade names		500,525		500,525
Other long-term assets		1,598,936		1,569,800
Total assets	$	18,350,691	$	18,557,694
Liabilities and shareholders’ equity
Current liabilities:
Current portion of long-term debt	$	1,210,248	$	991,128
Accounts payable		203,233		228,742
Accrued expenses and other liabilities		1,109,029		1,318,460
Advance ticket sales		3,177,026		2,516,521
Total current liabilities		5,699,536		5,054,851
Long-term debt		11,920,504		12,630,402
Other long-term liabilities		830,199		803,850
Total liabilities		18,450,239		18,489,103
Commitments and contingencies (Note 9)
Shareholders’ equity:
Ordinary shares, $0.001 par value; 980,000,000 shares authorized; 424,158,982 shares issued and outstanding at March 31, 2023 and 421,413,565 shares issued and outstanding at December 31, 2022		424		421
Additional paid-in capital		7,631,028		7,611,564
Accumulated other comprehensive income (loss)		(505,364)		(477,079)
Accumulated deficit		(7,225,636)		(7,066,315)
Total shareholders’ equity (deficit)		(99,548)		68,591
Total liabilities and shareholders’ equity	$	18,350,691	$	18,557,694

The accompanying notes are an integral part of these consolidated financial statements.

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Three Months Ended
	March 31,
	2023		2022
Cash flows from operating activities
Net loss	$	(159,321)	$	(982,714)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization expense		210,676		195,464
(Gain) loss on derivatives		4,404		(19,779)
Loss on extinguishment of debt		2,434		188,433
Provision for bad debts and inventory obsolescence		1,199		1,294
Share-based compensation expense		28,155		32,792
Net foreign currency adjustments on euro-denominated debt		1,021		(4,126)
Changes in operating assets and liabilities:
Accounts receivable, net		65,391		618,853
Inventories		2,812		(24,141)
Prepaid expenses and other assets		(127,192)		(632,610)
Accounts payable		(25,926)		(136,767)
Accrued expenses and other liabilities		(168,581)		(25,587)
Advance ticket sales		668,261		417,877
Net cash provided by (used in) operating activities		503,333		(371,011)
Cash flows from investing activities
Additions to property and equipment, net		(237,676)		(165,284)
Proceeds from maturities of short-term investments		—		240,000
Other		1,320		4,940
Net cash provided by (used in) investing activities		(236,356)		79,656
Cash flows from financing activities
Repayments of long-term debt		(1,821,412)		(935,444)
Proceeds from long-term debt		1,330,622		2,073,175
Proceeds from employee related plans		2,618		2,557
Net share settlement of restricted share units		(11,306)		(11,961)
Early redemption premium		—		(172,012)
Deferred financing fees		(13,886)		(34,767)
Net cash provided by (used in) financing activities		(513,364)		921,548
Net increase (decrease) in cash and cash equivalents		(246,387)		630,193
Cash and cash equivalents at beginning of period		946,987		1,506,647
Cash and cash equivalents at end of period	$	700,600	$	2,136,840

The accompanying notes are an integral part of these consolidated financial statements.

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(in thousands)

	Three Months Ended March 31, 2023
					Accumulated
			Additional		Other				Total
	Ordinary		Paid-in		Comprehensive		Accumulated		Shareholders’
	Shares		Capital		Income (Loss)		Deficit		Equity (Deficit)
Balance, December 31, 2022	$	421	$	7,611,564	$	(477,079)	$	(7,066,315)	$	68,591
Share-based compensation		—		28,155		—		—		28,155
Issuance of shares under employee related plans		3		2,615		—		—		2,618
Net share settlement of restricted share units		—		(11,306)		—		—		(11,306)
Other comprehensive loss, net		—		—		(28,285)		—		(28,285)
Net loss		—		—		—		(159,321)		(159,321)
Balance, March 31, 2023	$	424	$	7,631,028	$	(505,364)	$	(7,225,636)	$	(99,548)

	Three Months Ended March 31, 2022
					Accumulated
			Additional		Other				Total
	Ordinary		Paid-in		Comprehensive		Accumulated		Shareholders’
	Shares		Capital		Income (Loss)		Deficit		Equity (Deficit)
Balance, December 31, 2021	$	417	$	7,513,725	$	(285,086)	$	(4,796,406)	$	2,432,650
Share-based compensation		—		32,792		—		—		32,792
Issuance of shares under employee related plans		2		2,555		—		—		2,557
Net share settlement of restricted share units		—		(11,961)		—		—		(11,961)
Other comprehensive income, net		—		—		34,278		—		34,278
Net loss		—		—		—		(982,714)		(982,714)
Balance, March 31, 2022	$	419	$	7,537,111	$	(250,808)	$	(5,779,120)	$	1,507,602

The accompanying notes are an integral part of these consolidated financial statements.

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Norwegian Cruise Line Holdings Ltd.

Notes to Consolidated Financial Statements

(Unaudited)

Unless otherwise indicated or the context otherwise requires, references in this report to (i) the “Company,” “we,” “our” and “us” refer to NCLH (as defined below) and its subsidiaries, (ii) “NCLC” refers to NCL Corporation Ltd., (iii) “NCLH” refers to Norwegian Cruise Line Holdings Ltd., (iv) “Norwegian Cruise Line” or “Norwegian” refers to the Norwegian Cruise Line brand and its predecessors, (v) “Oceania Cruises” refers to the Oceania Cruises brand and (vi) “Regent” refers to the Regent Seven Seas Cruises brand.

References to the “U.S.” are to the United States of America, and “dollar(s)” or “$” are to U.S. dollars, the “U.K.” are to the United Kingdom and “euro(s)” or “€” are to the official currency of the Eurozone. We refer you to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations— Terminology” for the capitalized terms used and not otherwise defined throughout these notes to consolidated financial statements.

1.   Description of Business and Organization

We are a leading global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. As of March 31, 2023, we had 29 ships with approximately 61,000 Berths and had orders for eight additional ships to be delivered through 2028.

Oceania Cruises’ Vista was delivered in April 2023. We refer you to Note 12 – “Subsequent Event” for additional

information. We have five Prima Class Ships on order with currently scheduled delivery dates from 2023 through 2028. We have one Explorer Class Ship on order for delivery in 2023. We have one Allura Class Ship on order for delivery in 2025. These additions to our fleet will increase our total Berths to approximately 82,000.

2.   Summary of Significant Accounting Policies

Liquidity and Management’s Plan

Due to the impact of COVID-19, in March 2020, the Company implemented a voluntary suspension of all cruise voyages across its three brands. In the third quarter of 2021, we began a phased relaunch of our fleet, which was completed in early May 2022, with all ships now in operation with guests on board.

The estimation of our future cash flow projections includes numerous assumptions that are subject to various risks and uncertainties. Our principal assumptions for future cash flow projections include:

● Expected return to and sustained historical occupancy levels;

● Expected increase in revenue per Passenger Cruise Day through a combination of both passenger ticket and onboard revenue as compared to 2019;

● Expected timing of cash collections in accordance with the terms of our credit card processing agreements (see Note 9 - “Commitments and Contingencies”); and

● Expected sustained higher fuel prices and the impact of inflation.

Our projected liquidity requirements also reflect our principal assumptions surrounding ongoing operating costs, as well as liquidity requirements for financing costs and necessary capital expenditures. We have a substantial debt balance as a result of the impacts of the COVID-19 pandemic, and we require a significant amount of our liquidity and cash flows provided by operating activities to service our debt. In addition, as a result of conditions associated with the COVID-19 pandemic and other global events, such as Russia’s ongoing invasion of Ukraine and actions taken by the United States and other governments in response to the invasion, the global economy, including the financial and credit markets, has experienced significant volatility and disruptions, including increases in inflation rates, fuel prices, and interest rates. These conditions have resulted, and may continue to result, in increased expenses and may also impact travel or

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consumer discretionary spending. We believe the ongoing effects of the foregoing factors and events on our operations and global bookings have had, and will continue to have, a significant impact on our financial results and liquidity.

We cannot make assurances that our assumptions used to estimate our liquidity requirements will not change materially due to the dynamic nature of the current economic landscape. We have made reasonable estimates and judgments of the impact of these events within our financial statements; however, there may be material changes to those estimates in future periods. We have taken actions to improve our liquidity, including completing various capital market and financing transactions and making capital expenditure and operating expense reductions, and we expect to continue to pursue further opportunities to improve our liquidity.

Based on these actions and assumptions as discussed above, and considering our cash and cash equivalents of $700.6 million as of March 31, 2023 and the impact of our $591 million undrawn Revolving Loan Facility and $650 million undrawn commitment less related fees (see Note 6 – “Long-Term Debt”), we have concluded that we have sufficient liquidity to satisfy our obligations for at least the next twelve months. In addition, we have $300 million of backstop committed financing for amounts outstanding under the Senior Secured Credit Facility, which is available between October 4, 2023 and January 2, 2024 (see Note 6 – “Long-Term Debt”).

Basis of Presentation

The accompanying consolidated financial statements are unaudited and, in our opinion, contain all normal recurring adjustments necessary for a fair statement of the results for the periods presented.

Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year. Historically, demand for cruises has been strongest during the Northern Hemisphere’s summer months; however, our cruise voyages were completely suspended from March 2020 until July 2021 due to the COVID-19 pandemic and our resumption of cruise voyages was phased in gradually through May 2022. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022, which are included in our most recent Annual Report on Form 10-K filed with the SEC on February 28, 2023.

Loss Per Share

A reconciliation between basic and diluted loss per share was as follows (in thousands, except share and per share data):

	Three Months Ended
	March 31,
	2023		2022
Net loss	$	(159,321)	$	(982,714)
Basic weighted-average shares outstanding		422,655,215		417,734,591
Dilutive effect of share awards		—		—
Diluted weighted-average shares outstanding		422,655,215		417,734,591
Basic loss per share	$	(0.38)	$	(2.35)
Diluted loss per share	$	(0.38)	$	(2.35)

For the three months ended March 31, 2023 and 2022, a total of 89.4 million and 86.4 million shares, respectively, have been excluded from diluted weighted-average shares outstanding because the effect of including them would have been anti-dilutive.

Foreign Currency

The majority of our transactions are settled in U.S. dollars. We remeasure assets and liabilities denominated in foreign currencies at exchange rates in effect at the balance sheet date. The resulting gains or losses are recognized in our consolidated statements of operations within other income (expense), net. We recognized a loss of $8.7 million and a gain of $8.4 million for the three months ended March 31, 2023 and 2022, respectively, related to remeasurement of assets and liabilities denominated in foreign currencies. Remeasurements of foreign currency related to operating

9

activities are recognized within changes in operating assets and liabilities in the consolidated statement of cash flows.

Depreciation and Amortization Expense

The amortization of deferred financing fees is included in depreciation and amortization expense in the consolidated statements of cash flows; however, for purposes of the consolidated statements of operations they are included in interest expense, net.

Accounts Receivable, Net

Accounts receivable, net included $77.3 million and $118.4 million due from credit card processors as of March 31, 2023 and December 31, 2022, respectively.

Recently Issued Accounting Guidance

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provided guidance to alleviate the burden in accounting for reference rate reform by allowing certain expedients and exceptions in applying GAAP to contracts, hedging relationships and other transactions impacted by reference rate reform. The provisions apply only to those transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. Adoption of the provisions of ASU 2020-04 are optional and are effective from March 12, 2020 through December 31, 2024, as deferred by ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. As of March 31, 2023, we have not completed any contract amendments within the scope of ASU 2020-04 or adopted any expedients or exceptions. We will continue to evaluate the impact of ASU 2020-04 on our consolidated financial statements.

3.   Revenue Recognition

Disaggregation of Revenue

Revenue and cash flows are affected by economic factors in various geographical regions. Revenues by destination were as follows (in thousands):

	Three Months Ended
	March 31,
	2023		2022
North America	$	1,361,053	$	487,435
Europe		81,318		24,797
Asia-Pacific		205,662		8,292
Other		173,906		1,416
Total revenue	$	1,821,939	$	521,940

North America includes the U.S., the Caribbean, Canada and Mexico. Europe includes the Baltic region, Canary Islands and Mediterranean. Asia-Pacific includes Australia, New Zealand and Asia. Other includes all other international territories.

Segment Reporting

We have concluded that our business has a single reportable segment. Each brand, Norwegian, Oceania Cruises and Regent, constitutes a business for which discrete financial information is available and management regularly reviews the brand level operating results and, therefore, each brand is considered an operating segment. Our operating segments have similar economic and qualitative characteristics, including similar long-term margins and similar products and services; therefore, we aggregate all of the operating segments into one reportable segment.

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Although we sell cruises on an international basis, our passenger ticket revenue is primarily attributed to U.S.-sourced guests who make reservations through the U.S. Revenue attributable to U.S.-sourced guests has approximated 83-87% of total revenue over the preceding three fiscal years. No other individual country’s revenues exceed 10% in any given period.

Contract Balances

Receivables from customers are included within accounts receivable, net. As of March 31, 2023 and December 31, 2022, our receivables from customers were $97.8 million and $94.2 million, respectively, primarily related to in-transit credit card receivables.

Our standard payment and cancellation penalties apply for all sailings after March 31, 2023. Future cruise credits that have been issued as face value reimbursement for cancelled bookings due to COVID-19 are generally valid for any sailing through June 30, 2023, and we may further extend this offer. The future cruise credits are not contracts, and therefore, guests who elected this option are excluded from our contract liability balance; however, the credit for the original amount paid is included in advance ticket sales.

Our contract liabilities are included within advance ticket sales. As of March 31, 2023 and December 31, 2022, our contract liabilities were $2.3 billion and $1.7 billion, respectively. Of the amounts included within contract liabilities as of March 31, 2023, approximately 45% were refundable in accordance with our cancellation policies. Of the deposits included within advance ticket sales, the majority are refundable in accordance with our cancellation policies and it is uncertain to what extent guests may request refunds. Refunds payable to guests are included in accounts payable. For the three months ended March 31, 2023, $1.4 billion of revenue recognized was included in the contract liability balance at the beginning of the period.

4.   Leases

Operating lease balances were as follows (in thousands):

	Balance Sheet location	March 31, 2023		December 31, 2022
Operating leases
Right-of-use assets	Other long-term assets	$	723,761	$	707,086
Current operating lease liabilities	Accrued expenses and other liabilities		40,697		39,689
Non-current operating lease liabilities	Other long-term liabilities		603,015		588,064

5.   Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) for the three months ended March 31, 2023 was as follows (in thousands):

	Three Months Ended March 31, 2023
						Change
	Accumulated		Change			Related to
	Other		Related to			Shipboard
	Comprehensive		Cash Flow			Retirement
	Income (Loss)		Hedges			Plan
Accumulated other comprehensive income (loss) at beginning of period	$	(477,079)	$	(480,578)		$	3,499
Current period other comprehensive loss before reclassifications		(18,475)		(18,475)			—
Amounts reclassified into earnings		(9,810)		(9,874)	(1)		64	(2)
Accumulated other comprehensive income (loss) at end of period	$	(505,364)	$	(508,927)	(3)	$	3,563

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Accumulated other comprehensive income (loss) for the three months ended March 31, 2022 was as follows (in thousands):

	Three Months Ended March 31, 2022
						Change
	Accumulated		Change			Related to
	Other		Related to			Shipboard
	Comprehensive		Cash Flow			Retirement
	Income (Loss)		Hedges			Plan
Accumulated other comprehensive income (loss) at beginning of period	$	(285,086)	$	(279,696)		$	(5,390)
Current period other comprehensive income before reclassifications		41,685		39,304			2,381
Amounts reclassified into earnings		(7,407)		(7,502)	(1)		95	(2)
Accumulated other comprehensive income (loss) at end of period	$	(250,808)	$	(247,894)		$	(2,914)

(1) We refer you to Note 7 – “Fair Value Measurements and Derivatives” for the affected line items in the consolidated statements of operations.

(2) Amortization of prior-service cost and actuarial loss reclassified to other income (expense), net.

(3) Includes $14.4 million of loss expected to be reclassified into earnings in the next 12 months.

6.   Long-Term Debt

In February 2023, NCLC issued $600.0 million aggregate principal amount of 8.375% senior secured notes due 2028 (the “2028 Senior Secured Notes”). The 2028 Senior Secured Notes and related guarantees are secured by first-priority interests in, among other things and subject to certain agreed security principles, thirteen of our vessels that also secure the Senior Secured Credit Facility. The 2028 Senior Secured Notes are guaranteed by our subsidiaries that own the vessels that secure the 2028 Senior Secured Notes. NCLC may redeem the 2028 Senior Secured Notes at its option, in whole or in part, at any time and from time to time prior to February 1, 2025, at a “make-whole” redemption price, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date. NCLC may redeem the 2028 Senior Secured Notes at its option, in whole or in part, at any time and from time to time on or after February 1, 2025, at the redemption prices set forth in the indenture governing the 2028 Senior Secured Notes plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date. At any time and from time to time prior to February 1, 2025, NCLC may choose to redeem up to 40% of the aggregate principal amount of the 2028 Senior Secured Notes with the net proceeds of certain equity offerings, subject to certain restrictions, at a redemption price equal to 108.375% of the principal amount of the 2028 Senior Secured Notes redeemed plus accrued and unpaid interest to, but excluding, the redemption date, so long as at least 60% of the aggregate principal amount of the 2028 Senior Secured Notes issued remains outstanding following such redemption. The 2028 Senior Secured Notes pay interest at 8.375% per annum, semiannually on February 1 and August 1 of each year, to holders of record at the close of business on the immediately preceding January 15 and July 15, respectively.

The proceeds from the 2028 Senior Secured Notes were used to repay the loans outstanding under our Term Loan A Facility that otherwise would have become due in January 2024, including to pay any accrued and unpaid interest thereon, as well as related premiums, fees and expenses. As a result, all of the remaining term loans outstanding under our Term Loan A Facility will mature in January 2025, subject to, if a one-time minimum liquidity threshold is not satisfied on September 16, 2024, a springing maturity date of September 16, 2024.

The indenture governing the 2028 Senior Secured Notes includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness; (ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments; (iii) make investments; (iv) consummate certain asset sales; (v) engage in certain transactions with affiliates; (vi) grant or assume certain liens; and (vii) consolidate, merge or transfer all or substantially all of their assets.

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In July 2022, NCLC entered into a $1 billion amended and restated commitment letter (the “commitment letter”) with the purchasers named therein (collectively, the “Commitment Parties”), which superseded a $1 billion commitment letter previously executed in November 2021. The commitment letter, among other things, extended the commitments thereunder through March 31, 2023. In February 2023, the Commitment Parties further amended the commitment letter (the “amended commitment letter”) to extend certain commitments thereunder through February 2024, with an option for NCLC to further extend such commitments through February 2025 at its election. Pursuant to the amended commitment letter, the Commitment Parties have agreed to purchase from NCLC an aggregate principal amount of up to $650 million of senior secured notes at NCLC’s option. NCLC has the option to make up to two draws, consisting of (i) $250 million of senior secured notes due 2028 that, if issued, will accrue interest at a rate of 11.00% per annum subject to a 1.00% increase or decrease based on certain market conditions at the time drawn (the “Class B Notes”) and (ii) $400 million aggregate principal amount of 8.00% senior secured notes due five years after the issue date (the “Backstop Notes”). The Class B Notes and the Backstop Notes are subject to a quarterly commitment fee of 0.75% for so long as the commitments with respect to Class B Notes or the Backstop Notes, as applicable, are outstanding, which fee will be increased to 1.00% if NCLC extends the commitments through February 2025 at its election. If drawn, the Class B Notes will be subject to an issue fee of 2.00%, and the Backstop Notes will be subject to a quarterly duration fee of 1.50%, as well as an issue fee of 3.00%.

In February 2023, in connection with the execution of the amended commitment letter, NCLC issued $250 million aggregate principal amount of 9.75% senior secured notes due 2028 (the “Class A Notes” and, collectively with the Class B Notes and the Backstop Notes, the “Notes”), subject to an issue fee of 2.00%. NCLC will use the net proceeds from the Class A Notes for general corporate purposes. NCLC may redeem the Class A Notes at its option, in whole or in part, at any time and from time to time prior to February 22, 2025, at a “make-whole” redemption price, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date. NCLC may redeem the Class A Notes at its option, in whole or in part, at any time and from time to time on or after February 22, 2025, at the redemption prices set forth in the indenture governing the Class A Notes, plus accrued and unpaid interest and additional amounts, if any, to, but excluding, the redemption date. The Class A Notes pay interest at 9.75% per annum, quarterly on February 15, May 15, August 15 and November 15 of each year, to holders of record at the close of business on the immediately preceding February 1, May 1, August 1 and November 1, respectively.

The Class A Notes are, and the Class B Notes and the Backstop Notes, if issued, will be, secured by first-priority interests in, among other things and subject to certain agreed security principles, shares of capital stock in certain guarantors, our material intellectual property and two islands that we use in the operations of our cruise business. The Class A Notes are, and the Class B Notes and the Backstop Notes, if issued, will be, guaranteed by our subsidiaries that own the property that secures the Notes as well as certain additional subsidiaries whose assets do not secure the Notes.

The indenture governing the Class A Notes includes requirements that, among other things and subject to a number of qualifications and exceptions, restrict the ability of NCLC and its restricted subsidiaries, as applicable, to (i) incur or guarantee additional indebtedness; (ii) pay dividends or distributions on, or redeem or repurchase, equity interests and make other restricted payments; (iii) make investments; (iv) consummate certain asset sales; (v) engage in certain transactions with affiliates; (vi) grant or assume certain liens; and (vii) consolidate, merge or transfer all or substantially all of their assets.

In February 2023, NCLC entered into a Backstop Agreement with Morgan Stanley & Co. LLC (“MS”), pursuant to which MS has agreed to provide backstop committed financing to refinance and/or repay in whole or in part amounts outstanding under the Senior Secured Credit Facility. Pursuant to the Backstop Agreement, we may, at our sole option, issue and sell to MS (subject to the satisfaction of certain conditions) five-year senior unsecured notes up to an aggregate principal amount sufficient to generate gross proceeds of $300 million at any time between October 4, 2023 and January 2, 2024.

In April 2023, $82.5 million in aggregate principal amount of the Revolving Loan Facility due January 2024 was assigned to a new lender, and the maturity date was extended by one year to January 2025. The terms of the assigned principal are the same as the existing lenders who extended commitments in December 2022 under Amendment No. 4 to the Senior Secured Credit Facility.

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Exchangeable Notes

The following is a summary of NCLC’s exchangeable notes as of March 31, 2023 (in thousands):

			Unamortized
	Principal		Deferred		Net Carrying		Fair Value
	Amount		Financing Fees		Amount		Amount		Leveling
2024 Exchangeable Notes	$	146,601	$	(1,678)	$	144,923	$	171,352	Level 2
2025 Exchangeable Notes		450,000		(5,828)		444,172		471,600	Level 2
2027 1.125% Exchangeable Notes		1,150,000		(22,145)		1,127,855		847,861	Level 2
2027 2.5% Exchangeable Notes		473,175		(9,652)		463,523		366,815	Level 2

The following is a summary of NCLC’s exchangeable notes as of December 31, 2022 (in thousands):

			Unamortized Debt
			Discount,
	Principal		including Deferred		Net Carrying		Fair Value
	Amount		Financing Fees		Amount		Amount		Leveling
2024 Exchangeable Notes	$	146,601	$	(1,993)	$	144,608	$	161,840	Level 2
2025 Exchangeable Notes		450,000		(6,312)		443,688		433,580	Level 2
2027 1.125% Exchangeable Notes		1,150,000		(23,457)		1,126,543		763,830	Level 2
2027 2.5% Exchangeable Notes		473,175		(10,184)		462,991		331,743	Level 2

The following provides a summary of the interest expense of NCLC’s exchangeable notes (in thousands):

	Three Months Ended
	March 31,
	2023		2022
Coupon interest	$	14,438	$	12,992
Amortization of deferred financing fees		2,643		2,275
Total	$	17,081	$	15,267

As of March 31, 2023, the effective interest rate is 7.04%, 5.97%, 1.64% and 3.06% for the 2024 Exchangeable Notes, 2025 Exchangeable Notes, 2027 1.125% Exchangeable Notes and 2027 2.5% Exchangeable Notes, respectively.

Debt Repayments

The following are scheduled principal repayments on our long-term debt including exchangeable notes which can be settled in shares and finance lease obligations as of March 31, 2023 (in thousands):

Year	Amount
Remainder of 2023	$	770,436
2024		1,943,331
2025		1,846,760
2026		2,053,382
2027		3,106,106
2028		1,762,008
Thereafter		1,883,802
Total	$	13,365,825

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Debt Covenants

As of March 31, 2023, we were in compliance with all of our debt covenants. If we do not continue to remain in compliance with our covenants, we would have to seek additional amendments to or waivers of our covenants. However, no assurances can be made that such amendments or waivers would be approved by our lenders. Generally, if an event of default under any debt agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of our outstanding debt and derivative contract payables could become due, and all debt and derivative contracts could be terminated, which would have a material adverse impact on our operations and liquidity.

7.   Fair Value Measurements and Derivatives

Fair value is defined as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

Fair Value Hierarchy

The following hierarchy for inputs used in measuring fair value should maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available:

Level 1      Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement dates.

Level 2      Significant other observable inputs that are used by market participants in pricing the asset or liability based on market data obtained from independent sources.

Level 3      Significant unobservable inputs we believe market participants would use in pricing the asset or liability based on the best information available.

Derivatives

We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We attempt to minimize these risks through a combination of our normal operating and financing activities and through the use of derivatives. We assess whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the cash flow of our hedged forecasted transactions. We use critical terms match or regression analysis for hedge relationships and high effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the fair values of the derivative and the hedged forecasted transaction. Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction. If it is determined that the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in accumulated other comprehensive income (loss) is released to earnings. There are no amounts excluded from the assessment of hedge effectiveness, and there are no credit-risk-related contingent features in our derivative agreements. We monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. Credit risk, including but not limited to counterparty non-performance under derivatives, is not considered significant, as we primarily conduct business with large, well-established financial institutions with which we have established relationships, and which have credit risks acceptable to us, or the credit risk is spread out among many creditors. We do not anticipate non-performance by any of our significant counterparties.

As of March 31, 2023, we had fuel swaps, which are used to mitigate the financial impact of volatility of fuel prices pertaining to approximately 493 thousand metric tons of our projected fuel purchases, maturing through December 31, 2024.

As of March 31, 2023, we had fuel swaps pertaining to approximately 8 thousand metric tons of our projected fuel purchases which were not designated as cash flow hedges maturing through December 31, 2023.

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As of March 31, 2023, we had foreign currency forward contracts, matured foreign currency options and matured foreign currency collars which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. The notional amount of our hedged foreign currency forward contracts was €1.7 billion, or $1.8 billion based on the euro/U.S. dollar exchange rate as of March 31, 2023.

The derivatives measured at fair value and the respective location in the consolidated balance sheets include the following (in thousands):

		Assets				Liabilities
		March 31,		December 31,		March 31,		December 31,
	Balance Sheet Location	2023		2022		2023		2022
Derivative Contracts Designated as Hedging Instruments
Fuel contracts
	Prepaid expenses and other assets	$	20,208	$	53,224	$	—	$	7,137
	Other long-term assets		—		3,869		—		655
	Accrued expenses and other liabilities		9,857		—		20,812		—
	Other long-term liabilities		32		—		3,439		—
Foreign currency contracts
	Prepaid expenses and other assets		4,661		3,617		—		—
	Accrued expenses and other liabilities		6,561		4,386		170,638		177,746
Total derivatives designated as hedging instruments		$	41,319	$	65,096	$	194,889	$	185,538
Derivative Contracts Not Designated as Hedging Instruments
Fuel contracts
	Prepaid expenses and other assets	$	—	$	84	$	—	$	348
	Other long-term assets		—		—		—		191
	Accrued expenses and other liabilities		—		—		576		—
Total derivatives not designated as hedging instruments		$	—	$	84	$	576	$	539
Total derivatives		$	41,319	$	65,180	$	195,465	$	186,077

The fair values of swap and forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The Company determines the value of options and collars utilizing an option pricing model based on inputs that are either readily available in public markets or can be derived from information available in publicly quoted markets. The option pricing model used by the Company is an industry standard model for valuing options and is used by the broker/dealer community. The inputs to this option pricing model are the option strike price, underlying price, risk-free rate of interest, time to expiration, and volatility. The fair value of option contracts considers both the intrinsic value and any remaining time value associated with those derivatives that have not yet settled. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values.

Our derivatives and financial instruments were categorized as Level 2 in the fair value hierarchy, and we had no derivatives or financial instruments categorized as Level 1 or Level 3. Our derivative contracts include rights of offset with our counterparties. We have elected to net certain assets and liabilities within counterparties when the rights of offset exist. We are not required to post cash collateral related to our derivative instruments.

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The following table discloses the gross and net amounts recognized within assets and liabilities (in thousands):

			Gross				Gross
	Gross		Amounts		Total Net		Amounts
March 31, 2023	Amounts		Offset		Amounts		Not Offset		Net Amounts
Assets	$	24,869	$	—	$	24,869	$	(4,661)	$	20,208
Liabilities		195,465		(16,450)		179,015		(133,040)		45,975

			Gross				Gross
	Gross		Amounts		Total Net		Amounts
December 31, 2022	Amounts		Offset		Amounts		Not Offset		Net Amounts
Assets	$	60,794	$	(8,331)	$	52,463	$	(3,617)	$	48,846
Liabilities		177,746		(4,386)		173,360		(146,381)		26,979

The effects of cash flow hedge accounting on accumulated other comprehensive income (loss) were as follows (in thousands):

					Location of Gain
					(Loss) Reclassified
					from Accumulated	Amount of Gain (Loss) Reclassified
	Amount of Gain (Loss)				Other Comprehensive	from Accumulated Other
	Recognized in Other				Income (Loss) into	Comprehensive Income
Derivatives	Comprehensive Loss				Income (Expense)	(Loss) into Income (Expense)
	Three Months		Three Months			Three Months		Three Months
	Ended		Ended			Ended		Ended
	March 31, 2023		March 31, 2022			March 31, 2023		March 31, 2022
Fuel contracts	$	(29,015)	$	92,483	Fuel	$	12,597	$	8,809
Fuel contracts		—		—	Other income (expense), net		(37)		—
Foreign currency contracts		10,540		(53,179)	Depreciation and amortization		(2,686)		(1,267)
Interest rate contracts		—		—	Interest expense, net		—		(40)
Total gain (loss) recognized in other comprehensive loss	$	(18,475)	$