On March 6, Premier Cruises completed the sale of $160 million in high-yield debt at a discounted price of 97.07 percent of par. The single-B­-rated bonds were sold via lead manager Donaldson Lufkin & Jenrette (DLJ) with an interest rate of 11.5 percent, requiring Premier to make twice-annual interest payments of $9.2 million through the year 2008, at which point the $160 million principal comes due.

According to the prospectus, Premier estimated that net proceeds from the private placement would total $152 million after fees, etc., however, it is unlikely that this estimate takes into account the significant level of discounting required to sell the debt (which amounted to 2.93 percent, or $4.7 million). Premier said the proceeds would be used for the following: (1) $87.8 million to repay all outstanding indebtedness; (2) $46 million to acquire the title to the Islandbreeze and Rembrandt; (3) $6.2 million toward FMC bonding; (4) $5 million to reduce accounts payable; and (5) between $2.3 million and $7 million for additional working capital.

Significantly, the success of the bond offering gives Premier access to a new credit facility for up to $30 million with its prima lender Skandina Viska Enskilda Banken (SEB). Out of its pre-offering debt of $87.8 million, $77.5 million of that total had been owed to SEB.

Thus, the $160 million bond offering itself does not significantly increase Premier's cash reserves, and the company's new annual debt load of $18.4 million plus interest payments on its new credit facility is considerably higher than interest expenses for 1997, estimated at $10.4 million.

And the offering's 11.5 percent interest rate is also higher than anticipated - Premier's original prospectus assumes a 10 percent rate in all its financial forecasts (that 1.5 percent translates into an additional $2.4 million expense per year for Premier).

But the bond offering does allow the company access to a credit cushion, and the next step in the works for the company is an initial public offering (IPO) on a U.S. exchange, which could infuse additional capital - and if successful, could be highly lucrative for the company's current shareholders (see "Ownership & Compensation," below).

Financial Forecasts

Premier's financial forecast, included in the prospectus, shows an estimated net loss for the year ended Dec. 31, 1997 of $20.6 million, and an expected net loss of $7.5 million for 1998.

Such a prediction depends on several assumptions however: (1) that net passenger revenue increases from an estimated $168.6 million in 1997 to $236.4 million in 1998, primarily due to the addition of the Rembrandt; (2) a 30 percent increase in operating days, with only the Seabreeze to be drydocked this year; and (3) an increase in load factor, from an estimated 96.8 percent in 1997 to 98.5 percent this year.

In other words, Premier predicts a $7.5 million loss this year even if all of the above come true, and there are absolutely no glitches in the schedule or soft bookings. If its predictions prove correct, Premier will lose $13.1 million less this year than it did last year; theoretically, this improvement, combined with the new credit facility, would allow Premier to meet its interest payments and move forward with its IPO plans.

The Fleet

According to the prospectus, Premier called off not one but two plans for ship purchases in the fourth quarter of 1997.

Regarding the previously announced decision to call off the $15.5 million contract for the Regent Sun, Premier forfeited $1.2 million to the ship's owners, and was obligated to reimburse a third party for a $1 million deposit.

But never publicly mentioned by Premier was its plan to purchase the Regal Empress. According to the prospectus, Premier paid a $1.5 million non-refundable deposit on April 21, 1997 for an exclusive option on the right of first refusal. Premier "elected to discontinue its efforts because the company was unable to negotiate an acceptable purchase price," said the prospectus.

Thus, between the Regent Sun and the Regal Empress deals, Premier wrote-off a $3.7 million combined loss in the fourth quarter of 1997.

The prospectus also noted that several of the company's ships are bound by non-competition agreements. Specifically: it may not operate the Islandbreeze more than 18 weeks per year in the Caribbean until October 2000; it may not operate the Rembrandt for more than 18 weeks per year in the Caribbean, or in Alaska at any time, until July 2001; and as part of its agreement with Thomson Cruises, it may not charter a ship to any other U.K. tour operator until 1999.

Also, the company places particularly strong emphasis on negotiating deals with foreign tour operators, which it believes cuts down on marketing costs. Premier estimates that revenue generated by tour operators will represent 30 percent of total revenue for 1997 and 37 percent of total revenue for 1998.

Finally, offering insight on the Rembrandt purchase, the prospectus explains that Premier entered a 96-month charter/purchase agreement with Holland America Line on July 5, 1997, at a price of $13,700 per day. Premier made $5 million in deposits and payments in 1997, plus $7 million for upgrades, and will use bond proceeds to complete purchase of the vessel.

Ownership & Compensation

According to the prospectus, "Leisure Corp. LTD. currently owns 71.5 percent of the outstanding common stock. Leisure is controlled by Norwegian Vidar Lyhus, who is the voting trustee for 72.6 percent of the outstanding stock of Leisure." Beyond Lyhus' shares, the remainder of Premier stock is owned by lender SEB, which owns 10.3 percent, and company executives, who own 51.2 percent (the total exceeds 100 percent due to overlapping ownership of Premier executives in Lyhus' company, Leisure Corp.)

In terms of its compensation, Premier's board of directors appears quite generous in setting its own reimbursement. President and CEO Larry Magnan gets a base salary of $250,000 plus a bonus in 1997 of $1 million (to be paid by April 15), plus he has the option to purchase 290,717 shares of common stock at an exercise price of $0.01 per share, plus he gets a company loan to cover any tax consequences of that option. Executive V.P.s Morten Mathiesen and Hans Rood get a salary of $180,000 plus a bonus of $60,000 plus stock options for 48,453 shares at an exercise price of $8.53. V.P. of Finance Einar Gruner-Hegge gets a salary of $180,000 plus a $150,000 bonus plus the same stock options as Rood and Mathiesen (in addition the company loaned Einar Gruner-Hegge $300,000 in 1997 to finance a house purchase).

As for founder Kristian Stensby, who resigned suddenly last December, he is provided with a one-year consulting agreement for a fee of $250,000, and retains ownership of 17 percent of the company. In addition, bond proceeds will pay $1.8 million to Coral Seas, "an entity controlled by Stensby, in which Vidar Lyhus and (board director) Pal Lund-Roland have an interest, as reimbursement for their prior expenditures and efforts in establishing the company."


Premier Cruises has outlined a unique plan to sell distinct "classic" cruises aboard older ships, to branch out internationally through agreements with foreign tour operators, and to keep costs low by utilizing inexpensively purchased ships and consolidating operations. To succeed in the highly competitive cruise market and make the public offering which could provide a cash infusion for the company as well as a lucrative opportunity to "cash in" for its executives, Premier Cruises must hope to sail clear of unforeseen expenses and complications during 1998.

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