Viking Cruises, Ltd. -- Moody's assigns B1 CFR to Viking Cruises; outlook stable

New York, October 09, 2012 -- Moody's Investors Service assigned a B1 Corporate Family and Probability of Default ratings to Viking Cruises, Ltd. ("Viking"). Moody's also assigned a B3 rating to Viking's proposed $250 million senior unsecured notes due 2022.

Proceeds from the proposed note offering will be used to fund approximately $100 million for investment in river vessels to be built, a $50 million loan to an unrestricted subsidiary, Viking Ocean Cruises Finance Ltd., for ship progress payments and start-up expenses, $50 million to purchase existing shares and options, to pay a $20 million dividend to the company's owner, and for general corporate purposes. The notes will be guaranteed by existing subsidiaries representing approximately all of the company's EBITDA and about 97% of assets as of June 30, 2012. Viking Ocean Cruises, Ltd. and Viking Ocean Cruises Finance Ltd. (collectively "Viking Ocean") will not guarantee the notes.

RATING RATIONALE:

Viking's B1 Corporate Family Rating considers the business risk associated with high growth in a small market segment of the cruise industry along with company's high leverage relative to its revenue base. Pro-forma for the proposed bond transaction, lease adjusted debt to EBITDA will be approximately 5.5 times, a leverage level considered to be high particularly given Viking's narrow product focus and small size in terms of revenue. Total net revenues for the latest 12-months ended June 30, 2012 were only about $294 million. The ratings also consider Viking's aggressive growth plans. The company has increased passenger capacity cruise days by approximately 50% between from 2009 to 2012 and will increase capacity by another approximately 30% in 2013. Additionally, the company is planning to expand into the ocean cruise segment of the industry (via an unrestricted non-guarantor subsidiary) that is dominated by larger, more established companies.

The ratings are supported by Viking's good forward booking visibility. A high proportion of the following year's net cruise revenues are booked by late fall of the prior year. This visibility along with a short lead time to build new vessels, about 12 to 15 months -- enables the company to adjust capacity expansion to demand trends. Viking's dock ownership also enables the company to lay-up vessels at a manageable cost if there were a sudden reduction in demand, as occurred in 2009. Also considered is the company's solid interest coverage, at about 2.5 times -- like other cruise operators, Viking benefits from the low cost secured ship financing -- and increasing mix of higher margin new longships that is expected to driver higher returns on investment.

The ratings incorporate the qualified audit opinion that the company received in 2011 -- and expected to receive going forward -- as a result of a disagreement with the auditors regarding the accounting treatment of direct marketing and advertising costs under IAS 38. Viking treats these expenses in accordance with the matching principal. While not in accordance with IFRS, it is acceptable in GAAP accounting.

The stable rating outlook reflects good forward booking trends at higher prices for 2013 and Moody's expectation that Viking can achieve a solid return on its vessel investments while maintaining its current credit profile. Additionally, the stable outlook takes into account Moody's view that Viking the company has the ability to react quickly to slow the pace of capacity expansion should the demand environment change.

The ratings could be downgraded if for any reason, there is a meaningful deterioration in occupancy or pricing that would cause gross lease adjusted debt/EBITDA to approach 6.0 times. In considering the company's leverage metrics, Moody's will give some credit for cash in excess of the company's liquidity needs. The ratings could be upgraded if the demand environment remains strong enough to support a solid return on capacity expansion and lease adjusted debt to EBITDA declines below 5.0 times and is likely to remain at a lower level in the context of Viking's growth strategy.

The principal methodology used in rating Viking Cruises Ltd was the Global Lodging & Cruise Industry Rating Methodology published in December 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Viking Cruises, Ltd. is the holding company of Viking River Cruises Ltd, and Viking Ocean Cruises Ltd, both Bermuda companies. Viking Ocean is an unrestricted subsidiary of Viking Cruises, Ltd. As of June 30, 2012, Viking River Cruises, Ltd. operated and marketed 30 river cruise vessels under the Viking River Cruises brand; last twelve months total net revenues were approximately $294 million.

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Peggy Holloway VP - Senior Credit Officer Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Kendra M. Smith MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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