Summary
Moody's Ratings has upgraded Royal Caribbean Cruises Ltd.'s long-term senior unsecured debt rating to Baa2 from Baa3 and improved the firm's short-term commercial paper rating to P-2 from P-3, while changing the outlook to stable from positive. The rating action reflects Moody's view that Royal Caribbean will sustain earnings expansion supported by strong demand, pricing power and cost controls, and that its leverage profile should remain manageable even as it invests heavily in new vessels funded mainly through debt.
What the upgrade reflects
Moody's emphasized the company's strong market position across its wholly owned brands - Royal Caribbean, Celebrity Cruises and Silversea - and expects customer growth as demand for cruise vacations increases. The rating agency also highlighted Royal Caribbean's plan to roll out additional land-based private beach clubs through 2028, which Moody's believes will help boost onboard revenue streams.
Balance-sheet and cash-flow expectations
As of December 31, 2025, Royal Caribbean reported a debt/EBITDA ratio of 3.0x and an EBITA margin of 36.4%. Moody's projects that the company will manage its debt/EBITDA ratio generally between 2.5x and 3.0x going forward, even while it undertakes significant ship investment that will be primarily debt financed.
The agency expects the firm to maintain adequate liquidity, forecasting at least $700 million in cash balances and roughly $6.6 billion in operating cash flow for 2026. Free cash flow is projected to be about $700 million in 2026 with modest growth the following year. Royal Caribbean also has $6.35 billion in revolving credit commitments, split evenly by maturity with half expiring in October 2028 and the remainder in October 2030.
Potential rating paths
Moody's set objective thresholds for future rating movement. An upgrade could follow if Royal Caribbean continues strong operating results while expanding its fleet and keeps debt/EBITDA below 2.5x with funds from operations plus interest to interest remaining above 8.0x. By contrast, a downgrade could arise if debt/EBITDA persistently exceeds 3.0x or if funds from operations plus interest to interest falls below 6.0x.
Risks highlighted by Moody's
The rating agency noted several downside sensitivities it will monitor, including the company's ability to control unit cost increases, demand vulnerability to economic cycles and pressures on Caribbean pricing amid capacity growth exceeding 20% in 2026.
Bottom line
Moody's upgrade recognizes Royal Caribbean's leading business profile within the cruise sector and its comparatively strong credit metrics, while also underscoring specific operational and market risks that could influence future ratings. The firm faces a balancing act between fleet expansion funded by debt and maintaining leverage and cash-flow metrics within the ranges Moody's deems consistent with the new Baa2 rating.