Other Assets

3 Months Ended

Mar. 31, 2021

Note 6. Other Assets

A Variable Interest Entity (“VIE”) is an entity in which the equity investors have not provided enough equity to finance the entity’s activities or the equity investors: (1) cannot directly or indirectly make decisions about the entity’s activities through their voting rights or similar rights; (2) do not have the obligation to absorb the expected losses of the entity; (3) do not have the right to receive the expected residual returns of the entity; or (4) have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.

We have determined that TUI Cruises GmbH ("TUIC"), our 50%-owned joint venture, which operates the brands TUI Cruises and Hapag-Lloyd Cruises, is a VIE. In addition, we have determined that we are not the primary beneficiary of TUIC. We believe that the power to direct the activities that most significantly impact TUIC’s economic performance is shared between ourselves and TUI AG, our joint venture partner. All the significant operating and financial decisions of TUIC require the consent of both parties, which we believe creates shared power over TUIC. Accordingly, we do not consolidate this entity and account for this investment under the equity method of accounting.

As of March 31, 2021, the net book value of our investment in TUIC was $538.8 million, primarily consisting of $395.8 million in equity and a loan of €114.9 million, or approximately $135.1 million based on the exchange rate at March 31, 2021. As of December 31, 2020, the net book value of our investment in TUIC was $538.4 million, primarily consisting of $387.5 million in equity and a loan of €118.9 million, or approximately $145.5 million based on the exchange rate at December 31, 2020. The loan, which was made in connection with the sale of Splendour of the Seas in April 2016, accrues interest at a rate of 6.25% per annum and is payable over 10 years. This loan is 50% guaranteed by TUI AG, our joint venture partner in TUIC, and is secured by a first priority mortgage on the ship. The majority of these amounts were included within Other assets in our consolidated balance sheets. During the quarter ended March 31, 2021, we and TUI AG each contributed €59.5 million, or approximately $69.9 million based on the exchange rate at March 31, 2021, of additional equity through a combination of cash contributions and conversion of existing receivables.

TUIC has various ship construction and financing agreements which include certain restrictions on each of our and TUI AG’s ability to reduce our current ownership interest in TUI Cruises below 37.55% through May 2033. Our investment amount and outstanding term loan are substantially our maximum exposure to loss in connection with our investment in TUIC.

TUI Cruises and Hapag-Lloyd Cruises, our Partner Brands, have been adversely affected by COVID-19, resulting in the suspension of the majority of the brands' cruise operations and a material negative impact to the brands' results of operations and liquidity. The brands have executed cost containment actions and liquidity measures, including the issuance of new financing and the deferral of existing financing, to mitigate the impact of COVID-19 until normal operations may be resumed.

We have determined that Pullmantur Holdings, in which we have a 49% noncontrolling interest and Springwater Capital LLC has a 51% interest, is a VIE for which we are not the primary beneficiary, as we do not have the power to direct the

activities that most significantly impact the entity's economic performance. In 2020, Pullmantur Holdings and certain of its subsidiaries filed for reorganization under the terms of the Spanish insolvency laws due to the negative impact of COVID-19 on the companies. We suspended the equity method of accounting for Pullmantur Holdings during the second quarter of 2020 as we do not intend to fund the entity's future losses and we lost our ability to exert significant influence over the entity's activities as a result of the liquidation process.

We have determined that Grand Bahama, a ship repair and maintenance facility in which we have a 40% noncontrolling interest, is a VIE. This facility serves cruise and cargo ships, oil and gas tankers and offshore units. We utilize this facility, among other ship repair facilities, for our regularly scheduled drydocks and certain emergency repairs as may be required. We have determined that we are not the primary beneficiary of this facility as we do not have the power to direct the activities that most significantly impact the facility’s economic performance. Accordingly, we do not consolidate this entity.

During the quarter ended March 31, 2020, we performed an impairment evaluation on our investment in Grand Bahama. As a result of the evaluation, we did not deem our investment balance to be recoverable and recorded an impairment charge of $30.1 million bringing our investment balance to zero. The impairment assessment and the resulting charge on our equity method investment in Grand Bahama were determined based on management’s estimates and projections. We are currently recognizing our share of equity method losses against the carrying value of our loans receivable from Grand Bahama.

As of March 31, 2021, we had exposure to credit loss in Grand Bahama consisting of a $8.6 million loan. Our loan to Grand Bahama matures March 2026 and bears interest at LIBOR plus 3.5% to 3.75%, capped at 5.75%. Interest payable on the loan is due on a semi-annual basis. During the quarter ended March 31, 2021, we received principal and interest payments of $8.9 million related to a term loan that had fully matured. We did not receive principal and interest payments during the quarter ended March 31, 2020. The outstanding loan balance is included within Trade and other receivables, net and Other assets in our consolidated balance sheets.

We monitor credit risk associated with the loan through our participation on Grand Bahama’s board of directors along with our review of Grand Bahama’s financial statements and projected cash flows. Effective April 1, 2020, we placed the loans in non-accrual status based on our review of Grand Bahama's projected cash flows, which have been adversely affected by impacts to their operations caused by the 2019 crane accident related to Oasis of the Seas, Hurricane Dorian and most recently, COVID-19. During the quarter ended March 31, 2021, no credit losses were recorded related to these loans.

For further information on the measurements used to estimate the fair value of our equity investments, refer to Note 12. Fair Value Measurements and Derivative Instruments.

The following tables set forth information regarding our investments accounted for under the equity method of accounting, including the entities discussed above (in thousands):


	Quarter Ended March 31,
	2021		2020
Share of equity (loss) income from investments	$	(59,871)	$	(10,392)
Dividends received (1)	$	—	$	1,991

(1)There were no dividends received from TUI Cruises for the quarters ended March 31, 2021 and March 31, 2020.


	As of March 31, 2021		As of December 31, 2020
Total notes receivable due from equity investments	$	143,642	$	164,596
Less-current portion (1)	20,018		29,501
Long-term portion (2)	$	123,624	$	135,095

(1)Included within Trade and other receivables, net in our consolidated balance sheets.

(2)Included within Other assets in our consolidated balance sheets.

We also provide ship management services to TUIC and provided management services to Pullmantur Holdings (which filed for reorganization in Spain in June 2020). Additionally, we bareboat chartered to Pullmantur Holdings the vessels previously operated by its brands, which were retained by us following the sale of our 51% interest in Pullmantur Holdings. These bareboat charters were terminated when Pullmantur Holdings filed for reorganization in Spain. We recorded the following as it relates to these services in our operating results within our consolidated statements of comprehensive income (loss) (in thousands):


	Quarter Ended March 31,
	2021		2020
Revenues	$	5,231	$	7,411
Expenses	$	1,275	$	782

Credit Losses

We reviewed our notes receivable for credit losses in connection with the preparation of our financial statements for the quarter ended March 31, 2021. In evaluating the allowance for loan losses, management considered factors such as historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, peer group information and prevailing economic conditions.

The following table summarizes our credit loss allowance related to receivables for the three months ended March 31, 2021 (in thousands):


	Credit Loss Allowance
Beginning balance January 1, 2021	$	85,447
Loss provision for receivables	971
Write-offs	(529)
Ending balance March 31, 2021	$	85,889

Our credit loss allowance balance as of March 31, 2021 primarily related to a $81.6 million loss provision recognized during 2020 on notes receivable related to a previous sale of property and equipment.