Other Assets

9 Months Ended

Sep. 30, 2022

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. 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 September 30, 2022, the net book value of our investment in TUIC was $412.9 million, primarily consisting of $315.6 million in equity and a loan of €91.2 million, or approximately $89.3 million based on the exchange rate at September 30, 2022. As of December 31, 2021, the net book value of our investment in TUIC was $444.4 million, primarily consisting of $322.4 million in equity and a loan of €103.0 million, or approximately $117.2 million based on the exchange rate at December 31, 2021. 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 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.

We have determined that Grand Bahama Shipyard Ltd. ("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. During the nine months ended September 30, 2022, we made payments of $7.8 million to Grand Bahama for ship repair and maintenance services compared to payments of $3.6 million for the nine months ended September 30, 2021, respectively. 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.

As of September 30, 2022, we had exposure to credit loss in Grand Bahama of $8.8 million related to a loan. The 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 nine months ended September 30, 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 nine months ended September 30, 2022. The outstanding loan balance is in non-accrual status and is included within Other assets in our consolidated balance sheets. In addition, we are currently recognizing our share of net accumulated equity method losses against the carrying value of our loan receivable from Grand Bahama. 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.

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Share of equity income (loss) from investments	$	73,997	$	(29,085)	$	29,759	$	(137,044)
Dividends received (1)	$	—	$	—	$	986	$	—

(1) Represents dividends received from our investments accounted for under the equity method of accounting for the quarters and nine months ended September 30, 2022 and September 30, 2021.


	As of September 30, 2022		As of December 31, 2021
Total notes receivable due from equity investments	$	99,845	$	130,587
Less-current portion (1)	18,151		21,508
Long-term portion (2)	$	81,694	$	109,079

(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 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues	$	3,678	$	7,835	$	13,988	$	18,979
Expenses	$	1,672	$	1,749	$	5,189	$	4,738

Credit Losses

We reviewed our notes receivable for credit losses in connection with the preparation of our financial statements for the quarter ended September 30, 2022. In evaluating the allowance, 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. Our credit loss allowance beginning and ending balances as of January 1, 2022 and September 30, 2022 primarily relate to credit losses recognized on notes receivable for the previous sale of our property and equipment of $81.6 million and other receivable balances primarily related to loans due from travel advisors of $12.6 million.

The following table summarizes our credit loss allowance related to receivables for the nine months ended September 30, 2022 (in thousands):


	Credit Loss Allowance
Beginning balance January 1, 2022	$	100,192
Credit loss recovery, net	(8,466)
Write-offs	(9,024)
Ending balance September 30, 2022	$	82,702