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Other Assets | 9 Months Ended
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Sep. 30, 2020
Other Assets [Abstract] |
Other Assets | 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 are 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. On June 30, 2020, TUIC acquired Hapag-Lloyd Cruises, a luxury and expedition brand for German-speaking guests, from TUI AG for approximately €1.2 billion, or approximately $1.3 billion. Hapag-Lloyd Cruises operates two luxury liners and two smaller expedition ships. We and TUI AG each made an equity contribution of €75.0 million, or approximately $84.2 million, to TUIC to fund a portion of the purchase price, the remainder of which was financed by third-party financing. As of September 30, 2020, the net book value of our investment in TUIC was $617.8 million, primarily consisting of $467.4 million in equity and a loan of €122.9 million, or approximately $144.1 million based on the exchange rate at September 30, 2020. As of December 31, 2019, the net book value of our investment in TUIC was $598.1 million, primarily consisting of $443.1 million in equity and a loan of €133.2 million, or approximately $149.5 million based on the exchange rate at December 31, 2019. 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. 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 TUIC below 37.55% through May 2033. Our investment amount and outstanding term loan are subs tantially our maximum exposure to loss in connection with our investment in TUIC. We 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. On June 22, 2020, Pullmantur S.A., a subsidiary of Pullmantur Holdings, filed for reorganization under the terms of the Spanish insolvency laws at the direction of its Board as a result of the adverse impact of the COVID-19 pandemic on the company's operations and liquidity. Subsequently, Pullmantur Holdings and certain of its other subsidiaries filed for reorganization in Spain. 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 lost our ability to exert significant influence over the entity's activities as a result of the reorganization process. In connection with the reorganization, we terminated the agreements chartering three of our ships to Pullmantur Holdings and sold the ships to third parties during the quarter ended September 30, 2020 for amounts approximating their carrying values. Refer to Note 3. Impairment and Credit Losses for further discussion on the impact of the ships' sale on our consolidated financial statements. In addition, we recognized a loss of $69.0 million during the quarter ended June 30, 2020, representing deferred currency translation adjustment losses, net of hedging, as we no longer have significant involvement in the Pullmantur operation. This loss was recognized within Other expense in our consolidated statements of comprehensive (loss) income for the quarter ended June 30, 2020. During the quarter ended June 30, 2020, we entered into an agreement with Springwater Capital LLC to settle the guarantees previously issued by them and for costs that we incurred as a result of Pullmantur S.A.'s reorganization. As part of this settlement, we agreed to provide Pullmantur guests the option to apply their paid deposits toward a Royal Caribbean International or Celebrity Cruises sailing, or request a cash refund. An amount of $21.6 million, approximating the estimated total cash refund expected to be paid to Pullmantur guests and other expenses incurred as part of the reorganization, was recorded in Other expense in our consolidated statements of comprehensive (loss) income for the quarter ended June 30, 2020. We had previously provided a non-revolving working capital facility to a Pullmantur Holdings subsidiary in the amount of up to €15.0 million or approximately $17.6 million based on the exchange rate at September 30, 2020. Proceeds of the facility, which were available to be drawn through December 2018 accrued interest at an interest rate of 6.5% per annum and were payable through 2022. During the quarter ended March 31, 2020, we recorded and subsequently wrote-off loan loss allowances on the facility receivable balance of $12.5 million. As of December 31, 2019, €11.0 million, or approximately $12.3 million, based on the exchange rate at December 31, 2019, was outstanding under this facility. During the quarters ended June 30, 2020 and September 30, 2020, we funded Pullmantur $18.3 million and $1.9 million, respectively, for operational purposes during its reorganization for which we recorded and subsequently wrote-off loss allowances. As of September 30, 2020, we did not have any exposure to credit loss in Pullmantur Holdings. Refer to Note 3. Impairment and Credit Losses for further information on our credit loss evaluation of Pullmantur related receivables as of September 30, 2020. As of December 31, 2019, our maximum exposure to loss in Pullmantur Holdings was $49.7 million, consisting of loans and other receivables. These amounts were included within Trade and other receivable s, net and Other assets in our consolidated balance sheets. 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. During the nine months ended September 30, 2020, we made payments of $0.2 million to Grand Bahama for ship repair and maintenance services. We made payments of $0.4 million and $45.5 million during the quarter and nine months ended September 30, 2019, 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. 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. Refer to Note 3. Impairment and Credit Losses for further information regarding the impairment evaluation. As a result of the impairment charge that reduced our Grand Bahama investment balance to zero, we are currently recognizing our share of equity method losses against the carrying value of our loans receivable from Grand Bahama. As of September 30, 2020, we had exposure to credit loss in Grand Bahama consisting of $21.1 million in loans. Our loans to Grand Bahama mature between December 2020 and March 2026 and bear interest at LIBOR plus 2.00% to 3.75%, capped at 5.75% for the majority of the outstanding loan balance. Interest payable on the loans is due on a semi-annual basis. We did not receive principal and interest payments through the nine months ended September 30, 2020. During the quarter and nine months ended September 30, 2019, we received principal and interest payments of $7.6 million and $14.2 million, respectively. The loan balances are included within Trade and other receivables, net and Other assets in our consolidated balance sheets. We monitor credit risk associated with the loans 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 nine months ended September 30, 2020, no credit losses were recorded related to these loans. As of December 31, 2019, the net book value of our investment in Grand Bahama was $47.9 million, consisting of $27.0 million in equity and loans of $20.9 million. These amounts represented our maximum exposure to loss related to our investment in Grand Bahama. 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,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
Share of equity (loss) income from investments |  | $ | (78,013) |  |  | $ | 103,654 |  |  | $ | (140,258) |  |  | $ | 170,393 |
Dividends received (1) |  | $ | — |  |  | $ | 67,713 |  |  | $ | 2,215 |  |  | $ | 148,285 |
(1)There were no dividends received from TUIC for the quarter and nine months ended September 30, 2020. For the quarter ended September 30, 2019, the amount includes dividends from TUIC of €80.0 million, or approximately $88.5 million, based on exchange rate at the time of the transaction. For the nine months ended September 30, 2019, amounts include dividends from TUIC of €170 million or approximately $190.3 million based on the exchange rates at the time of the transactions. The amounts included in the table above are net of tax withholding.
|  | As of September 30, 2020 |  | As of December 31, 2019
Total notes receivable due from equity investments |  | $ | 165,203 |  |  | $ | 184,558 |
Less-current portion (1) |  | 25,783 |  |  | 25,933 |
Long-term portion (2) |  | $ | 139,420 |  |  | $ | 158,625 |
(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 bareboat chartered three vessels to Pullmantur Holdings, prior to it filing for reorganization. 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 September 30, |  | Nine Months Ended September 30,
|  | 2020 |  | 2019 |  | 2020 |  | 2019
Revenues |  | $ | 5,619 |  |  | $ | 11,857 |  |  | $ | 15,837 |  |  | $ | 35,714 |
Expenses |  | $ | 1,223 |  |  | $ | 1,365 |  |  | $ | 3,369 |  |  | $ | 3,450 |

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