SecProbe.io

CORRESP
1
filename1.htm

corresp

[CGSH letterhead]

July 20, 2005

BY HAND

(Confidential Correspondence)

Max A. Webb

Assistant Director

Division of Corporation Finance

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

    Re:

    NCL Corporation Ltd. Registration Statement on Form F-4

Dear Mr. Webb:

     By letter dated April 21, 2005, the staff (the “Staff”) of the Securities and Exchange
Commission (the “Commission”) provided certain comments with respect to the F-4
Registration Statement (the “Registration Statement”) confidentially submitted on April 7,
2005 by NCL Corporation Ltd. (the “Company”). This letter sets forth the Company’s
responses to the Staff’s comments.

     For convenience, we have reproduced below in italics the Staff’s comments and have provided
responses immediately below the comments. Please note that references to page numbers in the
responses below relate to page numbers in the blackline version of the Registration Statement.

Mr. Max A. Webb

July 20, 2005

Page 2

Unaudited condensed pro forma consolidated financial statement, page 41

    1.

    We note your responses to our prior comment numbers 1 and 2. Please
revise the disclosures in the seventh paragraph on page 41 to clarify that the
pro forma adjustments reflected in the pro forma statement of operations do not
give effect to the interest expense associated with the portion of the Senior
Secured Credit Facility that was used to acquire the Norwegian Spirit from Star
Cruises Limited, as we do not believe this is apparent from your current
disclosures. Also, disclose in this paragraph the effect on the Company’s
interest expense and depreciation expense had the acquisition of this vessel
from Star Cruises occurred on January 1, 2004.

Response:

    The Company has revised its disclosure in the seventh paragraph on page 42 (formerly the
seventh paragraph on page 41) to clarify that the pro forma adjustments reflected in the
pro forma statement of operations do not give effect to the interest expense associated
with the portion of the Senior Secured Credit Facility that was used to acquire the
Norwegian Spirit from Star Cruises Limited. The Company has also revised this paragraph to
disclose the effect on the Company’s interest expense and depreciation expense had the
Company taken possession of the vessel on January 1, 2004, which would have been increased
by $5.3 million and $4.6 million, respectively.

    2.

    Refer to footnote (I) – We note from your revised disclosure that you
only reflect a pro forma adjustment in the amount of $39,000 related to the
elimination of the amortization related to the deferred financing cost
associated with the Norwegian Star’s portion of the $626.9 million Syndicated
Term loan. We also note from your disclosure that this pro forma adjustment
should also represent other periodic loan cost such as annual fees. Based on
your prior disclosure in pro forma footnote (II) in the registration statement
filed January 31, 2005 it appears that the annual fees and other periodic costs
should be significantly higher as your prior adjustments totaled $806,000 and
$446,000 respectively for the annual and interim periods presented. Please
explain why your revised adjustment for the 2004 is significantly lower than
the prior adjustments.

Response:

    The amount of the Company’s pro forma adjustment included in its disclosure in pro forma
footnote (I) in the registration statement confidentially submitted to the Staff on April
7, 2005 was erroneous. The correct pro forma adjustment for the year ended December 31,
2004 should be $476,000. The Company has accordingly revised its unaudited condensed pro
forma consolidated statement of operations for the year ended December 31, 2004.

Mr. Max A. Webb

July 20, 2005

Page 3

Index to the Consolidated Financial Statements

Consolidated Financial Statements

Note 2 Summary of Significant Accounting Policies

Foreign Currency, page F-12

    3.

    We note from your revised disclosure that you had long-term debt
denominated in Euros with a balance of $105.4 million. We also note that your
disclosure in Note 8 on page F-20 reflects balances of $259.0 million and $47.2
million related to the “Euro 298 million Pride of America Loan” and “Euro 308.1
million Pride of Hawaii Loan”, respectively. Please reconcile and revise the
$105.4 million of long-term debt denominated in Euros as disclosed in Note 2 on
page F-12 to the amounts in Note 8 on page F-20. Additionally, please revise
your financial statements to reflect the revised foreign exchange impact in
your statement of operations or explain why this is not required.

Response:

    The Company’s balance at December 31, 2004 of $259.1 million in debt disclosed in Note 8 on
page F-23 related to the “Euro 298 million Pride of America Loan” includes $200.9 million
denominated in U.S. Dollars and $58.2 million denominated in Euro. The entire balance of
the “Euro 308.1 million Pride of Hawaii Loan” of $47.2 million at December 31, 2004 is
denominated in Euro. Therefore, the total amount of the two borrowings at December 31,
2004 denominated in Euro is $105.4 million ($58.2 million + $47.2 million) as disclosed in
Note 2 on page F-12. The Company has revised its disclosure in Note 8 to the consolidated
financial statements to clarify the portion of the outstanding balance of each loan
denominated in U.S. dollars and Euro at December 31, 2004.

    The Company’s loss of $9.5 million relative to foreign currency translation for the year
ended December 31, 2004 has been appropriately calculated based on the outstanding
long-term debt denominated in Euro. Therefore, the Company respectfully submits that no
revision to the Company’s consolidated statement of operations for the year ended December
31, 2004 is required.

Note 3. Reorganization, p. F-16

    4.

    We note that as a result of the final settlement with the insurer for
the Norway during September 2004, the Company received $19.7 million in cash
that was applied to the outstanding balance of the Company’s receivable with
Star Cruises. We also note that management “subsequently” determined that the
probability of finding a qualified third party buyer for the Norway in the
foreseeable future was not likely

Mr. Max A. Webb

July 20, 2005

Page 4

    and as a result, recorded an impairment charge in the fourth quarter of 2004
of $14.5 million to reduce the ship to its estimated salvage value of $12.3
million. As the incident in which the damage to the Norway was sustained
occurred in 2003, please explain in further detail why a final impairment
charge associated with this vessel could not be finalized until the fourth
quarter of 2004. As part of your response, please discuss the status and
progress of your negotiations with your insurer during the period since the
accident occurred. We may have further comment upon receipt of your
response.

Response:

    Relative to historical impairment charges to the carrying value of the Norway, as disclosed
in Note 2 on page F-14, the Company recorded impairment charges in the amount of $22.9
million for the year ended December 31, 2003. This impairment charge reduced the carrying
value of the Norway at December 31, 2003 to $26.8 million. The carrying value of the
Norway at December 31, 2003 represented management’s best estimate of the estimated selling
price, net of transaction costs, based on active negotiations with potential buyers of the
ship.

    After the incident occurred in May 2003, the Company began to focus on what would be the
best use of the ship in the future considering, among other factors, the age of the ship,
the potential need to replace the one boiler and the impact on the other three existing
boilers, and the changes in industry which have impacted new ships under construction.
Management evaluated various alternatives with respect to the future of the ship, including
repairing the ship and returning it to the fleet or selling the ship to a third party.
Management determined in the fourth quarter of 2003 that the Company would dispose of the
ship and began to actively seek potential buyers for the ship. At December 31, 2003, the
Company’s negotiations with potential buyers at that time indicated the need for the
impairment charge in the amount of $22.9 million which was recorded in the consolidated
statement of operations for the year ended December 31, 2003.

    On January 30, 2004, the Company received an initial offer from a third party through a
broker representing the Company to acquire the ship, subject to certain conditions, which
would have resulted in net proceeds of $24.5 million. While this initial offer was
approximately $2.3 million less than the carrying value at December 31, 2003, the Company
believed that the buyer was qualified and that the sale could be further negotiated to
cause the $26.8 million carrying value to be materially recoverable. Accordingly, in
February 2004, the Company concluded prior to issuance of its December 31, 2003 financial
statements that the remaining $26.8 million carrying value of the Norway was not impaired.
Subsequently, the conditions of that possible sale were not met and during the third
quarter ended September 30, 2004, the Company concluded that the buyer would not proceed to
closing.

    In September 2004, a Memorandum of Agreement was executed to sell the Norway to a third
party buyer for $27 million, which would have resulted in full recovery of the

Mr. Max A. Webb

July 20, 2005

Page 5

    carrying value of the Company’s note receivable, which had been acquired by the Company in
April 2004 from Star Cruises Limited in exchange for the ship. Accordingly, the Company
concluded in conjunction with issuance of its September 30, 2004 financial statements that
the receivable remained fully recoverable. Subsequently, the buyer was unable to find
appropriate financing and did not proceed to closing.

    The Company continued to actively negotiate with various potential buyers to sell the ship
throughout the year ended December 31, 2004. These negotiations took considerable time
since buyers had to obtain financing and regulatory approval (in the case of one buyer who
was going to use the ship as a floating hotel in Europe) and meet other requirements.
During the year ended December 31, 2004, management evaluated on a quarterly basis whether
the active negotiations with buyers would indicate that the Company should record an
additional impairment charge. Management determined in connection with the preparation of
its interim condensed consolidated financial statements for the first, second and third
quarters of 2004 that no additional impairment charge was necessary because it appeared
that there were potential buyers with the financial ability to close the transaction at a
price that would not result in a loss upon disposal of the ship.

    In the fourth quarter of 2004, the Company was still in negotiations with the potential
buyer but when these negotiations were terminated, the Company determined that the
probability of finding a qualified third party buyer in the foreseeable future was not
likely due to a number of factors, including the age of the ship, which limited the buyers
that were interested in the ship, and potential buyers’ ability to obtain the necessary
financing. Therefore, management concluded that the most likely scenario for disposal of
the ship would be sale for salvage. Based on discussions with salvage yards, the Company
determined that disposal of the ship through a salvage yard would result in recovery of an
amount less than previously expected. Therefore, the Company recorded an additional $14.5
million related impairment charge in the fourth quarter of the year ended December 31, 2004
to reduce the carrying value of the ship (and the corresponding promissory note) to its
estimated salvage value of $12.3 million at December 31, 2004.

    Relative to the progress in the insurance negotiations during the period subsequent to the
Norway accident on May 25, 2003, the Company immediately contacted its insurance carrier
and obtained verbal verification that the physical losses sustained and requiring repair
would be covered. Accordingly, while the Company was unable at that time to estimate the
cost of repairing the ship, the Company determined that a substantial portion of the
related cost would be considered recoverable from its insurance carrier.

    In June 2003, the Company transferred the ship to a yard in Europe where repair estimates
could be made and the repairs if contemplated were likely to be undertaken. In July and
August 2003, management obtained estimates from three different shipyards to repair the
ship at costs ranging from $19.3 million to $22.6 million. At that time, the Company began
negotiating a settlement with the insurance carrier. It should be noted that the future of
the ship (i.e., the decision to repair and return the ship to the fleet versus dispose of
the ship through a sale to a qualified third party) impacted the negotiations. If

Mr. Max A. Webb

July 20, 2005

Page 6

    the Company were to repair the ship and return it to the fleet or sell the ship to a
qualified third party buyer who intended to put the ship back into service, the Company
would not have settled with the insurance company for a fixed amount but would have had the
insurance company pay the yard for the repairs in case the damage was more extensive than
originally contemplated. When the Company was in negotiations with a buyer who was going
to use the ship as a floating hotel, it became viable for the Company to sell the ship on
an “as is” basis and negotiate a settlement in a fixed amount with the insurance carrier.

    The Company continued negotiations with the insurance carrier through September 2004, when
a final settlement was reached in the amount of $19.7 million. The Company collected the
cash settlement from the insurance carrier in October 2004.

Note 11. Commitments and Contingencies

(d) Material litigation, page F-26

    5.

    We have reviewed your response to our prior comment number 12 but do
not believe that your response or your revised disclosures in the financial
statements were responsive to our prior comment. As outlined in paragraph 10
of SFAS No. 5, if no accrual is made for a loss contingency or if exposure to
loss in excess of the amount accrued exists, disclosure of the contingency
should be made when there is at least a reasonable possibility that a loss or
an additional loss may have been incurred. The disclosure should indicate the
nature of the contingency and shall give an estimate of the possible loss,
claim for damages or range of potential loss or state that such estimate cannot
be made. Please revise the disclosures provided in Note 11(d) with respect to
each pending legal matter to comply with the requirement of paragraph
10 of SFAS No. 5. In addition, please revise to disclose in Note 11 the
aggregate amount of the accruals that have been established for your pending
litigation at December 31, 2003 and 2004.

Response:

    The Company respectfully submits that disclosure of the range or specific reserve for an
individual litigation or regulatory proceeding would severely compromise its negotiating
position with respect to each matter if the opposing party were aware of the specific
amount the Company has reserved for such matter. Although the Company is aware of the
Staff’s concerns, including in light of the Staff’s recently articulated views on SFAS No.
5 as expressed in the March 4, 2005 “Current Accounting and Disclosure Issues in the
Division of Corporation Finance,” the Company believes that disclosing the aggregate amount
the Company has reserved for all pending matters should be responsive to the Staff’s
concerns. Thus, the Company has not revised the disclosure in the Registration Statement
to state the specific am