AIG Collapse Poses Risks to Carnival

(MoneyWatch)  The tidal wave from the implosion of insurance giant American International Group is spreading far beyond Wall Street. Carnival Corp., the largest cruise ship operator in the world, with a portfolio of cruise brands that includes Carnival Cruise Lines, Princess and Cunard Line, reported in its third-quarter 10-Q filed with the SEC on Friday that AIG is the payment intermediary for some of its estimated $1.06 billion in contingent obligations to participants in certain of its lease-out and lease back type transactions for three of its ships:

• In September 2008, the credit ratings of AIG and its subsidiaries involved with two of these transactions were downgraded from AA- to A-. As a result of this downgrade, AIG is required to pledge collateral to support their payment obligations in amounts that will be determined in accordance with the terms of the payment undertaking agreements. Based on the recently announced $85 billion revolving credit facility from the Federal Reserve Bank of New York to AIG, we believe that it is likely that AIG will continue to perform its obligations under the payment undertaking agreements.

Rising spot prices for fuel, sluggish bookings, and lower bunker rates -- and now the cruise ship operator has to steer clear of an iceberg floating down Wall Street, too. In the unlikely event that AIG does not pledge collateral as required, the estimated amount of Carnival's loss could be as high as $170 million.

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This post first appeared in BNET's 10-Q Detective.