Horizon Settles Civil Antitrust Case

Horizon Lines said it will pay $20 million to settle class-action lawsuits that alleged antitrust violations in the Jones Act trade between the U.S. mainland and Puerto Rico.

In a separate criminal investigation, five former carrier executives -- three from Horizon and two from Sea Star Line -- recently were sentenced to prison terms after being charged in connection with a federal antitrust investigation into pricing practices by carriers in the Puerto Rico trades.

Justice Department officials have said their criminal investigation, which remains open, is not restricted to the Puerto Rico trade but encompasses all domestic offshore trade lanes. The Jones Act restricts trade between the U.S. mainland and Puerto Rico, Hawaii, Guam and Alaska to U.S.-flag, U.S.-owned carriers.

After the federal antitrust investigation became public last year following raids on carriers’ offices, more than three dozen civil class-action lawsuits were filed against Jones Act carriers on behalf of customers.

The civil lawsuits were consolidated in San Juan, for the Puerto Rico cases, and Seattle, for lawsuits involving the Hawaii and Guam trades. Horizon said it “intends to vigorously defend itself” against the Seattle lawsuits, which remain pending. Horizon is the only carrier that has announced a settlement.

Horizon said its settlement in the Puerto Rico cases, which is subject to court approval, provides $20 million to all plaintiffs in the class-action lawsuit. Customers that are included in the class-action and that have contracts with Horizon will be given the choice of receiving cash or having their base rates frozen for two years.

In a related development, Horizon said it had reached agreement with lenders to amend Horizon’s existing credit agreement by adding litigation-related expenses to the calculation of the company’s consolidated earnings before interest, taxes, depreciation and amortization.

The calculation of consolidated EBITDA is used to determine whether Horizon is in compliance with its ratios for secured leverage and interest coverage, and affects Horizon’s ability to make certain restricted payments. “We have worked closely with our banks and expect to remain in compliance with our financial covenants,” Mike Avara, the company’s senior vice president and chief financial officer, said in a statement.

In filings with the Securities and Exchange Commission, Horizon reported nearly $15 million in litigation costs in connection with the federal investigation and civil class-action lawsuits.