Horizon Lines is scrambling to contain the damage from its guilty plea and $45 million fine for fixing rates on containerized cargo shipments between the U.S. mainland and Puerto Rico.
The carrier is trying to stave off defaults on its debt covenants while it prepares to refinance $330 million in convertible bonds that come due next year. Horizon also is trying to settle civil antitrust lawsuits filed on behalf of shippers in the wake of the criminal case.
Horizon, the largest U.S. domestic ocean carrier, pleaded guilty in February to violating antitrust law by colluding with other carriers to fix Puerto Rico shipping rates between 2002 and 2008. No other carriers have been charged, although two former Sea Star officials and three from Horizon have pleaded guilty to antitrust conspiracy or concealing evidence.
The Justice Department said it agreed to allow Horizon to pay a $45 million fine on a single antitrust charge, with installments back-loaded over five years, because a stiffer penalty would have threatened the carrier’s viability. Sentencing guidelines called for $336 million to $672 million, based on Horizon’s estimated $1.4 billion in Puerto Rico freight revenue from 2002 to 2008.
Horizon will pay its fine in installments, with $1 million upfront and payments rising annually until the fourth and fifth years, when the final two installments will total $35 million. The company will be placed on five years’ probation, which the Justice Department said “is necessary to safeguard Horizon’s ability to make the required fine payments.”
In a memorandum filed in U.S. District Court in San Juan, the Justice Department said the fine and schedule represented “the most Horizon could afford to pay without substantially jeopardizing its continued viability and its ability to pay restitution.”
The DOJ said Horizon “is in tenuous financial condition and has presented evidence of its need to resolve its criminal liability expeditiously in order to be able to refinance its existing debt.”
Horizon said it had persuaded lenders to waive a default the fine would have triggered under a senior credit facility that includes revolving loans of $163.5 million, a term loan of $89 million and letter-of-credit borrowings of $11.3 million. The lenders also agreed to loosen loan ratios.
In exchange for the concessions, Horizon will pay an extra 2.5 percent interest and a $500,000 fee. The company also will see reductions from $50 million to $20 million in its letter-of-credit commitment and from $20 million to $5 million in its swing-line commitment, which provides quick access to cash.
Company officials described the agreement as a step toward refinancing its debt, which the company had previously identified as a top priority for 2011. “We very much appreciate the support of our lender group and recognize that the amended credit agreement is a vote of confidence in the future of our company,” said Michael T. Avara, executive vice president and chief financial officer.
Horizon is asking holders of its $330 million in convertible notes for a similar default waiver to prevent lenders from seeking accelerated payment that would “raise substantial doubt about the company’s ability to continue as a going concern.” The company delayed the filing of its 2010 annual report until March 28 to provide more time to negotiate the waiver.
While Horizon is dickering with its lenders, the company is trying to settle civil claims filed on behalf of shippers alleging they were victims of carrier price-fixing.
Horizon has offered $20 million to settle a class-action lawsuit by shippers, but faces separate claims from numerous customers that opted out of the settlement. Horizon said last month it had settled for an undisclosed amount with Wal-Mart, one of the companies that opted out of the class action.
Sea Star has agreed to pay $18.5 million, and Crowley has agreed to pay $13.75 million to settle their parts of the class action and also must deal with shippers that opted out of the settlement. They and Horizon have until April 1 to decide whether to affirm their parts of the class-action settlement or back out of the agreement.
In its memorandum discussing Horizon’s $45 million criminal fine and payment schedule, the Justice Department said it decided not to seek restitution because Horizon still faces civil antitrust lawsuits, “which potentially provide for recovery of a multiple of actual damages.”
Contact Joseph Bonney at email@example.com.