Horizon Lines says it is making “significant progress” on a refinancing announced two months ago, but the financially struggling container line still lost $7 million in the second quarter because of soft rates on the trans-Pacific. The largest U.S. domestic carrier said it expects adjusted earnings before interest, taxes, depreciation and amortization to be “below previous projections” of more than $80 million for 2011.
Through the first half of this year, Horizon’s adjusted EBITDA after legal expenses, impairment charges, and refinancing and severance costs totaled $4.5 million for continuing operations, compared with $42.7 million in the first half of 2010, when adjusted EBITDA totaled $96.4 million for the year.
Horizon has been scrambling to stabilize its finances and avoid covenant defaults since pleading guilty this year to a felony antitrust charge for price-fixing in Puerto Rico service. The carrier said it expects in the next several weeks to finalize a deal with bondholders to refinance more than $300 million in convertible notes.
The company also expects to work out amendments or waivers to avoid breaching covenants on more than $270 million in senior secured debt by the end of the third quarter, when leverage ratios on Horizon’s loan covenants will tighten. The senior secured debt includes a term loan and a revolving credit facility.
But the market hasn’t helped the carrier in its bid for financial stability.
The biggest drag on Horizon’s results has been the China-to-U.S. service the company launched in December, using vessel space previously chartered to Maersk.
CEO Stephen H. Fraser said he expects the China service will “continue to operate at a sizable loss in absolute terms and at a significant deficit relative to the revenue and operating profit generated by the previous Maersk business. However, the rate of loss should begin to improve in the third quarter.”
Fraser said Horizon’s trans-Pacific service lowered adjusted EBITDA by some $16 million in the second quarter, or by $11.6 million when compared to the previous year’s performance under the Maersk space-charter agreement.
Second quarter operating revenue from continuing operations increased 5.5 percent to $307.5 million from $291.4 million a year earlier. The company’s $7 million net loss compared with a $4.1 million net profit in the second quarter of 2010. On an adjusted basis, the company had a second quarter net loss from continuing operations of $20.9 million.
The carrier’s adjusted EBITDA fell to $6.3 million in the second quarter from $29.4 million a year earlier.
Container volume for the 2011 second quarter totaled 75,208 loads, up 16.4 percent. Excluding the new China service, volume fell 4.5 percent to 61,315 loads.
Container rates, net of fuel, fell 7.9 percent to $2,989. Excluding China, container rates, net of fuel, rose 0.7 percent to $3,278. But Horizon couldn’t keep up with rising bunker prices, with fuel costs rising 41 percent year-over-year.
“Soft container rates in the trans-Pacific market and high fuel prices pushed out second quarter financial performance significantly below last year’s,” Fraser said. “Trans-Pacific rates remained under pressure throughout most of the quarter, as some large international carriers continued to take aggressive rate actions amid capacity expansion in the trade lane.”
Horizon said its Alaska and Hawaii trades showed operating profits while Puerto Rico volume declined amid the island’s long-running recession and continuing overcapacity. Horizon said it expects volume to improve in the second half, aided by competitor Sea Star Line’s suspension of its Philadelphia-San Juan service.
Volume between the U.S. mainland and Guam, the eastbound leg of Horizon’s trans-Pacific service, rose from a year earlier. Horizon expects second half volume to improve, but a delay to 2014 in the relocation of U.S. military facilities will spread that traffic over several years.