The Justice Department said it allowed Horizon Lines to pay a back-loaded $45 million fine for price fixing in the Puerto Rico trade because a stiffer penalty would have threatened the carrier's viability.
Horizon pleaded guilty to a criminal antitrust charge for colluding with other carriers to fix prices between 2002 and April 2008, when federal agents raided offices of Horizon, Sea Star and Crowley Maritime.
In a memorandum filed in U.S. District Court in San Juan, the Justice Department said federal sentencing guidelines called for a criminal penalty against Horizon of $336 million to $672 million, based on the company's estimated $1.4 billion in Puerto Rico freight revenue from 2002 to 2008.
The Justice Department said it agreed to allow Horizon to pay $45 million in installments over five years after an independent forensic accountant said that was "the most Horizon could afford to pay without substantially jeopardizing its continued viability and its ability to pay restitution."
Horizon will pay $1 million up front, with payments rising annually until the fourth and fifth years, when the final two installments total $35 million.
"The parties agree that the recommended fine of $45 million and payment schedule are appropriate … due to Horizon's inability to pay a greater fine without substantially jeopardizing its continued viability, even with the use of a pro rata installment schedule," the Justice Department said in its sentencing memorandum.
The Justice Department said Horizon "is in tenous 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 this month it hopes to complete in the second or third quarter a previously planned refinancing of its long-term debt, which totaled $516 million at year end. The company said it is asking lenders to waive a default provision triggered by the amount of the $45 million fine.
The Justice Department said it would not seek restitution because the company faces numerous civil antitrust lawsuits "which potentially provide for recovery of a multiple of actual damages."
Horizon offered $20 million to settle a class-action lawsuit with shippers but still faces separate claims from customers that opted out of the agreement. Horizon said last month it had reached a separate settlement 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. Those carriers and Horizon have until April 1 to decide whether to affirm the settlement or back out of it.
Neither Sea Star nor Crowley has been charged with criminal violations. Three former officials of Horizon and two from Sea Star have pleaded guilty to antitrust conspiracy or hiding evidence in the Puerto Rico price-fixing case.
Horizon reported a fourth quarter net loss of $46.4 million, including a $30 million charge from the fine, on $298.8 million in operating revenue. Adjusted earnings before interest, taxes, depreciation and amortization fell to $17.1 million from $27.9 million in the fourth quarter of 2009.
-- Contact Joseph Bonney at firstname.lastname@example.org.