A federal court in Puerto Rico agreed to reduce Horizon Lines' $45 million fine for antitrust violations to $15 million, an action Horizon said lifts the threat that the company will default on its bonds next month.
The Justice Department requested the reduced fine this week, saying the lower penalty was needed to save Horizon from the threat of a default and bankruptcy that "would jeopardize the government's ability to collect the outstanding balance of the company's criminal fine."
Horizon said last month it faced the prospect of a default as early as May 21 if it could not persuade bondholders to waive or amend covenants that the company expected to violate as a result of the original fine. Horizon said the reduced fine strengthens the company's hand in efforts to secure financing.
"The fine reduction will preserve our company's financial flexibility, and we are confident that it will facilitate our efforts to secure new long-term financing. We remain in constructive discussions as we continue to move forward with our refinancing efforts," said Michael T. Avara, executive vice president and chief financial officer.
The reduced fine of $15 million is payable over five years without interest. Horizon said it has already paid the $1 million due this week. The remaining payments are $1 million on or before the first anniversary, $2 million on the second anniversary, $3 million on the third anniversary, and $4 million annually on the fourth and fifth anniversaries.
The original $45 million fine was back-loaded over five years, with $35 million payable in the fourth and fifth years. Sentencing guidelines had called for a penalty of $336 million to $672 million, based on Horizon's $1.4 million in Puerto Rico revenue from 2002-2008, the years when Horizon admitted illegal price-fixing.
The Justice Department originally asked for $45 million, saying that was all Horizon could pay without jeopardizing the company's viability. Prosecutors said the reduction to $15 million reflected the threat of default that could have led to bankruptcy.
Horizon also said it will proceed with a $20 million settlement of its part of a class action civil antitrust lawsuit filed on behalf of customers in the wake of the criminal investigation of pricing in the domestic offshore trades. Horizon had until Friday to declare whether it would go through with the settlement. Numerous shippers have opted out of the deal, a move that allows them to pursue their claims individually.
The company said plaintiffs in the class action had agreed to divide the remaining $10 million due under the settlement into two installments, with the first due within 30 days after and the second within 60 days of court approval.
"While our customers have been overwhelmingly supportive … our company has faced a challenging business environment through the first quarter," said Stephen H. Fraser, Horizon's president and CEO. "We have been operating under increasingly tight constraints imposed by certain of our suppliers due to the going-concern audit opinion, which resulted in part from the note holders' decision to not grant us a waiver. This, in turn, has reduced our liquidity.
"The fine reduction should help give our business partners renewed confidence in our company's ability to continue supporting our customers and providing superior service. We look forward to executing a comprehensive refinancing with the note holders or other partners that will better position Horizon Lines for long-term success."