Horizon Lines warns of default with lenders

Horizon Lines warns of default with lenders    Horizon Lines cautioned Monday it expects to default on notes and a credit facility in the next two quarters.
   “If any of our lenders or the indenture trustee accelerate the principal and interest payments we may be forced to seek protection under federal bankruptcy laws. Such relief would materially and adversely affect us and our shareholders,” the nation’s largest Jones Act container shipping company said.
   Horizon said its accountants, Ernst & Young, issued an opinion that “uncertainties regarding our ability to remain in compliance with certain debt covenants under our senior credit facility throughout 2011 and our ability to cure a potential acceleration under our notes raise substantial doubt about our ability to continue as a going concern.”
   The Charlotte-based company said it is “in discussions with our lenders to implement a restructuring of our financial obligations, including waivers of expected defaults.” It said it has hired Moelis & Co. as financial advisors to help it in its efforts.
   But the company added, “there can be no assurance that these efforts will be successful and we could be forced to seek reorganization under federal bankruptcy laws.”
   The caution was included in a section entitled “risk factors” in its 10-K annual report filed with the Securities and Exchange Commission on Monday.
   Horizon’s stock, which has traded as high as $6.09 in the past year, reached a new low of $3.08 on Monday and was trading at below $2 in early Tuesday trading on the New York Stock Exchange.
   In the 10-K filing, Horizon said, “we expect to be in covenant default under our outstanding $330 million aggregate principal amount of 4.25 percent convertible senior notes due 2012 during the second fiscal quarter of 2011. In addition, we expect to be in covenant default under our senior credit facility during the third quarter of 2011.
   “If we are unable to return to compliance, the indenture trustee for the notes and our lenders under the senior credit facility may exercise remedies that would have a material adverse effect on us and our shareholders,” it added.
   The company noted that on Dec. 26 it had about $523.8 million principal in convertible senior notes, term loans and revolving credit facility that must be repaid, renewed or extended by Aug. 15, 2012. Those debts have since increased to $576.6 million, it said.
   The maturity of the term loan and revolving credit facility will accelerate to Feb. 15, 2012 if the convertible notes are not refinanced or an acceptable plan to refinance is not in place by that date, it said.
   The company updated shareholders on various lawsuits against Horizon in the 10-K filing.
   On March 22 the company was ordered by a federal court to pay a $45 million fine for its role in a conspiracy to fix prices for shipping freight between the continental United States and Puerto Rico. Those fines grew out of a Justice Department probe into price-fixing in the Jones Act trades.
   In its 10-K filing, Horizon said subsequent to the Justice Department investigation, 58 purported class action lawsuits have been filed against it and other domestic shipping carriers alleging price-fixing in violation of the Sherman Act. Those lawsuits seek “treble monetary damages, costs, attorneys' fees, and an injunction against the allegedly unlawful conduct.”
   Thirty-two of the federal cases related to the Puerto Rico have been consolidated in a single multidistrict litigation in U.S. District Court in Puerto Rico. A similar complaint was filed in Jacksonville, Fla., against Horizon and other domestic shipping carriers by a customer alleging price-fixing in violation of the Florida Antitrust Act and the Florida Deceptive and Unlawful Trade Practices Act.
   In connection with the Puerto Rico litigation, Horizon said it has entered into a class action settlement, subject to final court approval, and “agreed to pay $20 million and to certain base-rate freezes.” It said it has paid $10 million into an escrow account pursuant to the terms of the settlement agreement.
   “We cannot predict or determine the timing or final outcomes of the settlement or the lawsuits and are unable to estimate the amount or range of loss that could result from unfavorable outcomes, but adverse results in some or all of these legal proceedings could be material to our results of operations, financial condition or cash flows,” the company said.
   Horizon noted “several customers have elected to opt out of the Puerto Rico settlement, and those customers may file lawsuits containing allegations similar to those made in the putative class actions and seek the same type of damages under the Sherman Act as sought in the putative class actions.”
   Twenty-five of the 58 Class Action Lawsuits were related to ocean shipping services in the Hawaii and Guam trade lanes and consolidated into a multidistrict litigation in U.S. District Court in Washington State. Horizon’s motion to dismiss an amended complaint was granted on Dec. 1, 2010, and the plaintiffs have served a notice of appeal to the 9th Circuit Court of Appeals. Horizon said it will vigorously defend itself.
   It also said one district court case remains in the District of Alaska, relating to the Alaska trade lane. “We and the plaintiffs have agreed to stay the Alaska litigation, and we intend to vigorously defend against the purported class action lawsuit in Alaska.”
   Horizon said its plea agreement with the federal government “provides that we will not face any additional charges in connection with the Alaska trade, and the DOJ has indicated that we are not a target or subject to any investigation in the Hawaii and Guam trades.”
   The company also said it faces a securities action lawsuit in federal court in Delaware, which alleges “material misrepresentations and omissions, including with respect to the alleged price-fixing and violations of the Sherman Act, causing the plaintiffs to pay inflated prices for our shares.”
   Chuck Raymond, the company’s long-time chairman and chief executive officer, retired earlier this month and John V. Keenan, chief operating officer, has been granted a leave of absence. Stephen H. Fraser, a director of Horizon, has succeeded Raymond as interim president and CEO. Alex J. Mandl, also a Horizon director and former chairman and CEO of Sea-Land Service in 1987-1991, became chairman. Brian W. Taylor will step in as COO. ' Chris Dupin