Horizon to pay $45 million fine, Raymond retiring

Horizon to pay $45 million fine, Raymond retiring    The U.S. Justice Department said Horizon Lines LLC has agreed to plead guilty and to pay a $45 million criminal fine for its role in a conspiracy to fix prices for shipping freight between the continental United States and Puerto Rico.
   Horizon also said Chuck Raymond, chairman, president and chief executive office, will retire March 11 and John V. Keenan, chief operating officer, has been granted a leave of absence.
   Horizon said the plea agreement provides that Horizon Lines will not face additional charges relating to the Puerto Rico trade lane.
   It added the Justice Department also agreed the company would not face any charges in connection with DOJ’s investigation into the Alaska trade, and indicated Horizon is not a subject or target of any investigation into the Hawaii and Guam trades.
   Additionally, Horizon said the DOJ agreed it would not bring criminal charges against any current director or officer, although it said this agreement does not extend to Raymond or Keenan.
   Stephen H. Fraser, a director of Horizon, will succeed Raymond as interim president and CEO. Alex J. Mandl, also a Horizon director and former chairman and CEO of Sea-Land Service from 1987-1991, will become chairman. Brian W. Taylor will step into Keenan’s job as chief operating officer.
   According to a one-count felony charge, filed Thursday in U.S. District Court for the District of Puerto Rico, Charlotte, N.C.-based Horizon Lines and co-conspirators agreed during meetings and discussions to allocate customers of Puerto Rico freight services and to fix the rates and surcharges to be charged to freight customers between the continental United States and Puerto Rico. Horizon was charged with price fixing in violation of the Sherman Act, which carries a maximum fine of $100 million for corporations. The conspiracy occurred from at least May 2002 until at least April 2008.
   The department said Horizon Lines and co-conspirators also engaged in meetings to monitor and enforce adherence to the agreed-upon rates, and sold Puerto Rico freight services at collusive and noncompetitive rates.
   Horizon said that with the resolution of the DOJ investigation, it was “in discussions with certain of its lenders to waive a judgment default that will arise from the plea agreement and to provide financial covenant relief as the company seeks new long-term financing.”
   “We are very pleased to have reached a resolution with the Department of Justice,” said Michael T. Avara, Horizon’s senior vice president and chief financial officer. “We now look forward to moving ahead in our discussions with lenders. We remain very focused on serving our customers well, further improving our operational excellence, and financially strengthening our company for the benefit of all of our stakeholders.”
   Horizon said the $45 million fine is payable over a five-year period as follows:
   ' $1 million within 30 days after imposition of the sentence by the court.
   ' $1 million on the first anniversary thereafter.
   ' $3 million on the second anniversary.
   ' $5 million on the third anniversary.
   ' $15 million on the fourth anniversary.
   ' $20 million on the fifth anniversary.
   Today’s charge comes more than two years after the charging and sentencing of five former executives from Horizon and Sea Star Line who were sentenced to prison time. On Oct. 20, 2008, three former Horizon executives — R. Kevin Gill, Gregory Glova and Gabriel Serra — and Sea Star’s Peter Baci, pleaded guilty to a conspiracy to rig bids, fix prices and allocate customers transporting goods between the continental United States and Puerto Rico by ocean vessel. On the same day, Alexander Chisholm, also of Sea Star, pleaded guilty for his conduct in obstructing the Justice Department's investigation of the shipping conspiracy.
   In conjunction with the DOJ resolution, Horizon Lines said it is working with financial advisor Moelis & Co. and the legal firm of Kirkland & Ellis to 'fully evaluate refinancing options and pursue an amendment to its current credit agreement. Regarding its credit agreement, Horizon Lines is seeking to waive or otherwise satisfy the default conditions that would be triggered by $45 million judgment issued by the court. The company also is requesting, by early March, relief from anticipated future financial covenant noncompliance, as it seeks new long-term financing.'
   Horizon Lines is scheduled to report fourth quarter and full-year financial results on March 3, and said it expects net income plus net interest expense, income taxes, depreciation and amortization or EBITDA of about $96 million and a net loss of $54.5 million.
   In conjunction with the DOJ agreement, it said its fiscal 2010 financial results will include a $30 million charge, which represents the present value of the $45 million in installment payments.
   The Justice Department said Thursday’s charge against Horizon arose from an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the coastal water freight transportation industry, which is being conducted by the Antitrust Division's National Criminal Enforcement Section; the Baltimore Resident Agency of the Department of Defense's Office of the Inspector General; Defense Criminal Investigative Service (DCIS); the Miami Field Office of the Department of Transportation's Office of Inspector General; and the Jacksonville, Fla., Field Office of the FBI. Anyone with information concerning this investigation is urged to call the Antitrust Division's National Criminal Enforcement Section at (202) 307-6694. ' Chris Dupin