Moody’s downgrades Horizon Lines
Financial rating company Moody’s Investors Service downgraded ratings of the debt of domestic shipping company Horizon Lines Inc.
Moody’s said the downgrades “were prompted by 2008 operating results that continue to trail expectations, both from the time of Horizon’s August 2007 refinancing and from the company’s 2008 quarterly earnings calls. As a result, credit metrics have migrated to levels indicative of B2-rated corporate families.”
The rating agency said, “Obligations rated B are considered speculative and are subject to high credit risk.”
Moody’s said the B2 corporate family rating “reflects Horizon’s leading position in its core Jones Act markets and the important link Horizon provides in the distribution chains of its customers’ and the geographic regions it serves. 'These factors should support a core level of underlying volume for the company’s services and should result in the continuing generation of a base level of funds from operations that adequately cover Horizon’s debt service obligations, including during cyclical troughs in demand.”
“There are few catalysts to spark a positive inflection of demand in 2009, particularly in Horizon’s Hawaii and Puerto Rico markets. This could sustain pressure on margins and operating cash flow and slow the pace of the planned de-levering of the capital structure,” said Moody’s analyst, Jonathan Root.
“The negative outlook reflects the potential for payments related to the settlements of the ongoing Department of Justice investigation of price fixing in the Puerto Rico trade or to the class action lawsuits filed subsequent to the announcement of the DOJ investigation to consume funds and weaken Horizon’s current good liquidity position,” Moody’s said.
The company had no immediate comment on the Moody’s downgrade.