Standard & PoorÆs gives Horizon Lines æBÆ rating after IPO
Standard & Poor's Ratings Services has assigned a 'B' corporate rating to Horizon Lines Inc., following the completion of a $125 million initial public offering by Horizon Lines.
Standard & Poor's noted Horizon Lines Inc. is a new entity created as a result of the IPO, becoming the parent company of Horizon Lines Holding Corp. and Horizon Lines LCC.
'The company announced its intention to initiate an IPO in March, 2005, with the proceeds being used to repay debt at its subsidiaries,' Standard & Poor's Ratings Services said in a statement.
Horizon Lines Inc. 'remains highly leveraged — with 80 percent total debt to capital — and will have to start to replace its aging fleet. The outlook is stable,' ratings services said.
Standard & Poor's said its ratings on Horizon Lines reflect 'its very aggressive financial policy, high debt leverage, participating in the capital-intensive and competitive shipping industry, and aging fleet.'
'Positive credit factors include barriers to entry afforded by the Jones Act and stable demand from the company's diverse customer base across its various markets,' said Eric Ballantine, a Standard & Poor's credit analyst.
Based in Charlotte, N.C., Horizon Lines is the largest Jones Act cargo shipping company, transporting goods between the continental U.S. and Alaska, Puerto Rico, Hawaii and Guam. Customers include major manufacturing and consumer products companies. Horizon Lines operates 16 containerships, with at least one-third market share in each of its shipping lanes.
'Competition from other modes of transportation is limited because of cost and geographical considerations,' Standard & Poor's said.
Horizon Lines' vessels average 28 years in age, with its oldest ships being 35 years old. 'Management has stated no near-term replacement needs,' Ratings Services said.
While Horizon Lines' credit ratios 'are expected to improve modestly over the near-to-intermediate future ' an outlook revision to positive is unlikely due to the company's continued aggressive financial policy and high debt leverage. The outlook could be revised to negative if leverage increases, or if competitive pressure in the Jones Act trades causes significant market share or margin erosion,' warned Standard & Poor's Ratings Services.
Castle Harlan Inc., a private equity firm in New York, acquired Horizon Lines from The Carlyle Group, another private equity firm based in Washington, D.C., for $650 million in July 2004.