Horizon Lines settles class action with $20m payment

Rajesh Joshi, New York - Friday 12 June 2009

HORIZON Lines has agreed to pay $20m and freeze freight rates in its Puerto Rico trade lane for two years to settle a class action lawsuit brought by disgruntled customers.

New York-listed Horizon Lines has also agreed to pay its lenders 1.5% higher interest and a one-off sum of $1.8m in consideration for being allowed to exclude this expenditure from calculations that determine its compliance with covenants. 

Horizon Lines was facing multiple class action lawsuits from customers who claimed financial damage because of the company’s allegedly unlawful conduct, after the US Department of Justice antitrust division’s investigation into price fixing between Horizon Lines and its trade rivals became known. 

The actions were consolidated in a US federal court in Puerto Rico. 

Horizon Lines said it would deposit $20m in a court escrow account in stages after the court approves its settlement of the class action. 

Customers with Puerto Rico contracts with the Jones Act container line would have the option, in lieu of receiving cash, of a freeze on their base rates for two years beyond the expiration the contracts. 

Horizon Lines also said it had reached an agreement with its lending banks to add the class action settlement expenses back to its earnings before interest, tax, depreciation and amortisation to determine whether the company was compliance with its covenants. 

In return, Horizon Lines has agreed to pay 150 basis points more in interest, a “consent fee” of $1.8m, pay a higher commitment fee, and reduce the revolving facility from $250m to $225m. 

“We appreciate the support of our lender group that provided the clarity and flexibility necessary to effect this settlement,” said Horizon Lines chief financial officer Mike Avara. 

“Although the cost of debt on both our $150m revolver balance and $115.6m term loan has increased by 1.5%, our revised blended total cost of debt remains fairly low at 4.47%, up from the previous 3.81%. 

“The 4.25% interest rate on our convertible notes remains unchanged. We have worked closely with our banks and expect to remain in compliance with our financial covenants.”

COMMENT Steve Gordon: This is a wonderful outcome that supports the Jones Act. It is crucial to protect the Jones Act for U.S. Shipbuiders and U.S. Seaman.