Home This Week Lead Stories Crowley in talks to buy Horizon Lines’ P.R. trade
Issued : Thursday, July 17, 2014 12:00 AM
 Print   Email This    

Crowley in talks to buy Horizon Lines’ P.R. trade

By : XAVIRA NEGGERS CRESCIONI
Edition: July 17, 2014 | Volume: 42 | No: 27

Goldman Sachs heading $80 million deal

Crowley Maritime Corp. is in talks to acquire Horizon Lines Inc.'s facilities at the San Juan port, as well as the latter's ships and routes to and from Puerto Rico, for about $80 million, industry sources told CARIBBEAN BUSINESS.

The talks for the San Juan port facilities and lines are part of Horizon's plans to sell all three of its Jones Act routes—San Juan, Alaska and Hawaii—to different buyers for each of these markets. Horizon, a publicly traded company, is looking to sell these routes to stem its losses. Last year, Horizon chalked up more than $100 million in losses and the company has $700 million in debt, the company reported to the Securities & Exchange Commission (SEC).

The island's two largest shipping lines, each with about 30% of the island's cargo market movement, reportedly started talks led by investment banking firm Goldman Sachs Group Inc. three to four months ago, but these broke down. However, industry sources said sales negotiations have resumed because Crowley is at loggerheads with the Puerto Rico Ports Authority over tax credits it wants to cover the estimated $100 million the company will need to invest in its port's facilities to receive two new ships, El Coquí and El Taíno, slated for delivery in the second quarter of 2017.

"If Crowley buys Horizon's ports facilities, Crowley wouldn't have to make the improvements. All they would have to do is move over to Horizon's facilities at the dock," one industry source said. "Crowley was expecting to get tax credits from Ports to make the improvements, but since the government is broke, the authority doesn't want to give Crowley tax credits for this investment," the source added.

The acquisition makes sense for both shipping lines because it would stem Horizon's losses and debt obligations, while providing Crowley facilities needed to receive El Coquí and Taíno. In this manner, Crowley would save the $100 million in improvements to receive the two commitment (C) class vessels—some of the first liquefied natural gas (LNG)-powered, combination container and roll-on/roll-off (ConRo) ships in the world, designed especially for service between the mainland U.S. and Puerto Rico—while expanding Crowley's overall capacity to serve the island.

"The 2,400, 20-foot-equivalent unit (TEU) ConRo ships will be equipped to carry containers, ranging from the 20-foot standard to 53-feet long by 102-inch wide high-capacity units, with room for up to 300 refrigerated containers. Additionally, they will offer world-class vehicle transportation via completely enclosed, ventilated and weather-tight decks spacious enough to accommodate a mix of nearly 400 cars and larger vehicles," Crowley reported when announcing the vessel orders.

Buying Horizon's San Juan port facilities and three ships serving routes to and from San Juan would also give Crowley, which currently serves San Juan with seven articulated tug barges (ATBs), a jumpstart on third-ranked Sea Star Line LLC's plans announced in February to commission the building of two new vessels— TOTE Inc.'s new Marlin Class, the first LNG-powered containership in the world—to serve the Puerto Rico trade starting in the fourth quarter of 2015.

To date, Sea Star controls 25% of the local seacargo market, but that could change if it serves the same routes as Crowley, cheaper and faster, with new vessels.

"The ship design accommodates five times more 53-foot containers than current ships in Puerto Rico and will allow for the transport of everything from cars to corn syrup. The ships will include expanded volumes for refrigeration equipment, critical to ensure that pharmaceuticals, produce and other foodstuffs vital to the residents of Puerto Rico are delivered in the best possible condition," TOTE said upon announcing Sea Star's order.

"Buying Horizon makes a lot of sense for Crowley because they could also replace ATBs, which travel at nine knots per hour, with faster ships, which travel at 20 knots per hour, before the arrival of Sea Star's two new vessels," the source said.

"They are in sales talks, they are definitely in talks," said another veteran industry source. However, this source questioned whether Crowley's increased market share of 60% would create problems for completing the acquisition.

WRITING ON THE WALL

Adding fuel to the fire of merger talks is Horizon President & CEO Samuel A. Woodward's immediate resignation from his post during a board meeting June 27, although he still had a year left on his contract.

"Following the resignation of Mr. Woodward, the board appointed Steven L. Rubin as interim president & CEO of the company," Horizon reported to the SEC. "Rubin has served as a director of the company since November 2011. He is a principal of InterPro Advisory LLC, a consulting practice serving the intermodal industry, and served in 2011 as the chairman of the board of the first Intermodal Association of North America, the premier trade association representing the combined interests of the intermodal freight industry."

"If Horizon can't refinance its debt obligations, which come due in 2016, we believe the balance of supply and demand will tip in the favor of the remaining vessel operators. With more than $100 million in interest and debt obligations due in 2014 and 2015...and more than $600 million in obligations due in 2016, we think the writing is potentially on the wall for Horizon particularly in light of the company's aging fleet (average age of 37 years) and the struggles of the Puerto Rican economy," said a report by BB&T Capital Market issued Monday (July 14). "Our sense is Horizon will no longer be able to kick the can down the road because the company's debt obligations keep growing, incurring double-digit interest expense and that Horizon will have to shed assets. We value Horizon's fleet at just $215 million, with total debt as of the first quarter 2014 exceeding $500 million. It is hard for us to envision how Horizon can turn things around."

Horizon and Crowley executives declined to comment on the possible acquisition.

Comments
There are no comments posted at this time. Only registered users can post comments. If you would like to register click here.

Write your comments
 
Title :
Comments :
 
More news stories