On June 25, 2013 – Horizon Lines, Inc. (“Horizon”) announced that it plans to convert the power plants on two of its steam turbine cargo vessels to modern diesel engines capable of burning conventional liquid fuels or liquefied natural gas (LNG). One of these vessels is supposedly going to be used in the Hawaii Ocean Freight Trade Lane.
Can we say congratulations? First let’s see if we understand correctly. Horizon Lines, which have some of the oldest Jones Act vessels still seaworthy but barely under 40 years of age, announced plans to reconfigure 2 of these older ships into vessels containing “modern diesel engines”.
Our question is how are they going to pay for them? Horizon has recently undergone an arrangement for the benefit of creditors, and are paying an interest rate of between 13% and 15% on their current debt load, if we’re reading this correctly on their current Form 10-K filed with the Securities and Exchange Commission. (If we read it wrong, we apologize, but it is a lengthy and verbose document that appears to have been designed to put the reader asleep.)
Horizon doesn’t have much operating profit, and now that Matson Navigation Company, who has newer and more fuel efficient vessels, has reduced their fuel surcharges four percentage points in the last three months, that little financial “windfall” will disappear, impacting Horizon’s profit outlook in a negative way.
All we want to know is how they are going to pay for it, and how they'll be able to keep the rest of their old fleet operating as the fleet ages.
The key question to ask is “Are they looking for a White Knight?” Someone willing to inject a billion dollars into them for new equipment? Or is there someone with newer, better equipment waiting to step in someone with more than two Ro Ro (roll on, roll off) vessels. Someone who may have a barge system already available and in place?
