Friday, April 01, 2011

Horizon Lines Doesn't Want You To Read This

Corporate double-speak is hilarious, especially from companies that can't take back facts they've put into the public domain.  Horizon Lines is in serious financial trouble.  They just hope you won't notice.  They really hope you'll listen to their PR spin claiming bankruptcy talk is speculation when their own financial statements project defaults this year on their convertible notes and senior credit facility. 

Exchanging debt for equity is a nice pipe dream that will put them on the same path to dilution that YRCW faces if it executes another swap of its own.  YRCW's last swap shows HRZ shareholders the kind of dilution they can expect; in YRCW's case, it was significant in December 2009.  Like that troubled trucker, HRZ will risk delisting with an equity dilution as its stock is currently trading around a buck-oh-five

HRZ has better options that don't require balance sheet games.  The company can sell its recently launched China route, which is no longer viable thanks to a plummeting trans-Pacific spot rate and price cuts from larger carriers.  This will signal to the maritime market that HRZ remains focused on its core competency as a Jones Act carrier, leaving the West Cost to China lanes for more experienced Asian shippers

HRZ isn't completely out of options yet, but its best-case scenario is gradually slipping away from renewed health and toward outcomes like forced asset sales.  The company admits its troubles in its own regulatory filings.  Read the fine print and ignore the spin. 

Full disclosure:  No positions in HRZ or YRCW.