Horizon Lines, Inc
14 Pages Posted: 30 May 2017
Abstract
It is recommended that this case be taught either just before or just after another Chapter 11 case. Students must to decide whether Horizon Lines should seek Chapter 11 protection or attempt a voluntary financial restructuring. Students have a wide range of financial restructuring alternatives to consider that should give them an appreciation of the advantages and disadvantages faced by a firm choosing to use the bankruptcy court. The case also is best taught to experienced students who understand corporate finance fundamentals and, in particular, grasp the principes of valuation and capital structure.
Excerpt
UVA-F-1668
Rev. Nov. 22, 2016
Horizon Lines, Inc.
Even a small leak will sink a great ship
—Benjamin Franklin
By April 1, 2011, the Horizon Lines 2010 annual report had been published with a statement from newly appointed CEO Stephen Fraser, explaining that the company expected to be in technical default on its debt. During the previous 50 years, Horizon Lines (Horizon) had revolutionized the global economy with the invention of containerized shipping to become the largest U.S. domestic ocean carrier. By the beginning of 2007, however, Horizon was unprofitable, and its losses had increased each year since (Exhibit 1). As negative earnings mounted, so did Horizon's debt burden: current liabilities had nearly quadrupled by the end of 2010 (Exhibits2 and3). The company had also suffered two major setbacks in the past six months: the loss of a key strategic alliance and $ 65 million in criminal and civil fines.
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Keywords: Chapter 11, financial restructuring, valuation, capital structure
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