NYC Ferry’s Hornblower Faces Cash Crunch After a Lost Summer
Hornblower‘s exclusive contract for Statue of Liberty and Ellis Island tours comes up for auction in March.
(Bloomberg) -- The operator of the NYC Ferry system for commuters and tourists could find itself running out of time and money after the coronavirus disrupted its business during the warmest months of the year.
Some of Hornblower Group’s boats had to pause operations earlier this year, and while its commuter lines along the East River are running, there are fewer passengers and tourist routes remain mostly dormant. What’s more, Hornblower’s exclusive contract for Statue of Liberty and Ellis Island tours comes up for auction in March.
“The company has been burning cash as most of its ships have been docked and not generating revenue,” Peter Trombetta, an analyst at Moody’s Investors Service, said in an interview. “There are fixed operating costs that aren’t being covered, and won’t be, until the company can return to normal operations.”
Hornblower is multinational, highly diversified and agile, “with strong financial footing, ample access to liquidity, and an unmatched reputation for delivering incredible experiences,” Chief Executive Officer Kevin M. Rabbitt said in a statement to Bloomberg. Crestview Partners, the New York private equity firm that backs Hornblower, is “excited about our investment in Hornblower and confident in its future,” a representative said via email.
Most of Hornblower’s lucrative dinner and entertainment cruises are still on hold, and the income from boats that have returned to business isn’t enough to offset losses run up from missing the crucial summer season, Trombetta said.
The company already had to tap its debt reserves to ride out the disruption, and had only $28 million of cash in hand in the middle of September, according to people familiar with the private firm’s finances.
Hornblower offers entertainment, dinners and transportation on 157 vessels across the U.S., Canada, and the U.K. The San Francisco-based company serves 9.8 million guests each year, and employs over 4,300 people, according to its website.
Park Routes
In addition to its New York tourist operations, Hornblower services boats to landmark parks including Alcatraz Island in San Francisco and Niagara Falls in Canada. Riders can also book overnight cruises on the Mississippi River and Great Lakes and in the Pacific Northwest.
For now, the company holds the coveted contract to operate the NYC Ferry system. Launched in 2017 by Mayor Bill de Blasio, the ferry service has stops in Manhattan, the Bronx, Queens and Brooklyn plus a shuttle to Governors Island. Two more routes are scheduled to launch next year.
Tickets are pegged to the cost of a subway trip at $2.75 for a single ride, with a $1 surcharge to bring a bike. The fare is heavily subsidized by taxpayers -- more than $10 per passenger, according to one 2019 study -- leaving the ferry vulnerable to fiscal and political criticism amid huge city budget deficits. New York City paid Hornblower $52.95 million in 2019 for the service.
The city routes handled about 6.3 million passengers in 2019, according to Moody’s, which downgraded Hornblower deep into junk status in March and August in response to pressures from the virus. Ridership had been growing, but plunged at the peak of the pandemic, and Hornblower cut service by 30% in March and an additional 20% in May.
Fewer Riders
Hornblower’s Rabbitt said NYC Ferry adapted during the worst of the crisis to safely meet demand and save the city money. Ridership jumped 61% from June to July, the CEO said, and next year service will serve more New Yorkers by expanding to Staten Island, Coney Island and Ferry Point Park in the Bronx.
As commuters return to Manhattan offices, some have opted to take an open-air ferry ride over the subway. Still, limitations on public gatherings and travel restrictions are expected to remain through the end of the year and will limit the upside on dining and entertainment, Moody’s said.
Hornblower’s business segment that includes Alcatraz Cruises, Statue Cruises, Niagara Cruises and the NYC Ferry accounts for more than 40% of earnings under normal conditions.
Cold Facts
“Winter is not their strong months,” Trombetta said. “They need to get through it and through next spring when things open again and businesses gets back to normal.”
Crestview Partners took over Hornblower in a leveraged buyout in 2018. Crestview has contributed equity to the company in recent years, including its acquisition of Entertainment Cruises in 2019, and in May when it provided $45 million in revolving credit, Moody’s said.
Hornblower has another $75 million revolving credit facility that it drew down when the pandemic started. A covenant that limits net leverage will be tested over the next 12 months. If Hornblower misses that target and operations remain weak, it may need relief from lenders, Moody’s wrote. The company also had a privately placed loan of about $675 million coming due in 2025, according to data compiled by Bloomberg.
“When you’re talking about what options a company has, and the answer is more money from private equity, a debt exchange or raising additional debt -- those are typically last resorts,” Trombetta said. “We’re in uncharted waters.”
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