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The Honolulu Advertiser
Posted on: Friday, October 19, 2001

American Classic Voyages to file for bankruptcy

By Michele Kayal
Advertiser Staff Writer

American Classic Voyages, parent company of Hawai'i's two locally based cruise ships, is expected to file for bankruptcy protection as early as today.

American Classic Voyages' liner Independence was docked at Pier 18-19 in Honolulu Harbor yesterday.

Eugene Tanner • The Honolulu Advertiser

Trading of the company's stock was halted yesterday morning on the Nasdaq exchange pending news that could significantly affect the price of its shares, exchange officials said.

The company, wrestling with cash flow problems for months, is widely expected to file for Chapter 11 bankruptcy protection, allowing it to stave off creditors while reorganizing operations.

American Classic chief executive officer Philip Calian declined to comment yesterday. Financial analysts, who one by one have dropped coverage of the stock over the past few months, said yesterday they believed the trading halt was a prelude to the company filing for bankruptcy.

Joe Hovorka, an analyst with Raymond James & Associates, which issued a "sell" recommendation on the stock yesterday, said an announcement could come today.

"In this instance, you have a company with very, very poor cash flow and declining liquidity," said Ian Calame, an analyst at A.G. Edwards, which stopped covering the stock last quarter. "Knowing the picture here, I would certainly interpret this as a very bad sign."

Bankruptcy for American Classic, which employs about 700 people in its Hawai'i cruise operation and accounts for half of all port calls in the state, would be the latest blow to an economy already rocked by the disastrous impact of the Sept. 11 terrorist attacks on international tourism.

"It's an unfortunate day for Hawai'i," said Jennifer Goto Sabas, chief of staff for Hawai'i's senior Sen. Daniel Inouye, who has been instrumental in American Classic's journey through congressional legislation that gave it the exclusive right to operate interisland cruises. "The company was trying its best. With the unfortunate Sept. 11 tragedy, it made it impossible for them to continue operations."

American Classic, with its ships the Independence and the Patriot, has been beset by problems this year. Its Hawai'i operation, which has seen decreasing profits, has been particularly troublesome.

Even before Sept. 11, the company struggled, showing a $7.7 million loss for the second quarter. The Miami-based company reported a net loss of 36 cents a share, compared with net income of 6 cents a share, or $1.3 million, in the second quarter of 2000. Its third-quarter earnings are expected next week.

Earlier this year, American Classic suspended dividends, announced a 15 percent cut in its land-based work force, and had its credit line slashed from $30 million to $10 million.

In the past two weeks, the company has dipped even further into its trickling revenue stream by trimming its Mainland cruise schedule and cutting fares for its Hawai'i cruises by 50 percent, all in an effort to fill its ships as a skittish public shuns travel.

Nervous about the company's prospects, travel insurance companies late last week suspended coverage for passengers booked on American Classic ships.

In the past year, American Classic has morphed from a Wall Street darling to a company that has lost the confidence of financial advisors. Its stock price has plunged from a 52-week high of $18.38 to just 46 cents yesterday when trading was halted.

Hawai'i's top cruise company joins a growing list of peers struggling since the Sept. 11 attacks.

Royal Caribbean Cruises Ltd., which has 25,000 employees and sails 23 ships under the names Royal Caribbean and Celebrity, has said it is reviewing its cost structure and expects layoffs.

Renaissance Cruises, a Fort Lauderdale, Fla.-based line with eight ships in Europe and the South Pacific, abruptly ceased operations and filed for bankruptcy protection last month, blaming the sudden drop in business.

But the impact of a bankruptcy reorganization on American Classic and on Hawai'i, which Calian had designated as American Classic's growth engine, remained unclear yesterday. The 1,212-passenger Patriot and the nearly 1,000-passenger Independence make weekly stops around the islands, accounting for half of all cruise business in the state.

It also was unclear what affect a bankruptcy filing would have on the federal legislation that gave American Classic its interisland monopoly, which was to last roughly the next two decades.

An uncertain fate also awaits the two new 1,900-passenger ships being built by Ingalls Shipbuilding in Pascagoula, Miss., and slated for Hawai'i. American Classic agreed to buy the ships in 1999 for $440 million each, but after recent negotiations, agreed to pay an extra $19 million per ship and delay the delivery dates by a year, to February 2004 and 2005.

According to legislation that created the deal, those ships must be sailed in Hawai'i waters, where they were guaranteed a monopoly for the life of the vessels.

American Classic operates four distinct cruise lines under the company banner: American Hawai'i Cruises and United States Lines in the Islands, and two Mainland products called Delta Queen Steamboat Company, which plies inland rivers, and Delta Queen Coastal Voyages.

Reach Michele Kayal at 525-8024 or mkayal@honoluluadvertiser.com.