Hornblower Group, the San Francisco–based company that operates NYC Ferry, filed for bankruptcy yesterday, claiming it could not manage its roughly $1.2 billion of debt. One of its investors, the private equity firm Strategic Value Partners, agreed to acquire the company in a debt-for-equity swap that’s part of a larger restructuring, according to The Wall Street Journal.
Hornblower operates three primary divisions: an Australian company that seems to be doing well, a ferry and sightseeing division, and a luxury cruise division, American Queen Voyages. It’s this last unit, which mostly consists of old-timey paddlewheel riverboats, that Hornblower representatives in court said was the company’s “Achilles’ heel” that never recovered from the pandemic, according to Emily Lever of Law360. The company took on hundreds of millions of dollars in debt after its revenue dropped to $175 million in 2020 from $690 million just a year earlier.
Exactly how New York City’s ferry service fits into Hornblower’s restructuring is unclear. For now, CEO Kevin Rabbitt is adamant that service will not be affected, claiming the restructuring will allow Hornblower to eliminate debt unrelated to the ferry system while continuing “record growth across the five boroughs.” Indeed, a court filing described NYC Ferry as a bright spot in the company’s portfolio. Just last year Hornblower re-upped its contract with the Economic Development Corporation, the city nonprofit that oversees NYC Ferry, at $405 million over the next five years, with two optional three-year extensions. The EDC chose Hornblower despite a 2022 audit by comptroller Brad Lander that put the total taxpayer subsidy for ferry rides in 2021 at $12.88, nearly double the city’s previous estimate. (A 2019 study by the Citizens Budget Commission estimated taxpayers contributed ten times more to each ferry ride than each subway ride and, for a voyage on the ferry’s Coney Island route, taxpayers covered $24.75.) According to the EDC, the subsidy has since been reduced to $8.55 per ride.
Hornblower originally won the NYC Ferry contract in 2016 in a somewhat controversial deal. According to The City, Hornblower beat out a team of three local ferry operators, but Hornblower’s underbid came with a hidden cost. While the local operators had proposed using their own armada of water taxis, Hornblower asked taxpayers to front $232 million to buy 38 vessels and an additional $137 million at a later date for more boats. A spokesperson for the EDC at the time justified the arrangement, in part, by saying it was smart for the city to own its vessels — logic that flies in the face of the old adage that a boat is a hole in the water you throw money into.
For Hornblower, NYC Ferry was just the latest play in a yearslong campaign to dominate the country’s waterways. The company won contracts to ferry tourists to Alcatraz and Niagara Falls, and commuters in states across the U.S. and in Puerto Rico. In New York, Hornblower won the lucrative Statue of Liberty contract with the National Parks Service and, in 2016, it began running dinner-boat cruises up and down the Hudson. Soon after, it snatched up its closest competitor, Spirit Cruises. All of that growth gave Hornblower an air of infallibility. “They have the biggest pocketbook, and the fear is they can come in and undercut everybody overnight,” an independent charter-boat owner told me last fall. “They’re too big to sink.”
Should the federal bankruptcy court in Houston approve of Hornblower’s restructuring, NYC Ferry would become even more important to the company, as the agreement would spin off its Australia division and sell American Queen Voyages. That’s no easy task, given paddleboats’ “limited application beyond U.S. riverways.” In addition, Deutsche Bank has agreed to refinance an existing loan to Hornblower and Strategic Value Partners; Crestview Partners, the private-equity firm that had a majority stake in Hornblower, would add new financing and become a minority owner.
This story has been updated to include comment from Hornblower Group.
