Oct. 20--Billionaire financier Sam Zell, better known for buying companies
in bankruptcy, saw one of his own hit rough waters when his troubled cruise
line filed for Chapter 11 protection from creditors.
American Classic Voyages Co., the only operator of U.S.-flagged cruise
vessels, said Friday it was forced into bankruptcy by the sharp decline
in tourism in the wake of last month's terrorist attacks. But the company,
which was in the process of moving its headquarters from Chicago to Florida
this summer, hasn't been profitable since 1998.
American Classic is just a small part of Zell's sprawling financial
empire, which includes two of the nation's largest real estate investment
trusts, Equity Residential Properties Trust and Equity Office Properties
Trust. Together, the two real estate concerns produced revenues of $2.41
billion in the first six months of this year, compared with American Classic's
Zell is chairman of all three companies.
Although Zell's real estate companies have not been punished as severely
by the sudden downturn in the economy, they also are feeling its effects.
Both companies earlier this month said their earnings would grow more
slowly next year that they had expected.
"There is not a whole lot that Equity Office or Equity Residential can
do to completely avoid a weakening economy," said Louis Taylor, senior
real estate analyst with New York investment firm Deutsche Banc Alex. Brown
Inc. "But earnings are still going to grow `02 over '01."
The prognosis is not as rosy at American Classic, which operates ships
in Hawaii and on the Mississippi River. In September, the company issued
a statement quelling speculation that Zell, who controls 34.6 percent of
the company, was selling out. Now, he might be wishing he had.
A dearth of passengers in the four weeks following the attacks saw gross
bookings fall 50 percent and cancellations rise 30 percent, exacerbating
a "weakened cash position," the company said. As of June 30, American Classic
had $76.7 million in cash.
"The Chapter 11 filing became the only alternative to us to preserve
our present cash supply," said Chief Executive Philip Calian.
The company's net loss during the first six month of the year quadrupled
to $20.4 million, or 97 cents per diluted share, compared with the same
period last year. Skyrocketing operating expenses, largely linked to the
addition of several new ships, more than offset rising revenues, which
grew 40 percent in the first six months of the year compared with the same
period last year.
American Classic will sharply scale back operations, ceasing cruises
on all but one of its seven ships, the Delta Queen. Three of its ship brands
-- Delta Queen Coastal Voyages, American Hawaii Cruises and United States
Lines -- will shut down, leaving only the Delta Queen Steamboat Co., operating
out of New Orleans, said spokeswoman Fran Sevcik.
As it seeks to reorganize, the company, has laid off 450 shoreside employees
and 1,700 ship workers. It will retain 30 shore-based employees and 80
shipboard jobs as part of the Delta Queen operations.
Plans to move into a new 240,000-square-foot leased headquarters, now
under construction in Sunrise, Fla., were scrapped.
The bankruptcy filing raises questions about the future of Project America,
a federally subsidized plan to reintroduce shipbuilding in the U.S. after
it ceased half a century ago.
In 1999, American Classic struck a deal with the federal government
that would give it a 30-year monopoly to cruise Hawaiian waters. In return,
American Classics agreed to buy a pair of 1,900-passenger ships to be built
in a Mississippi shipyard.
The construction was to be financed by bonds backed by a $1.1 billion
guarantee from the U.S. Maritime Administration.
American Classic and the ship builder, a unit of Northrop Grumman Corp.
agreed to delay completion of the first ship until Feb. 1, 2004, with the
second one to be delivered a year later.
American Classic has already invested $100 million to finance construction,
and is in negotiations over its commitment to invest another $42 million,
By Thomas A. Corfman and Delroy Alexander. Tribune news services contributed
to this report.
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