Moody's cuts Horizon Lines

Moody's Investors Service said it downgraded the senior implied rating of Horizon Lines LLC to B2 from Ba3 and the unsecured issuer rating to B3 from B1 and assigned ratings to the company's proposed senior secured credit facilities and senior notes.

Moody's rated the $25 million senior secured revolving credit facilities due 2009 at prospective B2, $250 million senior secured term loan B due 2011 at prospective B2, and $250 million senior unsecured notes due 2012 at prospective B3.

The outlook is stable.

The purpose of the proposed facilities is to partially fund the acquisition of Horizon by Castle Harlan Partners IV LP for $640 million in cash. Castle Harlan will contribute about $160 million in equity for the purchase, excluding about $12 million in management rollover equity.

Moody's believes that the new highly-levered capital structure will significantly diminish the company's cash flow generation and the margin of protection in meeting its debt service requirements, increasing overall credit risk associated with the company, which is reflected in the rating downgrades. The stable outlook reflects Moody's expectations that leverage will remain high over the next few years, although a stable operating environment is expected to result in a modest amount of free cash flow generation that could be applied to modestly reduce debt balances over time.

The ratings continue to be supported by the company's reliable revenue base and stable operating margins that Horizon should continue to enjoy due to its protected niche market position in the U.S.-flag shipping sector.

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