Horizon Lines completes noteholder and Ship Finance deals, cuts debt

By Caroline Salls

Pittsburgh, April 10 - Horizon Lines, Inc. has completed transactions with more than 99% of its noteholders and Ship Finance International Ltd. and some of its subsidiaries to substantially deleverage the company's balance sheet and terminate vessel charter obligations related to its discontinued trans-Pacific service, according to a news release.

Horizon Lines said these simultaneous transactions eliminate virtually all of the remaining $228.4 million of its 6% series A and series B convertible secured notes, partially offset by the issuance of $40 million of debt to Ship Finance as part of the full settlement of the vessel charter obligations, resulting in a net debt reduction of $188.4 million.

The company said its earnings and cash flows will be further improved by the termination of annual vessel charter obligations for the five ships leased from Ship Finance. The elimination saves Horizon Lines $32 million annually through 2018 and $4.8 million in 2019 as well as associated vessel lay-up costs of $3 million per year, assuming the five vessels were to remain inactive.

"These transactions successfully close a chapter in the history of Horizon Lines that we have been working diligently to complete for these past many months," interim president and chief executive officer Stephen H. Fraser said in the release.

"Horizon Lines moves forward today from a stronger financial position that will enable us to better focus on customers in our core Jones Act trades and to invest in the future of our business."

As a result of the transactions, the company's total funded debt outstanding will be reduced to $404.4 million from $592.8 million at March 31.

"The significant deleveraging resulting from these transactions greatly improves the company's cash flow and liquidity, allowing for greater financial flexibility and stability," executive vice president and chief financial officer Michael T. Avara said in the release.

"As a result, Horizon Lines is now better positioned for improved profitability and sustained investment in our business."

Transaction details

Under the transactions

• Substantially all of the remaining $228.4 million of the company's 6% series A and series B convertible senior secured notes are being converted into stock, or warrants for non-U.S. citizens, equivalent to 83.5% of Horizon Lines' common stock on a fully converted basis;

• Subsidiaries of Ship Finance are releasing the company from its remaining charter obligations, totaling $220.8 million over seven years.

In exchange, Horizon Lines has provided Ship Finance with $40 million principal amount of second-lien senior secured notes due 2016 plus warrants equivalent to 10% of the company's shares outstanding on a fully converted basis upon completion of the transaction;

• Existing holders will maintain a 6.5% stake in the company's stock, including 1.4% for existing equityholders and 5.1% for noteholders who received stock or warrants in an Oct. 5, 2011 refinancing and as part of a mandatory debt-to-equity conversion on Jan. 11.

Upon completion of the transactions, the noteholders and Ship Finance will own stock and warrants equivalent to 88.6% and 10.0%, respectively, of the company's common stock on a fully converted basis; and

• 7.5 million authorized but unissued shares are being reserved for future management incentive plans.

In addition, the company said it would file its 2011 10-K annual report and fourth-quarter financial results on Tuesday.

Board changes

In conjunction with the transactions, Horizon Lines announced that it is reducing the size of its board of directors to seven members from 11, effective immediately. Board member Jeffrey A. Brodsky will succeed Alex J. Mandl as chairman.

Horizon Lines said Mandl is retiring from the board, along with William J. Flynn, Bobby J. Griffin and Carol B. Hallett.

Fraser will remain interim president and CEO until a new CEO is named, the release said.

Horizon Lines is a Charlotte, N.C.-based ocean shipping and integrated logistics company.

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