Horizon Lines completes exchange offer for 4.25% convertible notes

By Jennifer Chiou

New York, Oct. 4 - Horizon Lines, Inc. announced the wrap of its exchange offer and consent solicitation for its $330 million of 4.25% convertible senior notes due 2012. Holders tendered 99.3% of the convertibles.

The offer had been extended to 5 p.m. ET on Oct. 3 from 5 p.m. ET on Sept. 27 to gain additional time to verify the completed U.S. citizenship questionnaires it had received and to assist noteholders that tendered their notes in fully completing the required U.S. citizenship questionnaires, according to a prior company news release.

Horizon Lines said it also received the needed consents to eliminate or amend substantially all of the restrictive covenants in the indenture governing the convertibles and to modify some events of default and other provisions.

Settlement is slated for Oct. 6.

As reported, the company previously extended the offer from 11:59 p.m. ET on Sept. 23.

The exchange consideration for each $1,000 principal amount of 4.25% convertibles is:

• $545.4545 principal amount of 6% series A convertible senior secured notes due April 15, 2017, up to a maximum principal amount of $180 million;

• $303.0303 principal amount of 6% series B mandatorily convertible senior secured notes, up to a maximum principal amount of $100 million; and

• 151.5152 shares of common stock at $1.00 per share, up to a maximum of 50 million shares.

The amount of shares and corresponding $50 million value are subject to adjustment on a pro rata basis to the extent that less than all holders participate. Holders will also receive accrued interest.

Of the exchange consideration, 0.5% is considered payment for providing consents.

Series A notes

The conversion rate of the series A notes will be 2,224.6381 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of $0.45.

Beginning one year after issuance, the company can force conversion of the series A notes if the 30-trading-day volume-weighted average price of its stock is $0.63 or greater.

Series B notes

The series B notes will be mandatorily convertible into common stock at a conversion rate of 1,367.9891 shares per $1,000 principal amount, which is equivalent to a conversion price of $0.73.

The company will convert $50 million of the notes 90 days after issuance. The remaining $50 million will be converted on the 270th day after issuance, provided that the company will not be able to convert these notes unless a registration statement for the resale of the series A notes and underlying shares has been declared effective.

If the company is not able to convert the second $50 million of notes on the 270th day after issuance, they will be automatically converted into series A notes on the one-year anniversary of the issue date.

$325 million notes planned

As already reported, subsidiary Horizon Lines, LLC plans to issue $225 million of new 11% first-lien senior secured notes due 2016 and $100 million of new second-lien senior secured notes due 2016 to the holders of the convertibles, according to an S-4 filing with the Securities and Exchange Commission.

The interest rate on the second-lien notes will be either 13% in cash, 15% in kind or 14%, half of which is payable in cash and half in kind.

The new notes will be issued concurrently with the consummation of the exchange offer.

The proceeds will be used, among other things, to refinance the company's senior credit facility.

Horizon Lines, Inc. and Horizon Lines, LLC will also enter into a new $100 million asset-based revolving loan facility due 2016 when the exchange offer is consummated.

Other terms

Participating holders in the exchange offer had to confirm their U.S. citizenship by completing a questionnaire and certifying that they are U.S. citizens before the company accepts their tenders and consents.

Foreign holders were, under certain conditions, allowed to receive warrants or redemption notes in lieu of shares of common stock. The redemption notes will be promissory notes with a maturity of 10 years or less bearing interest at fixed rate equal to the yield on the Treasury note having a maturity with a comparable term.

When the offer was announced, it was conditioned on the receipt of tenders for at least 95% of the notes and the receipt of consents for more than 50% of the notes.

The company had already entered into restructuring support agreements with holders of more than 98% of the convertibles and intends to complete the refinancing no later than Oct. 6.

The company already said it would expect to file for bankruptcy were it unable to complete the exchange offer.

The information agent and exchange agent was Global Bondholder Services Corp. (212 430-3774 for banks and brokers, others call 866 470-3900).

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

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