Wed 11 Apr 2012, 14:14 GMT

Horizon completes transactions to reduce debt


US firm has completed transactions to deleverage its balance sheet and terminate vessel charter obligations.



Horizon Lines, Inc. has announced that it has completed transactions with more than 99% of its noteholders, and with Ship Finance International Limited (SFL) and certain 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 Horizon, these transactions eliminate virtually all of the remaining $228.4 million of the company's 6.00% Series A and Series B Convertible Secured Notes, partially offset by the issuance of $40.0 million of debt to SFL as part of the full and final settlement of the vessel charter obligations, resulting in a net debt reduction of $188.4 million.

Horizon said the company's earnings and cash flows will be further improved by the termination of $32.0 million in annual vessel charter obligations for the five ships leased from SFL, as well as the elimination of approximately $3.0 million of annual lay-up costs for the idle vessels.

"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," said Stephen H. Fraser, interim President and Chief Executive Officer. "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. We greatly appreciate the support of our noteholders and SFL during the final steps of this process, and also thank our associates, customers, labor partners, and vendors for their loyalty and faith in Horizon Lines."

Under the transactions announced:

* All of the remaining $228.4 million of the Company's 6.00% 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 the Company's common stock on a fully converted basis.

* Subsidiaries of SFL are releasing the company from its remaining charter obligations, totalling $220.8 million over seven years. In exchange, Horizon has provided SFL with $40.0 million in aggregate principal amount of Second Lien Senior Secured Notes due 2016 pursuant to the Indenture dated October 5, 2011, plus warrants equivalent to 10.0% of the Company's shares outstanding on a fully converted basis upon completion of the transaction.

* Existing holders will maintain a stake of 6.5% in the company's stock. This includes approximately 1.4% for existing equity holders and approximately 5.1% for noteholders who received stock or warrants in the October 5, 2011 refinancing and as part of the mandatory debt-to-equity conversion on January 11, 2012. Upon completion of the transactions, the noteholders and SFL, respectively, will own stock and warrants equivalent to approximately 88.6% and 10.0%, of the company's common stock on a fully converted basis.

* In addition, 7.5 million authorized, but unissued shares, are being reserved for future management incentive plans.

The elimination of the vessel lease obligations saves Horizon Lines $32.0 million annually through 2018, and $4.8 million in 2019, as well as associated vessel lay-up costs of $3.0 million per year, assuming the five vessels were to remain inactive. As a result of the transactions, the company's total funded debt outstanding will be reduced to approximately $404.4 million, from $592.8 million at March 31, 2012.

"The significant deleveraging resulting from these transactions greatly improves the Company's cash flow and liquidity, allowing for greater financial flexibility and stability," said Michael T. Avara, Executive Vice President and Chief Financial Officer. "As a result, Horizon Lines is now better positioned for improved profitability and sustained investment in our business."

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, and that Board member Jeffrey A. Brodsky is succeeding Alex J. Mandl as Chairman. Mr. Mandl is retiring from the Board, along with William J. Flynn, Bobby J. Griffin and Carol B. Hallett. Mr. Fraser remains interim President and Chief Executive Officer until a new Chief Executive Officer is named.

"I want to express our Board's sincerest appreciation to Msrs. Mandl, Flynn, Griffin and Ms. Hallett, for their unwavering commitment to Horizon Lines," said Mr. Brodsky. "As Chairman, Mr. Mandl has guided our Board with steadfast and exceptional leadership through a very challenging period. We are truly grateful to Mr. Mandl and to the other retiring Board members for their exemplary service and dedication to Horizon Lines. Today's announced transactions solidify the Company's financial position, allowing a smaller Board to guide the company forward."

Kirkland & Ellis LLP served as legal advisor and Houlihan Lokey Capital, Inc. served as financial advisor to the company. Latham & Watkins LLPserved as legal advisor to SFL. Paul, Weiss, Rifkind, Wharton & Garrison LLP served as legal advisor to the noteholders.


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