Horizon Line attempts to refinance debt
Horizon Lines, struggling in recent weeks to stave off a debt default, said Wednesday it has new agreements with bondholders to refinance the company's entire capital structure. The U.S. domestic container line said a majority of holders of $330 million in 4.25 percent convertible senior notes had agreed to the refinancing plan, the Journal of Commerce reported.
Under the deal, they would exchange the notes for $200 million in 6 percent convertible secured notes, a cash payment of $80 million and approximately 38.5 million shares of common stock. The newly issued stock would comprise about 56 percent of the company's outstanding capital stock.
The company also plans to sell $350 million in new first-lien 9 percent senior secured notes, due in five years, to "certain qualified institutional buyers."
The agreement marks an important step toward financial stability for a carrier that has overhauled its management in recent months following a guilty plea in a price-fixing investigation and faces major financial hurdles as it seeks to rebuild its troubled business.
Horizon said the agreement with the note holders sets the stage for a complete refinancing, in conjunction with a new asset-based revolving loan facility of up to $125 million. The company said the revolving loan facility is under negotiation with "a leading financial institution."
The carrier’s current debt structure consists of a $225 million senior secured revolving credit facility, a $125 million secured term loan, and the $330 million of unsecured 4.25 percent convertible senior notes.
After Horizon agreed in February to plead guilty to a felony antitrust violation for price-fixing in its Puerto Rico operations and accept a multimillion-dollar fine, the company said it expected to be in violation of covenants on the $330 million in senior secured notes. That put Horizon at risk of a debt default that could have led to bankruptcy.
The Justice Department agreed in April to reduce the company's $45 million fine for the antitrust violation to $15 million, saying the larger penalty threatened to force Horizon into bankruptcy. The original fine was far below federal sentencing guidelines, but the Justice Department said a higher fine threatened the company's viability.
Announcement of the refinancing plan came a day after the company said the New York Stock Exchange warned Horizon's stock faces delisting because its stockholders' equity had fallen below $50 million and its market capitalization had fallen below $50 million over 30 consecutive trading days.
Horizon said the planned recapitalization "will eliminate the refinancing risk related to the maturity of the existing convertible notes and the existing bank debt in 2012, and will provide liquidity to fund continued operations."
The company said the debt-for-equity swap would immediately reduce the company's balance-sheet leverage by $50 million. Horizon said the $200 million in newly issued convertible notes, which would mature in five and a half years, could provide additional deleveraging if they are converted into stock.
The company said it expects to complete the refinancing in August and will not pursue any other restructuring alternatives.
Horizon is the largest U.S. domestic ocean carrier, with a 36 percent share of the markets between the U.S. mainland and Puerto Rico, Alaska, Hawaii and Guam.