Horizon Lines said Tuesday morning it has reached a deal with Ship Finance International Limited (SFL) to return five ships it had under charter that are currently laid up in the Philippines.
Horizon will give a 10-percent stake in the company to SFL plus a $40 million bond to end the charter.
The five 2,824-TEU "Hunter Class" ships were used by Horizon in its transpacific service that made a stop in Guam on the westbound leg. Originally Horizon had chartered the space on the ships for the eastbound leg to Maersk, but when that agreement expired in 2010, started up its own service from China to the United States. But it discontinued the service last year when freight rates plummeted and cargo volumes to Guam were lower than anticipated.
Subsidiaries of SFL will release Horizon from its remaining charter obligations, totaling $220.8 million over seven years. In exchange, Horizon has provided SFL with $40 million in aggregate principal amount of second lien senior secured notes due 2016 pursuant to an indenture dated Oct. 5, 2011, plus warrants equivalent to 10 percent of Horizon's shares outstanding on a fully converted basis.
Horizon said its earnings and cash flows will be improved by the termination of $32 million in annual vessel charter obligations for the five ships leased from SFL, as well as the elimination of about $3 million in annual lay-up costs for the idle vessels.
Horizon also announced it has completed a previously announced transaction with 99 percent of its noteholders that it said will substantially deleverage its balance sheet.
The liner carrier said the deal with its noteholders will eliminate virtually all of the remaining $228.4 million of the company's 6 percent Series A and Series B convertible secured notes by converting them into stock, or warrants for non-U.S. citizens, equivalent to 83.5 percent of its common stock on a fully converted basis. When partially offset by the issuance of the $40 million debt to SFL, this will result in net debt reduction of $188.4 million.
"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, in a statement. "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."
Existing holders will maintain a stake of 6.5 percent in the company's stock. This includes about 1.4 percent for existing equity holders and
approximately 5.1 percent for noteholders who received stock or warrants in the Oct. 5, 2011 refinancing and as part of the mandatory debt-to-equity conversion on Jan. 11. Upon completion of the transactions, the noteholders and SFL, respectively, will own stock and warrants equivalent to about 88.6 percent and 10 percent, 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.
Horizon said it will file its full-year and fourth quarter financial results with the Securities and Exchange Commission later today.
Horizon also said it will reduce the size of its board from 11 to seven, effective immediately. Jeffrey A. Brodsky is succeeding departing Alex J. Mandl as chairman. In addition to Mandl, William J. Flynn, Bobby J. Griffin, and Carol B. Hallett will leave the board. Fraser will remain CEO on an interim basis until a new chief is named. — Chris Dupin