Horizon Lines said its lenders agreed to cancel a default triggered by the company's guilty plea to price-fixing in the Puerto Rico trade and to relax loan covenants. In exchange, the carrier will pay higher interest charges and accept reductions in its credit lines.
Horizon, the largest U.S. domestic ocean carrier, pleaded guilty last month to a felony antitrust charge and agreed to pay a $45 million fine. The company, seeking to refinance its long-term debt, has asked lenders for waivers from defaults triggered or threatened by the fine.
Under its deal with lenders, Horizon will pay an additional 2.5 percent interest on its senior credit facility, which as of Dec. 26 stood at an adjustable rate of 3.29 percent for a revolver loan and 6.02 percent for a term loan. The agreement includes reductions from $50 million to $20 million in Horizon's letter-of-credit commitment and from $20 million to $5 million in its swingline commitment, which provides quick access to cash.
The company also announced a two-week extension of its request for lenders to agree to waive defaults on senior convertible notes that make up most of the company's $533 million in long-term debt. Because of that, the company said, it will postpone the scheduled release of its annual report by 15 days.
Company officials described the amendment to its credit agreement as a step toward refinancing its debt, which includes $330 million in convertible notes that mature in 2012. The agreement relaxes financial ratios that Horizon must meet to avoid defaults on its debt.
"We very much appreciate the support of our lender group and recognize that the amended credit agreement is a vote of confidence in the future of our company," said Michael T. Avara, executive vice president and chief financial officer.
Stephen H. Fraser, who will replace the retiring Chuck Raymond as president and CEO on Monday, said he expects negotiations with lenders on refinancing of long-term debt to be completed in the second or third quarter. "We are confident that these discussions will result in a financially stronger company that is better positioned for the long term," Fraser said.
Horizon had identified refinancing as a top priority this year even before it pleaded guilty on Feb. 24 and agreed to a $45 million fine and five years' probation. The fine is payable in rising installments over five years, with $1 million payable up front and a total of $35 million due in the fourth and fifth years.
The Justice Department said in a sentencing memorandum, filed this week in U.S. District Court in Puerto Rico, the back-loaded $45 million fine was "the most Horizon could afford to pay without substantially jeopardizing its continued viability and its ability to pay restitution."
Federal sentencing guidelines called for a fine of $336 million to $672 million, based on Horizon's estimated $1.4 billion in Puerto Rico freight revenue from 2002 to 2008, the Justice Department said.
Although the guilty plea settled Horizon's part in the government's criminal investigation of Puerto Rico carriers, Horizon and competitors Sea Star and Crowley Maritime are still trying to settle civil antitrust lawsuits filed on behalf of shippers claiming they were victims of price-fixing.
The three carriers have until April 1 to decide whether to go through with settlements totaling $52.25 million -- $20 million by Horizon, $18.5 million by Sea Star and $13.75 million by Crowley - for a class-action civil lawsuit. Numerous shippers have opted out of the class action, freeing them to file individual claims. Horizon last month announced a settlement with one of those shippers, Wal-Mart.
-- Contact Joseph Bonney at email@example.com.