Horizon Lines is asking bondholders to swap $330 million in convertible notes for new debt and equity and said approval will allow the carrier to finish a $655 million refinancing by the end of September.
The carrier, which operates the largest domestic U.S. ocean fleet and a China-to-U.S. service, said more than 99 percent of bondholders had committed to exchange their 4.25 percent convertible notes for $280 million in newly issued 6 percent convertible notes and $50 million in stock.
The deal would leave bondholders with 61.8 percent of the company’s shares, a total that will rise to 95 percent if all of the newly issued convertible notes are converted into stock.
Horizon, which has been struggling to straighten its finances since pleading guilty last March to price-fixing in the Puerto Rico trade, missed an Aug. 15 payment on its existing convertible notes and has been operating under a 30-day grace period. If bondholders reject the exchange offer, the company said it is likely to “seek bankruptcy relief” and that bondholders likely will receive nothing.
In pleading guilty to a felony antitrust charge in the Puerto Rico case, Horizon accepted a $45 million fine that put the company in violation of debt covenants. The Justice Department later agreed to reduce the fine to $15 million, saying that was all Horizon could pay without jeopardizing its viability.
Horizon’s exchange of its debt for newly issued debt and equity is the largest part of the company’s planned $655 million refinancing. The company said existing bondholders and others have committed to buy $225 million in new 11 percent first-lien secured notes to be issued by a company subsidiary. The notes would mature in five years. In addition, Horizon said existing bondholders and other parties had committed to buy $100 million in new, second-lien secured notes paying 13 to 15 percent interest and maturing in five years.
Holders of the second-lien notes would provide $25 million in bridge financing to provide liquidity until the refinancing is completed. The $25 million would be swapped for second-lien notes and included in the $100 million.
Together, the transactions would pay off Horizon’s $330 million in existing convertible notes and a term loan and revolving credit facility that currently total $269.7 million, and stave off defaults.
Horizon said it expects to complete the exchange offer and close on the entire refinancing by the end of September.
The company said the New York Stock Exchange agreed to a policy exception allowing Horizon to issue new stock without existing shareholders’ approval. Obtaining shareholder approval would have delayed the refinancing until after Sept. 25 and triggered a default under the company’s credit facility, Horizon said. It said lenders under the credit facility already had amended covenants twice and refused to do so a third time.
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