Horizon Lines says it has found a way out of a financial crisis triggered by the company’s guilty plea and fine for price-fixing in the Puerto Rico trade.
The largest U.S. domestic ocean carrier said a planned deal with bondholders would allow a full recapitalization and lift the threat of a debt default that could have pushed the company into bankruptcy.
A Horizon bankruptcy would have roiled the U.S. domestic trade between the U.S. mainland and Puerto Rico, Alaska, Hawaii and Guam. Horizon is the only carrier operating in all of those trade lanes and holds a combined 36 percent market share.
The planned refinancing is built around an agreement by a majority of bondholders to swap $330 million in 4.25 percent convertible senior notes for a combination of new debt and equity. The bondholders would receive $200 million in 6 percent convertible secured notes, $80 million in cash and about 38.5 million shares of common stock initially worth $50 million.
The newly issued stock would comprise 56 percent of the company’s outstanding capital stock.
Horizon also plans to issue $350 million in new first-lien 9 percent senior secured notes, due in five years, to “certain qualified institutional buyers.” The refinancing deal was contingent on the $350 million being fully subscribed by June 10.
The refinancing also includes a new revolving loan facility of up to $125 million secured by most of the company’s assets. Horizon said the revolving loan facility was being negotiated with “a leading financial institution.”
The package would replace Horizon’s existing debt, which consists of a $225 million senior secured revolving credit facility, a $125 million secured term loan and the $330 million of unsecured convertible notes.
It’s aimed at bringing stability to a business that has struggled this year and undergone a management overhaul as it prepares to rebuild its finances.
After Horizon agreed in February to plead guilty to the antitrust charge, the company said it expected the resulting fine to put the company in violation of covenants on the $330 million debt. The announcement, coupled with the management shakeup, sent Horizon’s stock and bond prices plummeting.
The Justice Department agreed to a $45 million fine, far below federal sentencing guidelines, on grounds it was all Horizon could pay without threatening the company’s viability. Horizon won another break in April when the Justice Department agreed to lower the fine to $15 million to keep the company out of bankruptcy.
Horizon also has paid $20 million to settle its part of a civil class-action lawsuit filed by customers in the wake of the criminal investigation. Competitors Sea Star Line and Crowley Maritime also paid to settle the class action. The three carriers divided the $5 million cost of a separate class-action settlement filed on behalf of their customers’ customers in Puerto Rico.
Trailer Bridge, the smallest Puerto Rico carrier, was dismissed from the civil antitrust litigation and was not a target of the criminal investigation. Trailer Bridge is working against a November deadline to refinance $82 million in debt and was exploring options that might include new equity and higher interest than the 10.25 percent previously anticipated.
Horizon said its planned recapitalization would “eliminate the refinancing risk related to the maturity of (its) existing convertible notes and the existing bank debt in 2012, and will provide liquidity to fund continued operations.” It said it expected to complete the refinancing in August.
The company said the debt-for-equity swap would immediately reduce its balance-sheet leverage by $50 million. Horizon said it could further reduce its leverage if it can use a rising stock price as currency to buy back some or all of the $200 million in newly issued 6 percent convertible notes.
Conversion of the debt to equity would be permitted in $50 million increments every three months when the stock’s weighted average reaches 30-day averages of $2, $2.10, $2.30 and $2.40. Horizon stock was trading at about $1.10 early last week.
The New York Stock Exchange last month warned Horizon faced delisting for failing to meet listing requirements for at least $50 million in stockholders’ equity and $50 million in market capitalization over 30 consecutive trading days.
Horizon still faces challenges in its basic shipping business, including a chronically sluggish Puerto Rico economy, higher interest costs unless its new notes can be converted to stock, and startup losses from a new eastbound trans-Pacific service launched last December just as the market was softening.
Horizon also must replace its aging fleet in coming years. Horizon’s 11 owned ships have an average age of 35 years. The company has said it is considering scrapping four idle ships built between 1968 and 1973.
And Horizon still faces civil antitrust claims by numerous shippers that opted out of the class-action settlement. Horizon settled with one of those opt-outs, Wal-Mart, and has said it was discussing future rate discounts in negotiations with others.
Contact Joseph Bonney at firstname.lastname@example.org.