Horizon Lines, the largest U.S.-flag domestic ocean carrier, has converted $49.7 million of debt to equity under terms of a $652.8 million refinancing the company completed last October.
"This mandatory conversion reduces the company's annualized interest payments by approximately $3 million and represents a major step in deleveraging the company's balance sheet under the opportunities provided by our new capital structure," said Stephen H. Fraser, president and CEO.
"Affording us the ability to decrease debt is an essential component of the refinancing structure that we put in place last October with the help of our note holders. Issuing stock as a means to replace debt also allows us to immediately increase the total market value of our equity, as well as build shareholder value over time," Fraser said.
Horizon’s refinancing averted the threat of bond defaults and bankruptcy following the company’s guilty plea last year to a felony antitrust charge for price-fixing in the Puerto Rico trade. Horizon paid a $15 million fine that was reduced from an initial $45 million.
The refinancing plan called for Horizon’s Series B Notes to be mandatorily convertible into shares of common stock or warrants in two $49.7 million installments -- one this month and one in July, subject to certain conditions.
The first block of Series B notes was converted Tuesday at a rate of 54.716 share of common stock per $1,000 principal amount of the notes. The conversion rate reflected a 1-for-25 reverse stock split last month.
Approximately $18.5 million of the Series B Notes were converted into 1,014,839 shares of common stock with the remainder being converted into warrants exercisable into shares of common stock.
The distribution of common stock and warrants was based upon the U.S. citizenship verifications of the holders of the Series B Notes. Foreign holders, or holders who did not provide proof of U.S. citizenship, received warrants that U.S. citizens can exchange for common stock.
If Horizon cannot convert the second block of Series B notes to stock and warrants by Oct. 5, they will be automatically converted into 6% Series A Convertible Senior Secured Notes due 2017.