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Horizon enters agreement for complete refinancing

Horizon Lines Inc (NYSE: HRZ) and holders of the majority of its 4.25% convertible senior notes have entered into agreements for a transaction that will refinance the company’s entire capital structure.

This agreement with the note holders contemplates a complete refinancing, in conjunction with a new asset-based revolving loan facility (ABL) of up to $125 million, which is under negotiation with a leading financial institution.

The company’s current debt structure consists of a $225 million senior secured revolving credit facility, a $125 million secured term loan, and $330 million of unsecured 4.25% convertible senior notes.

Recapitalization will eliminate the refinancing risk related to the maturity of the existing convertible notes and the existing bank debt in 2012, and will provide liquidity to fund continued operations through the new senior secured notes and new ABL facility. At the same time, the recapitalization provides for the immediate deleveraging of the balance sheet by $50 million through a debt-for-equity exchange and provides the potential for additional deleveraging through the early conversion of the new convertible secured notes to be issued in the exchange offer.

During and after recapitalization, the company intends to conduct business as usual throughout its tradelanes.

Consummation of the refinancing is expected to occur in August, after completion of documentation and the exchange offer for the company’s existing 4.25% convertible senior notes, which by law requires 20 business days to execute.

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