Horizon LInes Announces Refinancing Program

News Release Horizon Lines, Inc. (Corporate Headquarters) August 29, 2011

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HORIZON LINES ENTERS
INTO MODIFIED AND COMMITTED AGREEMENT WITH CONVERTIBLE NOTE HOLDERS FOR COMPLETE
REFINANCING
Commitments Secured to Move
Forward with Refinancing 
Consummation of Transaction
Expected by the End of September
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style="FONT-FAMILY: Cambria,Georgia,Times New Roman,serif; FONT-SIZE: 10pt"> 
CHARLOTTE, NC, August 26,
2011 - Horizon Lines, Inc. (NYSE: HRZ) today announced that it has entered
into a definitive agreement and secured commitments from holders of more
than 99% of its 4.25% convertible senior notes due in 2012 to move forward
with a modified transaction that will refinance the company's entire
capital structure.
 
As part of the refinancing,
the company has launched an exchange offer today for the $330.0 million of
existing unsecured 4.25% convertible senior notes. Consummation of the
refinancing is expected to occur by the end of September, following
completion of the exchange offer. 
 
Consistent with the
agreement announced on June 1, 2011, the modified agreement will
completely recapitalize the company and eliminate the refinancing risk
related to the maturity of the existing convertible notes and the existing
bank debt in 2012. It also provides liquidity to fund continued operations
through a new asset-based revolving loan
(ABL) facility.
Additionally, the note holders have committed to provide the company with
access to a $25.0 million bridge loan to serve as a liquidity cushion
through the completion of the recapitalization. The recapitalization also
provides for the immediate deleveraging of the balance sheet through a
$50.0 million debt-for-equity exchange, and creates the opportunity for
additional deleveraging of $280.0 million through the early conversion of
the new convertible secured notes to be issued in the exchange
offer.
The agreement with the note
holders will effectuate a comprehensive refinancing in conjunction with
the new ABL facility of $100.0 million. Commitment for the ABL, arranged
through Wells Fargo Capital Finance, LLC, has been signed and the
transaction is scheduled to close in conjunction with the completion of
the convertible notes exchange offer. The ABL facility matures in five
years from the date of closing.  
 
Under the revised
comprehensive recapitalization plan, holders of the 2012 convertible notes
have committed to a $655.0 million financial restructuring that
contemplates the following transactions:
 
<UL style="MARGIN-TOP: 0in">
<LI
style="TEXT-ALIGN: left; LINE-HEIGHT: normal; FONT-STYLE: normal; MARGIN-TOP: 0px; FONT-FAMILY: Times-New-Roman; COLOR: black; FONT-SIZE: 12pt; FONT-WEIGHT: normal">Holders
of the 2012 convertible notes and certain other parties have committed
to purchase $225.0 million of new 11% first-lien secured notes to be
issued by a subsidiary of the company. The notes mature in five years
from the date of issuance and are callable at 101.5% of the aggregate
principal plus accrued and unpaid interest in year one, and at par plus
accrued and unpaid interest thereafter. </LI></UL>
<P
style="TEXT-ALIGN: left; LINE-HEIGHT: normal; FONT-STYLE: normal; MARGIN-TOP: 0px; FONT-FAMILY: Times-New-Roman; MARGIN-BOTTOM: 0px; COLOR: black; MARGIN-LEFT: 0.5in; FONT-SIZE: 12pt; FONT-WEIGHT: normal"> 
<UL style="MARGIN-TOP: 0in">
<LI
style="TEXT-ALIGN: left; LINE-HEIGHT: normal; FONT-STYLE: normal; MARGIN-TOP: 0px; FONT-FAMILY: Times-New-Roman; COLOR: black; FONT-SIZE: 12pt; FONT-WEIGHT: normal">Certain
holders of the 2012 convertible notes will provide the company with up
to $25.0 million of bridge loan financing to ensure adequate liquidity
for the company through the completion of the recapitalization.  
    At closing of the recapitalization, the bridge loan will
be exchanged for $25.0 million of newly issued second-lien secured
notes.</LI></UL>
<P
style="TEXT-ALIGN: left; LINE-HEIGHT: normal; FONT-STYLE: normal; MARGIN-TOP: 0px; FONT-FAMILY: Times-New-Roman; MARGIN-BOTTOM: 0px; COLOR: black; MARGIN-LEFT: 0.5in; FONT-SIZE: 12pt; FONT-WEIGHT: normal"> 
<UL style="MARGIN-TOP: 0in">
<LI
style="TEXT-ALIGN: left; LINE-HEIGHT: normal; FONT-STYLE: normal; MARGIN-TOP: 0px; FONT-FAMILY: Times-New-Roman; COLOR: black; FONT-SIZE: 12pt; FONT-WEIGHT: normal">Holders
of the 2012 convertible notes and certain other parties have committed
to purchase $100.0 million of new second-lien 13%-to-15% secured notes
to be issued by a subsidiary of the company (the $100.0 million includes
the entire $25.0 million of the bridge loan that will be exchanged for
$25.0 million of second-lien notes at the closing of the
recapitalization). The notes mature in five years from the date of
issuance, are non-callable for two years, and thereafter callable at
106% of the aggregate principal plus accrued and unpaid interest in year
three, 103% plus accrued and unpaid interest in year four, and after
that at par plus accrued and unpaid interest.</LI></UL>
 
Proceeds from the secured
notes will be used, among other things, to satisfy in full the company's
obligations outstanding under its existing first-lien revolving credit
facility and term loan, which currently total $269.7 million. The
first-lien and second-lien secured notes to be offered have not been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), or any state securities laws, and unless so registered, may not be
offered or sold in the United States except pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. The first-lien and
second-lien secured notes will be offered and issued only to accredited
investors pursuant to Section 4(2) of the Securities Act and to persons
outside the United States pursuant to Regulation S. This press release
shall not constitute an offer to sell or the solicitation of an offer to
buy, nor shall there be any sale of these securities in any state in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any state.
 
As part of the refinancing,
the company has commenced an exchange offer for its existing $330.0
million of 4.25% convertible senior notes that includes the
following:
 
<UL>
<LI style="FONT-FAMILY: Cambria; FONT-SIZE: 12pt">$280.0 million of new
6.0% convertible secured notes, maturing in five and a half years after
date of issuance, convertible at the option of the holder at $0.45 per
share, and as described below, and;</LI></UL>
 
<UL>
<LI style="FONT-FAMILY: Cambria; FONT-SIZE: 12pt">$50.0 million of
common stock, issued at $1.00 per share, or approximately 50 million
shares, which would represent approximately 61.8% of the outstanding
capital stock of the company after issuance.</LI></UL>
 
Under terms of the
agreement, and subject to certain conditions, the company has the right to
convert the new 6.0% convertible secured notes into $50.0 million of
common stock at $0.73 per share after three months from the date of
issuance, and another $50.0 million of common stock at $0.73 per share
after nine months from the date of issuance. After at least 90 days
following the second conversion, the company has the right to convert into
common stock the remaining $180.0 million of convertible secured notes at
its option, in whole or in part, and from time to time, at $0.45 per
share, plus accrued and unpaid interest, providing that the
30-trading-day, volume-weighted average price of the common stock is at
least $0.63 per share at the conversion date and that the company has
provided no less than 20 days nor more than 60 days prior notice.

 
Assuming full participation
in the exchange offer, holders of the 2012 convertible notes will own
approximately 95% of the company's stock on an as-converted basis
following the exchange offer.
 
Terms of the agreement also
call for the company to request a 1-for-25 reverse stock split at the
first shareholder meeting following the closing date.
 
Normally, the issuance of
the company's common stock, as part of the initial exchange offer, in the
amount described in this refinancing agreement would require shareholder
approval in accordance with the shareholder approval policy of the New
York Stock Exchange (NYSE). However, the company has determined that it
cannot undertake and conclude the shareholder approval process in the time
that the refinancing transaction would need to be completed by in order to
avoid the default that would occur when the company breaches the financial
covenants under its existing credit facility at the close of its third
quarter on September 25, 2011. Lenders under the existing credit facility
already have amended the covenants on two separate occasions in 2011. The
lenders have declined to provide additional waivers and amendments.
Failure to receive such waivers or amendments would constitute an event of
default, which the company expects would result in acceleration of
existing debt and further revenue run-off and overall business
deterioration, jeopardizing the company's financial viability and
compelling the company to seek bankruptcy protection. In order to avoid
such an outcome and in light of the fact that the proposed exchange offer
must remain open for at least 20 business days under federal securities
laws, the company needs to commence the proposed exchange offer by August
26, 2011. On August 10, 2011, the Audit Committee of the company's Board
of Directors approved the company's use of the financial viability
exception to the NYSE's shareholder approval policy, and the company is
issuing a letter to shareholders notifying them of its intention to
complete the refinancing without seeking shareholder approval.  
The closing of the refinancing will not occur until at least 10 days after
such notice is mailed. The NYSE has accepted the company's reliance on the
financial viability exception to the shareholder approval policy.

 
Concurrently with the
exchange offer, the company will seek consents from all holders of the
2012 convertible notes to remove substantially all of the restrictive
covenants and certain events of default from the indenture governing the
2012 convertible notes. 
 
The company expects to
complete the exchange offer of the existing 2012 convertible notes by the
end of September, at which time it expects to close the entire
refinancing.  
 
The company will file with
the SEC a Current Report on Form 8-K containing certain financial and
other information about the company that was previously disclosed under
confidentiality agreements at investor meetings with certain holders of
the 4.25% convertible senior notes. The Current Report on Form 8-K also
will contain copies of the various agreements described herein.

 
The agreements are subject
to various contingencies and the company offers no assurances that it will
be able to execute the transactions as described.
 
In connection with entering
into this definitive agreement, the company will make a $7.0 million
semi-annual interest payment on its existing $330.0 million of 4.25%
convertible senior notes. The interest payment was due on August 15, 2011,
however, the company decided to make the payment within the 30-day grace
period.
 
Separately, the company has
received formal notification from the NYSE that it is not in compliance
with the NYSE's continued listing standard requiring that the average
closing price of common stock be at least $1.00 per share over a
consecutive 30-day trading period. Under the NYSE's continued listing
standards, to avoid delisting, the company must return to compliance with
the $1.00 average share price standard within six months, or in
conjunction with its next annual shareholder meeting if curing the price
condition requires shareholder approval. The company also received a
non-compliance notice from the NYSE in late May 2011, when its market
capitalization fell below $50.0 million over a consecutive 30 trading-day
period at the same time that stockholders' equity was below $50.0 million.
The company has submitted, and the NYSE has accepted, a plan to address
the market capitalization issue. The plan is closely tied to the
successful completion of the recapitalization, along with other operating
initiatives, which the company also believes will address the $1.00
minimum price deficiency. Per NYSE requirements, the company will notify
the NYSE that it intends to cure the $1.00 minimum price
deficiency.
 
Important Information
about the Exchange Offer 
 
This release is for
informational purposes only and is not an offer to buy or the solicitation
of an offer to sell any security. An exchange offer will only be made
pursuant to exchange offer documents, including filing a Registration
Statement on Form S-4 and a Schedule TO containing a prospectus and a
tender offer statement, that are to be made available to the holders of
the 4.25% convertible senior notes and filed with the Securities and
Exchange Commission ("SEC"). Holders of the 4.25% convertible senior notes
are advised to read the exchange offer documents when they become
available, as these documents will contain important information about the
exchange offer. Copies of the exchange offer documents and other filed
documents will be available for free at the SEC's website, www.sec.gov, as
well as the company's website, www.horizonlines.com or by making a request
to Horizon Lines, Inc., 4064 Colony Road, Suite 200, Charlotte, North
Carolina 28211, (704) 973-7000, Attention: Jim Storey, Director, Investor
Relations & Corporate Communications. 
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