HORIZON LINES COMPLETES COMPREHENSIVE REFINANCING

News Release Horizon Lines, Inc. (Corporate Headquarters) October 7, 2011

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New Capital
Structure Provides Opportunity for Significant
Deleveraging 
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CHARLOTTE,
NC (October 6, 2011) --- Horizon Lines, Inc. (NYSE: HRZ) today
announced that it has completed a comprehensive refinancing of the
company's entire capital structure.  The new capital
structure addresses the company's financial needs by providing adequate
liquidity to fund continuing operations and the ability to achieve
substantial additional debt reduction.
   
 
"We
now have a new capital structure that eliminates the refinancing
uncertainty faced by our company over the past several months and better
positions us for the future," said Stephen H. Fraser, President and Chief
Executive Officer.  "We have put in place a solid
financial foundation that affords us the opportunity to grow our business
and significantly reduce debt over time."  
 
The
terms of the recapitalization, which results in a $652.8 million financial
restructuring, consist of the following:
<UL>
<LI>Certain holders of the 4.25% convertible senior notes due 2012 (the
"2012 convertible notes") and certain other parties purchased $225.0
million of 11.00% first-lien secured notes.  The notes
mature in October 2016, 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>
<UL>
<LI>Certain holders of the 2012 convertible notes and certain other
parties also purchased $100.0 million of second-lien secured notes,
maturing in October 2016.  The second-lien notes bear
interest, payable semi-annually at a rate of 13.00% per annum if paid in
cash, 14.00% per annum if paid 50% in cash and 50% in kind, and 15.00%
per annum if paid in kind, at the company's option. 
The $100.0 million amount includes second-lien notes that were
issued in exchange for a $25.0 million bridge loan that was entered into
in September 2011, with the remaining $75.0 million issued at
par.  The new second-lien secured notes are non
callable for two years. After that, they are callable at 106% of the
aggregate principal plus accrued and unpaid interest in year three, at
103% plus accrued and unpaid interest in year four, and at par plus
accrued and unpaid interest thereafter. </LI></UL>
<UL>
<LI>Additionally, the company and its subsidiaries entered into a
new, $100.0 million, asset-based revolving credit facility arranged
through Wells Fargo Capital Finance, LLC to provide
liquidity for continuing operations. 
Availability under the ABL facility is based on a percentage of
eligible accounts receivable, up to a maximum of $100.0
million.  The ABL facility matures in October 2016,
although the maturity will accelerate by 90 days if the first-lien notes
and second-lien notes have not been repaid, refinanced or defeased by
such date.  The ABL facility bears interest at a
floating rate based on a specified spread over LIBOR. The initial rate
will be LIBOR plus 3.25%. No amounts were drawn at the closing date,
although there were $19.1 million of outstanding letters of credit under
the ABL facility, with $67.1 million available for
borrowing.</LI></UL>
<UL>
<LI>The company also completed its exchange offer and consent
solicitation, in which $178.8 million of new 6.00% Series A convertible
senior secured notes due April 15, 2017, $99.3 million of new 6.00%
Series B mandatorily convertible senior secured notes, and $49.7 million
of common stock and warrants, issued at $1.00 par value, were exchanged
for the $327.8 million of 2012 convertible notes that were validly
tendered in the exchange offer.  In total, 99.3% of
the $330.0 million of 2012 convertible notes were validly tendered in
the exchange offer.  Interest on the new notes is
payable semi-annually in cash. The Series A Notes are convertible at the
option of the holders, and at the company's option under certain
circumstances beginning on the one-year anniversary of their issuance,
into shares of common stock or warrants, as described below. The Series
B Notes are mandatorily convertible into shares of the company's common
stock or warrants in two equal installments of approximately $49.7
million each on the three-month and nine-month anniversaries of the
consummation of the exchange offer, subject to certain conditions, as
described below. </LI></UL>
"We
greatly appreciate the support of our note holders, previous lender group
and the new lenders to facilitate this comprehensive and complex
refinancing in an orderly and timely manner," said Michael T. Avara,
Executive Vice President and Chief Financial Officer. 
"We also are grateful to our teams of advisors from Kirkland &
Ellis LLP and Moelis & Company for their expert advice, creativity and
diligence through this arduous process. Our thanks further extends to
Paul, Weiss, Rifkind, Wharton & Garrison LLP and Houlihan Lokey, who
were the legal and financial advisors, respectively, to the holders of the
2012 convertible notes, for their important contributions."
 
In
the exchange offer, the company issued 25.1 million shares of common stock
and 24.6 million warrants, based on the U.S. citizenship verifications of
the participating 2012 convertible note holders. 
 
Under
terms of the new notes, and subject to certain conditions (including,
without limitation, having sufficient authorized shares of common stock
and the continued listing of the common stock), the company has the right
to convert the new Series B Notes into $49.7 million of common stock or
warrants at approximately $0.73 per share after January 5, 2012, and
another $49.7 million of common stock or warrants at approximately $0.73
per share after July 5, 2012.  After October 5, 2012,
subject to certain conditions (including, without limitation, having
sufficient authorized shares of common stock and the continued listing of
the common stock), the company has the right to convert into common stock
or warrants the new Series A Notes at its option, in whole or in part, and
from time to time, at approximately $0.45 per share, plus accrued and
unpaid interest, provided that the 30-trading-day, volume-weighted average
price of the common stock is at least $0.63 per share at the conversion
date.  
 
Proceeds
from the first-lien notes and the second-lien notes were used, among other
things, to satisfy in full the company's obligations outstanding under its
previous first-lien revolving credit facility and term loan, which totaled
$265.0 million in principal and $1.4 million in accrued interest and fees.

 
In
connection with the consent solicitation noted above, holders of old notes
consented to amend the indenture related to the 2012 convertible notes,
and the company and the trustee executed a supplemental indenture,
removing or amending substantially all of the restrictive covenants, as
well as modifying certain of the events of default and various other
provisions contained in the old indenture. 
 
The
company will file with the SEC a Current Report on Form 8-K containing
copies of the various agreements described herein.
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