In 2011 Horizon Lines needed to take action to avoid defaulting on its senior debt covenants and to prepare for the refunding of the senior debt, which would come due in August 2012. We looked at the three options and determined the following:
Issuing equity was not a viable option because the stock price had fallen to a price below $1 ($0.85 as of March 31, 2011), which would have required an issue of 616 million shares. This would represent an unacceptable dilution of the 30 million shares currently outstanding, which would then represent only 5% of the ownership of the company.
Filing for Chapter 11 bankruptcy would be costly and slow. While bankruptcy can protect the company from its creditors and force them to accept a reorganization plan, it could also result in a court ruling that liquidation is a better alternative.
Negotiating with creditors directly is only possible when there are a small number of creditors who will find it in their best interest to accept a negotiated deal. This was the case with Horizon Lines. The $125 million term loan and the $100 million revolving credit facility had been provided by a lending group of major banks, and the $330 million convertible notes were held by three large mutual funds.
Therefore, the company was able to negotiate a $652.8 million direct refinancing with the lenders in October 2011. One account of the details is given here: https://www.joc.com/maritime-news/container-lines/horizon-completes-6528-million-refinancing_20111006.html
Examine the terms of the refinancing. Do you think this new structure would give the company enough breathing room to successfully complete its turnaround? Why or why not?
Where is Horizon Lines now?