Horizon Lines Reaches Agreement in Principle to Reduce Debt

Press Release
Tuesday, March 27, 2012

Charlotte, N.C. --- Horizon Lines Inc. announced that it has signed a restructuring support agreement with more than 96 percent of its  note holders to further deleverage the Company's balance sheet in connection with, and contingent upon, a restructuring of the vessel charter obligations related to the Company's discontinued trans-Pacific service.
"We greatly appreciate the support of our note holders to help facilitate this potential restructuring to reduce the company's indebtedness, and also thank our employees for their continued dedication and hard work," said Stephen H. Fraser, President and Chief Executive Officer. "Over the past year, Horizon Lines has taken a number of actions to restructure our business, reduce debt and improve liquidity. We believe these additional steps will solidly position the Company for sustained investment in our business and improved profitability.
Among the actions taken in the past year, the company completed a comprehensive $652.8 million refinancing of its entire capital structure in October, 2011. It also terminated the unprofitable Five-Star Express ("FSX") trans-Pacific container shipping service in the fourth quarter of 2011, and exited the third-party Logistics business earlier in 2011, in order to focus on its core domestic services. Additionally, in January, 2012, it completed a mandatory debt-to-equity conversion of $49.7 million of the Company's 6.00 percent Series B Mandatorily Convertible Senior Secured Notes.  
Following termination of the FSX service, the Company discontinued the use of five non-Jones Act qualified container vessels subject to "hell or high water" charters under which the Company's obligations are absolute and unconditional. The aggregate annual charter hire for the vessels is approximately $32.0 million. For the past several months, the Company has been exploring sub-charter opportunities for the vessels and, at the same time, engaging in discussions regarding a restructuring of the charters for the vessels in an effort to mitigate ongoing charter expense, lay-up costs, insurance expense and maintenance costs.
The restructuring support agreement provides, among other things, that substantially all of the remaining $228.4 million of the Company's 6.00 percent Series A and B Convertible Senior Secured Notes will be converted into 90 percent of the Company's stock, or warrants for non-U.S. citizens (subject to limited equity retention to existing equity holders on terms to be agreed, and to dilution for a management incentive plan). The remaining 10 percent of the Company's common stock would be available in connection with the restructuring of Horizon's vessel obligations. To that end, the conversion of the Convertible Secured Notes is contingent upon a number of conditions, including the Company's restructuring of its charter obligations with respect to the vessels.
The Company expects, and the restructuring support agreement expressly contemplates, that these transactions, or certain legally binding interim steps required to complete these transactions, will be consummated prior to the filing of its 2011 Form 10-K Annual Report.
Horizon Lines also announced today that it will file a Form 12b-25 with the Securities and Exchange Commission, seeking an extension to file its 2011 Form 10-K.  The Company and its auditors require additional time to complete the review and analysis of the Company's financial statements, due to the 2011 fourth-quarter financial restructuring and discontinuance of its FSX trans-Pacific service. Horizon Lines expects to issue its 2011 fourth quarter financial results in conjunction with the filing of its 2011 Form 10-K Annual Report on or before April 10, 2012. 
On a continuing operations basis, the Company expects to report a GAAP operating loss of $6.4 million and adjusted operating income of $5.5 million on revenue of $264.3 million for the fiscal fourth-quarter, ended December 25, 2011. This compares with a GAAP operating loss of $32.6 million and adjusted operating income of $4.3 million on revenue of $256.1 million a year earlier. Adjusted operating income for the 2011 fourth quarter excludes charges of $14.0 million for antitrust-related legal settlements and expenses, employee severance and equipment impairment charges, partially offset by a $2.1 million gain, resulting from a reduction of the goodwill impairment charge recorded in the 2011 third quarter. In the 2010 fourth quarter, adjusting operating income excluded $36.9 million in charges for antitrust-related legal settlements and expenses, restructuring costs related to a non-union workforce reduction, an equipment impairment charge, and costs for union employee severance.  
On a continuing operations basis, fourth-quarter container volume totaled 60,279 revenue loads, down 5.8 percent, from 63,977 revenue loads for the fourth quarter of 2010, which contained an extra week.  Excluding the additional week in 2010, container volume for the 2011 fourth quarter increased 0.2 percent, from 60,133 loads a year ago on a comparable basis. Container rates, net of fuel surcharges, totaled $3,136 in the 2011 fourth quarter, compared with $3,124 for the same period a year ago. Fuel costs averaged $665 per metric ton in the 2011 fourth quarter, a 42.4 percent increase from $467 a year ago.

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