Ship Finance International Ltd. (SFL) agreed to terminate chartering agreements with Horizon Lines Inc. (HRZL) as the struggling U.S. operator undergoes a restructuring process to reduce debt and will see Ship Finance become a large stakeholder in the ocean shipping company.
Under the agreement, Ship Finance will receive $40 million in second lien notes issued by Horizon Lines and warrants exercisable into 10% of its common stock following the early termination of 5 Horizon Lines charters. The 2,824 teu vessels were built in Korea in 2006 and 2007, and have been chartered to Horizon Lines for an average of 5 years out of an original 12-year charter contract.
Seperately, Horizon Lines said it has completed transactions with more than 99 percent of its noteholders that will cut the company’s debt by $188.4 million, adding that the termination of the vessel charters will save $32.0 million and $3.0 million worth of annual lay-up costs for the idle vessels.
“The redelivery of the five vessels to Ship Finance will enable Horizon Lines to focus entirely on its core domestic U.S Jones Act container market, and Horizon Lines should be well positioned to deliver positive results going forward,” said Ole B. Hjertaker, chief executive of Ship Finance Management.
Despite the termination, Ship Finance expressed optimism that it will be able to employ the five vessels in the time-charter.
“The vessels are only five years old on average and of good quality and design,” added Hjertaker. “Even though the container chartering market currently is soft, we believe there is a good potential for improvements from current levels and our break-even rates are significantly below the historical average.”