Press release from Ship Finance International Limited, April 10, 2012
Ship Finance International Limited (NYSE:SFL) (“Ship Finance” or the “Company”), today announced that it has agreed to terminate chartering agreements with Horizon Lines, LLC (“Horizon Lines”) relating to five of its vessels. Ship Finance will receive as termination compensation $40 million in second lien notes issued by Horizon Lines and warrants exercisable into ten percent of the common stock of Horizon Lines, Inc. as part of the restructuring outlined below.
The 2,824teu vessels were built in Korea in 2006 and 2007, and have been chartered to Horizon Lines for an average of approximately 5 years. The original bareboat charter term was for 12 years, but following the termination of the Horizon Lines charters, Ship Finance will employ the vessels in the time-charter market instead. The break-even rate per day per vessel (after interest, debt amortization and estimated operating expenses) will be approximately $10,500 for the first 18 months and thereafter approximately $14,500 per day for the next 66 months.
The issuance of the $40 million of notes is part of a comprehensive restructuring of Horizon Lines. The notes will be part of a total of approximately $140 million of second lien notes, and junior to approximately $225 million of first lien notes. The notes will mature in October 2016 and interest is payable semi-annually, first time in October 2012. The annual interest rate will be 13% if paid in cash, 14% if paid 50/50 in cash and newly issued bonds and 15% if paid in newly issued bonds only.
As security for the bonds, Horizon Lines has pledged essentially all of its assets, including 12 owned vessels in its U.S. Jones Act business. Horizon Lines will have the option to redeem the notes at 106% starting in October 2013, at 103% starting in October 2014 and at par starting in October 2015.
In addition, as part of Horizon Lines’ overall restructuring, holders of its remaining $228 million of Convertible Senior Secured Notes converted their notes into common stock (or warrants for non-U.S. citizens). Following this conversion of Convertible Senior Secured Notes and the issuance of the $40 million of notes to Ship Finance, Horizon Lines, Inc.’s total funded debt will be reduced from approximately $593 million as of March 31, 2012 to approximately $404 million.
CEO of Ship Finance Management AS, Ole B. Hjertaker, said in a comment: “We are pleased with the outcome of this comprehensive restructuring of Horizon Lines. The vessels are only five years old on average and of good quality and design. 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.”
Mr. Hjertaker continued: “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. Ship Finance will become a large stakeholder in the restructured Horizon Lines and expects to benefit from both the interest on the notes as well as the value of securities received.”
April 10, 2012
The Board of Directors
Ship Finance International Limited
Questions should be directed to:
Harald Gurvin, Chief Financial Officer, Ship Finance Management AS
+47 23114009 / +47 97520363
Ole B. Hjertaker, Chief Executive Officer, Ship Finance Management AS
+47 23114011 / +47 90141243
About Ship Finance
Ship Finance is a major ship owning company listed on the New York Stock Exchange (NYSE: SFL). Including newbuildings, the Company has a fleet of 69 vessels, including 25 crude oil tankers (VLCC and Suezmax), two chemical tankers, five oil/bulk/ore vessels, 11 drybulk carriers including two newbuildings, 15 container vessels including four newbuildings, six offshore supply vessels, one jack-up drilling rig, one ultra-deepwater drillship and two ultra-deepwater semi-submersible drilling rigs. The fleet is one of the largest in the world and most of the vessels are employed on long-term charters.
More information can be found on the Company’s website: www.shipfinance.org
Cautionary Statement Regarding Forward Looking Statements
This press release may contain forward looking statements. These statements are based upon various assumptions, many of which are based, in turn, upon further assumptions, including Ship Finance management’s examination of historical operating trends. Although Ship Finance believes that these assumptions were reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond its control, Ship Finance cannot give assurance that it will achieve or accomplish these expectations, beliefs or intentions.
Important factors that, in the Company’s view, could cause actual results to differ materially from those discussed in this presentation include the strength of world economies and currencies, general market conditions including fluctuations in charter hire rates and vessel values, changes in demand in the tanker market as a result of changes in OPEC’s petroleum production levels and worldwide oil consumption and storage, changes in the Company’s operating expenses including bunker prices, dry-docking and insurance costs, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or political events, and other important factors described from time to time in the reports filed by the Company with the United States Securities and Exchange Commission.