Moody's rates Horizon Lines notes Caa2

Moody's Investors Service said it assigned a Caa2 rating to H-Lines Finance Holding Corp.'s proposed $110 million in gross proceeds senior discount notes due 2012.

Also, Moody's assigned a B2 senior implied and a Caa2 senior unsecured issuer rating to H-Lines Finance, while withdrawing the senior implied and issuer ratings from H-Lines Finance's principal operating company, Horizon Lines LLC. In addition, the rating agency has affirmed currently rated financial securities issued by Horizon Lines LLC, including the $25 million senior secured revolver due 2009 at B2, the $250 million senior secured term loan B due 2011 at B2, and the $250 million senior unsecured notes due 2012 at B3.

The outlook is stable.

The purpose of the proposed notes is to finance a $51 million capital distribution to all shareholders and satisfy a $50 million bridge loan which the primary equity sponsor, Castle Harlan Partners IV LP, has kept in place since its acquisition of the company in July 2004.

Moody's said ratings could be subject to downward revision if competitive pressures increase in any of Horizon Lines' core shipping markets, decreasing revenues and margins, or if the company were to substantially further increase debt levels to expand or renew its vessel fleet, such that lease-adjusted debt were to exceed 7x EBITDAR, or if EBIT coverage of interest expense were to fall below 1.5x. Conversely, the rating outlook could improve if stronger-than-expected operating performance were to allow the company to repay debt more quickly than expected, reducing leverage (lease-adjusted debt/EBITDAR) to below 5x for a sustained period.

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