Horizon, Wachovia in interest swap deal
Jones Act carrier Horizon Lines Inc. has entered into an interest-rate swap with Charlotte-N.C., based Wachovia Corp. that effectively converts $122 million of the ocean carrier's existing floating-rate term loan debt to a fixed rate of 4.52 percent.
The deal allows Horizon to pay a fixed rate interest to Wachovia and receive back floating rate interest based on the three-month London Interbank Offered Rate. The term loan, and an accompanying $250 million revolving credit facility, bears interest primarily at LIBOR-based rates plus a range from 1.25 percent to 2.0 percent based on the ratio of total secured debt to earnings before interest, taxes, depreciation and amortization
According to Horizon, the swap started March 31 and extends through the Aug. 8, 2012, maturity of the loan.
In addition, under the terms of the deal the notational amount of the swap will decline each calendar quarter in conjunction with the amortization of the term loan.
The execution of the swap set Horizon's new fixed-to-floating ration to 71.7 percent to 28.3 percent.
“This interest-rate swap allows us to significantly reduce potential volatility in earnings and cash flows from interest-rate fluctuations,” said Mike Avara, Horizon chief financial officer. “The interest-rate swap locks in improvement in interest rates on a substantial portion of our debt.”
Charlotte-based Horizon operates a fleet of 21 Jones Act containerships and five port terminals.