1. What went wrong with Horizon?

2. Which of these problems was bad luck and which was bad management?

3. Discuss what’s going right with Horizon.

4. Is this an operating problem or a financing problem?

5. What are management’s alternatives? Discuss the three options outlined in the case (see section below for analysis). Is management limited to just these three options?

6. Focus on negotiating with the creditors to voluntarily restructure the debt. Assuming that case Exhibit 6 projections are correct, how would you refinance the debt?

In May 2011, Horizon Lines was coming dangerously close to defaulting on one of the covenants related to its senior unsecured debt. A series of major setbacks had compromised the company’s performance in such a way that management was considering a number of operational and financial restructuring options. The case asks students to decide whether Horizon should seek Chapter 11 protection or attempt a voluntary financial restructuring. You will immediately see that the operational changes are not sufficient to avert the covenant default, which puts the focus squarely on the financial restructuring options, including seeking the protection of Chapter 11 bankruptcy proceedings. This case is unique because it presents students with a wide range of financial restructuring alternatives to consider and should give them an appreciation of the advantages and disadvantages faced by a firm choosing to use the bankruptcy court.

The epilogue reveals that management was able to successfully execute a voluntary restructuring. The primary reason management was able to avoid a Chapter 11 filing was Horizon’s relatively simple capital structure that included a convertible issue and senior credit facility. The senior credit facility was funded by a bank group and the convertible notes were held by only three mutual fund companies: Legg Mason, Pioneer Investment Management, and Angelo Gordon & Co. With so few counterparties involved, the negotiations were relatively straightforward, which undoubtedly was a large contributing factor to the success of the negotiations.