Horizon Offshore negotiating up to $20 million of new funding

New York, May 17 - Horizon Offshore Inc. said it is finalizing terms and documentation on $10 to $20 million of new loans from Elliott Associates and other holders of its new notes.

Interest will be at 18%, paid in kind, with a 5% closing fee, also paid in kind, on amounts advanced. The new loan will mature on March 31, 2007.

If completed, the financing will be in two tranches.

The first $10 million tranche will be used to secure a $9.1 million letter of credit required for the company's recently awarded contract with Israel Electric Corp.

The second tranche would be used for future liquidity needs.

Horizon Offshore said in a 10-Q filing with the Securities and Exchange Commission that it is currently obtaining lender consents needed for the new loan. The second tranche is also contingent upon the consent of the Export-Import Bank of the United States, which guarantees one of the company's revolving credit facilities with Southwest Bank.

In order to obtain the consent of its subordinated note holders to release their first priority security interest in the Pemex EPC 64 claim not related to interruptions due to adverse weather conditions, which will collateralize the new loan, Horizon Offshore was required to issue to the holders an additional $6.5 million of subordinated notes with the same terms as those issued in March. The noteholders will retain a second priority security interest in this claim.

The Houston-based marine construction company said that during discussions with lenders about the additional financing it discovered that its total commitment on performance bonds and letters of credit exceeded the maximum allowed by some of its lenders because it failed to include in the calculation performance bonds and letters of credit that remain outstanding from completed construction projects.

Horizon Offshore obtained waivers of this default and consents to obtain additional performance bonds and letters of credit in excess of $15 million.

On March 11, Horizon Offshore issued $65.4 million of 16% subordinated notes due March 31, 2007 to address its liquidity problems and to provide sufficient funds to meet its immediate cash needs. The private placement generated $44.9 million of proceeds net of costs and the amount used to repay principal and interest under a $15 million term loan from Elliott Associates. Elliott Associates bought $15 million of the subordinated notes.

Horizon said it also substantially reduced borrowings under its revolving credit facilities with Southwest Bank.

However since the note issuance, Horizon Offshore's liquidity has been affected by unanticipated cash needs to complete a significant project in the Gulf of Mexico and by delays in billing and collecting the receivables for the project totaling $3 million; its failure to reach an agreement in its dispute with Iroquois and collect the associated receivable, which would have provided $13 million of cash; demands from creditors to satisfy payables earlier than customary ahead of completion of the notes offering, cutting liquidity by $13 million; and a $7 million reduction in the company's available borrowing capacity due to a decrease in project activity and associated billings.

In addition, since late March, Horizon Offshore has been required to pledge cash to obtain routine performance bonds and letters of credit securing its obligations.

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