TROUBLED Horizon Lines has reached a deal with Ship Finance International Limited (SFL) to return five ships it had chartered, but laid up in the Philippines.

Under the agreement, the shipping company and logistics operator will give a 10 per cent stake in the company to SFL plus a US$40 million bond to end the charter.

The five 2,824-TEU Hunter class ships were used by Horizon in its transpacific service that made a stop in Guam on the westbound leg, reported American Shipper. Originally Horizon had chartered the space on the ships for the eastbound leg to Maersk, but when that agreement expired in 2010, it started its own service from China to the United States. It was discontinued last year when freight rates plummeted and Guam volumes were lower than expected.

America's biggest shipping line, Horizon Line, of Charlotte, North Carolina, faced serious financial trouble in February 2011 after it was hit with a US Justice Department price fixing fine of $45 million - later cut to $15 million - as well as class action awards to shippers of more than $13 million. Near bankrupt, it was de-listed from the New York Stock Exchange.

Subsidiaries of SFL will release Horizon from its remaining charter obligations, totalling $220.8 million over seven years.

Horizon said its earnings and cash flows will be improved by the termination of $32 million in annual vessel charter obligations for the five ships leased from SFL, as well as the elimination of about $3 million in annual lay up costs for the idle vessels.

Horizon also announced it has completed transactions with 99 per cent of its noteholders, cutting the company's debt by $188.4 million.

"These transactions successfully close a chapter in the history of Horizon Lines that we have been working diligently to complete for these past many months," said Horizon acting CEO Stephen Fraser.

"Horizon Lines moves forward today from a stronger financial position that will enable us to better focus on customers in our core Jones Act trades and to invest in the future of our business."

In another development, Horizon said it will reduce the size of its board from 11 to seven, effective immediately. Jeffrey Brodsky is succeeding departing Alex Mandl as chairman. In addition to Mr Mandl, William Flynn, Bobby Griffin, and Carol Hallett will also depart. Mr Fraser will remain CEO on an interim basis until a new chief is named.