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Note 9 - Debt, Credit Facility and Leases | 9 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Debt Disclosure [Text Block] | Note 9. Debt, Credit Facility and Leases Senior Notes On April 12, 2013, we completed an offering of $500 million in aggregate principal amount of our Senior Notes due May 1, 2021 in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, and in 2014, an additional $6.5 million aggregate principal amount of the Senior Notes was issued to one of our pension plans. The Senior Notes were subsequently exchanged for substantially identical Senior Notes registered with the SEC. The Senior Notes are governed by the Indenture, dated as of April 12, 2013, as amended (the "Indenture"), among Hecla Mining Company ("Hecla") and certain of our subsidiaries and The Bank of New York Mellon Trust Company, N.A., as trustee. The net proceeds from the initial offering of the Senior Notes ($490 million) were used to partially fund the acquisition of Aurizon and for general corporate purposes, including expenses related to the Aurizon acquisition. The Senior Notes are recorded net of a 2% initial purchaser discount totaling $10 million at the time of the April 2013 issuance and having an unamortized balance of $2.1 million as of September 30, 2019. The Senior Notes bear interest at a rate of 6.875% per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Senior Notes is payable on May 1 and November 1 of each year, commencing November 1, 2013. During each of the nine-month periods ended September 30, 2019 and 2018, interest expense related to the Senior Notes and amortization of the initial purchaser discount and fees related to the issuance of the Senior Notes totaled $27.2 million. The Senior Notes are guaranteed on a senior unsecured basis by certain of our subsidiaries (the "Guarantors"). The Senior Notes and the guarantees are, respectively, Hecla's and the Guarantors' general senior unsecured obligations and are subordinated to all of Hecla's and the Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Senior Notes are effectively subordinated to all of the liabilities of Hecla's subsidiaries that are not guaranteeing the Senior Notes, to the extent of the assets of those subsidiaries. The Senior Notes became redeemable in whole or in part, at any time and from time to time after May 1, 2016, on the redemption dates and at the redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, to the date of redemption. As of May 1, 2019, the redemption price is 100% of the outstanding principal amount. Upon the occurrence of a change of control (as defined in the Indenture), each holder of Senior Notes will have the right to require us to purchase all or a portion of such holder's Senior Notes pursuant to a change of control offer (as defined in the Indenture), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, subject to the rights of holders of the Senior Notes on the relevant record date to receive interest due on the relevant interest payment date. Ressources Québec Notes On March 5, 2018, we entered into a note purchase agreement pursuant to which we issued CAD$40 million (approximately USD$30.8 million at the time of the transaction) in aggregate principal amount of our Series 2018-A Senior Notes due May 1, 2021 (the “RQ Notes”) to Ressources Québec, a subsidiary of Investissment Québec, a financing arm of the Québec government. Because the RQ Notes are denominated in CAD, the reported USD-equivalent principal balance changes with movements in the exchange rate. The RQ Notes were issued at a discount of 0.58%, or CAD$0.2 million, and bear interest at a rate of 4.68% per year, payable on May 1 and November 1 of each year, commencing May 1, 2018. The RQ Notes are senior and unsecured and are pari passu in all material respects with the Senior Notes, including with respect to guarantees of the RQ Notes by certain of our subsidiaries. The net proceeds from the RQ Notes were required to be used for development and expansion of our Casa Berardi mine. During the nine months ended September 30, 2019 and 2018, interest expense related to the RQ Notes, including discount and origination fees, totaled $1.1 million for each period. Credit Facility In July 2018, we entered into a $250 million senior secured revolving credit facility which replaced our previous $100 million credit facility. The facility has a term ending on June 14, 2022, provided, however, that if we do not refinance our outstanding Senior Notes on or before November 1, 2020, the facility will terminate on November 1, 2020. In July 2019, we entered into an amendment to the credit facility to, among other things, change the leverage ratio covenant terms and temporarily reduce the amount available to be borrowed under the facility from $250 million to $150 million until the earlier of (i) our election to restore the amount available to $250 million following the fiscal quarter ending September 30, 2020 or (ii) our election to restore the amount available to $250 million by demonstrating two consecutive quarters of leverage ratio less than or equal to 4.00:1 beginning in the third quarter of 2019. As of September 30, 2019, the maximum leverage ratio in effect under the credit facility was 6.50:1, and drops to 6.00:1 for the fourth quarter of 2019. The credit facility is collateralized by the assets of or shares of common stock held in our material subsidiaries, including those owning the Casa Berardi mine and our Nevada operations, and by our joint venture interests holding 100% ownership of the Greens Creek mine, all of our rights and interests in the joint venture agreement, and all of our rights and interests in the assets of the joint venture. Below is information on the interest rates, standby fee, and financial covenant terms under our credit facility in place as of September 30, 2019:
Interest rates: |  |  |  |  |
Spread over the London Interbank Offer Rate |  | 2.25 | - | 4.00% |
Spread over alternative base rate |  | 1.25 | - | 2.25% |
Standby fee per annum on undrawn amounts |  | 0.50 | - | 1.00% |
Covenant financial ratios: |  |  |  |  |
Senior leverage ratio (debt secured by liens/EBITDA) (1) |  | not more than 2.50:1 |
Leverage ratio (total debt less unencumbered cash/EBITDA) (2) |  | not more than 6.50:1 |
Interest coverage ratio (EBITDA/interest expense) |  | not less than 3.00:1 |
(1) EBITDA is calculated as defined in the credit agreement. (2) The leverage ratio will change to not more than: (i) 6.00:1 as of October 1, 2019; (ii) 5.50:1 as of January 1, 2020; (iii) 5.00:1 as of April 1, 2020; and (iv) 4.00:1 as of July 1, 2020. We are also able to obtain letters of credit under the facility, and for any such letters we are required to pay a participation fee of between 2.25% and 3.25% of the amount of the letters of credit based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit. There were $38.5 million in letters of credit outstanding as of September 30, 2019. We believe we were in compliance with all covenants under the credit agreement, and had $50.0 million drawn under the agreement, in addition to the $38.5 million in letters of credit outstanding, as of September 30, 2019. Debt Summary As of September 30, 2019, the annual future obligations related to our debt, including interest, were (in thousands):
Twelve-month period ending September 30, |  | Senior Notes |  |  | RQ Notes |  |  | Revolving Credit Facility |  |  | Total |
2020 (interest and fees only) |  | $ | 34,822 |  |  | $ | 1,414 |  |  | $ | 219 |  |  | $ | 36,455 |
2021 (principal and interest) |  |  | 526,813 |  |  |  | 31,028 |  |  |  | — |  |  |  | 557,841 |
2022 (principal) |  |  | — |  |  |  |  |  |  |  | 50,000 |  |  |  | 50,000 |
Total |  |  | 561,635 |  |  |  | 32,442 |  |  |  | 50,219 |  |  |  | 644,296 |
Less: interest and fees |  |  | (55,135 | ) |  |  | (2,238 | ) |  |  | (219 | ) |  |  | (57,592 | )
Principal |  |  | 506,500 |  |  |  | 30,204 |  |  |  | 50,000 |  |  |  | 586,704 |
Less: unamortized discount |  |  | (2,086 | ) |  |  | — |  |  |  | — |  |  |  | (2,086 | )
Long-term debt |  | $ | 504,414 |  |  | $ | 30,204 |  |  | $ | 50,000 |  |  | $ | 584,618 |
Finance Leases We have entered into various lease agreements, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units, which we have determined to be finance leases. At September 30, 2019, the total liability balance associated with finance leases, including certain purchase option amounts, was $14.3 million, with $5.7 million of the liability classified as current and the remaining $8.6 million classified as non-current. At December 31, 2018, the total liability balance associated with finance leases was $13.1 million, with $5.3 million of the liability classified as current and $7.9 million classified as non-current. The right-of-use assets for our finance leases are recorded in properties, plants, equipment and mineral interests, net, on our condensed consolidated balance sheets and totaled $21.4 million as of September 30, 2019 and $20.0 million as of December 31, 2018, net of accumulated depreciation. Expense during the first nine months of 2019 related to finance leases included $5.1 million for amortization of the right-of-use assets and $0.6 million for interest expense. The total obligation for future minimum lease payments was $15.2 million at September 30, 2019, with $1.0 million attributed to interest. The weighted-average remaining lease term for our finance leases as of September 30, 2019 was approximately 1.9 years. At September 30, 2019, the annual maturities of finance lease commitments, including interest, were (in thousands):
Twelve-month period ending September 30, |  |  |  |
2020 |  | $ | 6,283 |
2021 |  |  | 5,125 |
2022 |  |  | 2,818 |
2023 |  |  | 1,017 |
Total |  |  | 15,243 |
Less: imputed interest |  |  | (968 | )
Net finance lease obligation |  | $ | 14,275 |
Operating Leases We have entered into various lease agreements, primarily for equipment, buildings and other facilities, and land at our operating units and corporate offices, which we have determined to be operating leases. Some of the operating leases allow for extension of the lease beyond the current term at our option. We have considered the likelihood and estimated duration of the extension options in determining the lease term for measurement of the liability and right-of-use asset. For our operating leases as of September 30, 2019, we have assumed discount rates of between 5% and 6.5%. At September 30, 2019, the total liability balance associated with the operating leases was $17.3 million, with $5.9 million of the liability classified as current and the remaining $11.5 million classified as non-current. The right-of-use assets for our operating leases are recorded as a non-current asset on our condensed consolidated balance sheets and totaled $17.3 million as of September 30, 2019. Lease expense on operating leases during the first nine months of 2019 totaled $5.7 million. The total obligation for future minimum operating lease payments, including assumed extensions beyond the current lease terms, was $17.4 million at September 30, 2019. The weighted-average remaining lease term for our operating leases as of September 30, 2019 was approximately 4.7 years. At September 30, 2019, the annual maturities of undiscounted operating lease payments, including assumed extensions beyond the current lease terms, were (in thousands):
Twelve-month period ending September 30, |  |  |  |
2020 |  | $ | 6,570 |
2021 |  |  | 3,629 |
2022 |  |  | 2,808 |
2023 |  |  | 2,250 |
2024 |  |  | 862 |
More than 5 years |  |  | 1,274 |
Total |  |  | 17,393 |
Effect of discounting |  |  | (63 | )
Operating lease liability |  | $ | 17,330 |

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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