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DEBT | 9 Months Ended
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Sep. 30, 2020
Debt Disclosure [Abstract] |
DEBT | DEBT Our debt consisted of the following at September 30, 2020:
| September 30, 2020
Debt, excluding Timber Funds: |
Term Credit Agreement borrowings due 2028 at a variable interest rate of 1.8% at September 30, 2020 (a) | $350,000 |
Senior Notes due 2022 at a fixed interest rate of 3.75% | 325,000 |
Incremental Term Loan Agreement borrowings due 2026 at a variable interest rate of 2.1% at September 30, 2020 (b) | 300,000 |
2020 Incremental Term Loan Facility borrowings due 2025 at a variable interest rate of 2.0% at September 30, 2020 (c) | 250,000 |
Revolving Credit Facility borrowings due 2025 at an average variable interest rate of 1.7% at September 30, 2020 | 20,000 |
New Zealand subsidiary noncontrolling interest shareholder loan due 2025 at a fixed interest rate of 2.95% | 22,735 |
Northwest Farm Credit Services Credit Facility with quarterly interest-only payments, collateralized by Core Timberlands, with the following tranches (d) |
Due 2025 at a fixed interest rate of 6.1% | 11,690 |
Due 2028 at a fixed interest rate of 4.1% | 12,052 |
Due 2033 at a fixed interest rate of 5.3% | 19,497 |
Due 2036 at a fixed interest rate of 5.4% | 9,898 |
Total debt, excluding Timber Funds | 1,320,872 |
Less: Deferred financing costs, excluding Timber Funds | (2,667) |
Long-term debt, net of deferred financing costs, excluding Timber Funds | 1,318,205 |
Debt, Timber Funds: |
Fund II Mortgages Payable, collateralized by Fund II timberlands with quarterly interest payments, as follows: (d) |
Due 2022 at a fixed interest rate of 2.0% (e) | 11,000 |
Due 2022 at a fixed interest rate of 2.0% (e) | 14,000 |
Fund III Mortgages Payable, collateralized by Fund III timberlands with quarterly interest payments, as follows (d): |
Due 2023 at a fixed interest rate of 5.1% | 19,695 |
Due 2024 at a fixed interest rate of 4.5% | 15,708 |
Total debt, Timber Funds | 60,403 |
Less: Deferred financing costs, Timber Funds | (12) |
Long-term debt, net of deferred financing costs, Timber Funds | 60,391 |
Long-term debt, net of deferred financing costs | $1,378,596 |
(a) As of September 30, 2020, the periodic interest rate on the term credit agreement (the “Term Credit Agreement”) was LIBOR plus 1.600%. We estimate the effective fixed interest rate on the term loan facility to be approximately 3.2% after consideration of interest rate swaps and estimated patronage refunds. (b) As of September 30, 2020, the periodic interest rate on the incremental term loan (the “Incremental Term Loan Agreement”) was LIBOR plus 1.900%. We estimate the effective fixed interest rate on the incremental term loan facility to be approximately 2.8% after consideration of interest rate swaps and estimated patronage refunds. (c) As of September 30, 2020, the periodic interest rate on the 2020 incremental term loan (the “2020 Incremental Term Loan Facility”) was LIBOR plus 1.850%. We estimate the effective fixed interest rate on the incremental term loan facility to be approximately 2.3% after consideration of interest rate swaps and estimated patronage refunds. (d) See the section below labeled “Long-Term Debt Assumed in the Pope Resources Merger” for additional details. (e) Beginning January 1, 2021, this will transition from a fixed to a variable interest rate of 3-month LIBOR plus 1.700%. Principal payments due during the next five years and thereafter are as follows:
| Excluding Timber Funds | Timber Funds | Total
2020 | — |  | — |  | — |
2021 | — |  | — |  | — |
2022 | 325,000 |  | 25,000 |  | 350,000 |
2023 | — |  | 17,980 |  | 17,980 |
2024 | — |  | 14,400 |  | 14,400 |
Thereafter | 987,735 |  | — |  | 987,735 |
Total Debt | $1,312,735 |  | $57,380 |  | $1,370,115 |
2020 DEBT ACTIVITY U.S. Debt — Excluding Timber Funds On April 1, 2020, we entered into a Second Amendment to Credit Agreement to increase the limit on our Revolving Credit Facility from $200 million to $250 million and extend its maturity date from August 5, 2020 to April 1, 2025. Additionally, the maturity date of the Term Credit Agreement was extended from August 5, 2024 to April 1, 2028. In connection herewith, we recorded deferred financing costs in the amount of $0.5 million which are being amortized over the term of the Term Credit Agreement. On April 13, 2020, we entered into an Accordion Increase Agreement to further increase the limit on the Revolving Credit Facility from $250 million to $300 million. In connection herewith, we recorded deferred financing costs in the amount of $1.2 million which are being amortized over the term of the Revolving Credit Facility. On April 16, 2020, we entered into a Third Amendment and Incremental Term Loan Agreement, which provided for the advancement of a five-year $250 million senior unsecured incremental term loan facility. In connection herewith, we recorded deferred financing costs in the amount of $0.8 million which are being amortized over the term of the 2020 Incremental Term Loan Facility. The proceeds from the 2020 Incremental Term Loan Facility were used to fund our acquisition of Pope Resources. During the nine months ended September 30, 2020, we made borrowings of $70.0 million and repayments of $132.0 million on our Revolving Credit Facility. At September 30, 2020, we had available borrowings of $279.1 million under the Revolving Credit Facility, net of $0.9 million to secure our outstanding letters of credit. U.S. Debt — Timber Funds On September 1, 2020, we entered into an agreement to extend the maturity date of the Fund II Mortgages Payable from September 2020 to September 2022. Additionally, the fixed interest rates on both the $11 million tranche and the $14 million tranche were changed to 2.0%, from 4.9% and 3.8%, respectively. Beginning January 1, 2021, this fixed rate will transition to a variable rate of 3-month LIBOR plus 1.700%. New Zealand In June 2020, the New Zealand subsidiary renewed its NZ$20 million working capital facility for an additional 12-month term. During the nine months ended September 30, 2020, the New Zealand subsidiary made no borrowings or repayments on its working capital facility. At September 30, 2020, the New Zealand subsidiary had NZ$20.0 million of available borrowings under its working capital facility. In September 2020, the New Zealand subsidiary made a capital distribution to its partners on a pro rata basis in order to redeem certain equity interests. A portion of this capital distribution was reinvested by the partners in shareholder loans to the New Zealand subsidiary. Our capital distribution and portion of the shareholder loan are eliminated in consolidation. The capital distribution to the minority shareholder and its reinvestment in the shareholder loan resulted in the recording of a noncontrolling interest share redemption of $5.1 million and a loan payable by the New Zealand subsidiary in the amount of $23.3 million due in 2025 at a fixed interest rate of 2.95%. As of September 30, 2020, the outstanding balance on the shareholder loan is $22.7 million. See Note 5 — Noncontrolling Interests for more information regarding the New Zealand subsidiary. LONG-TERM DEBT ASSUMED IN THE POPE RESOURCES MERGER Northwest Farm Credit Services Credit Facility We assumed five tranches of a credit facility payable to Northwest Farm Credit Services (the “NWFCS Credit Facility”) totaling $45.0 million. Quarterly payments of interest only are due on the NWFCS Credit Facility through the respective maturity of each tranche. The NWFCS Credit Facility is collateralized by a portion of the Pacific Northwest timberlands acquired in the merger with Pope Resources. The NWFCS Credit Facility allows us to receive annual patronage payments, which are profit distributions made by a cooperative to its member-users based on the quantity or value of business done with the member-user. The pertinent details of each tranche of the NWFCS Credit Facility we assumed are as follows:
Tranche | Stated Fixed Interest Rate |  | Effective Fixed Interest Rate (a) |  | Stated Principal Amount |  | Est. Fair Value at Merger Date (b)
Tranche 2 (Due 2025) | 6.1 | % |  | 4.8 | % |  | $10,000 |  |  | $11,838 |
Tranche 4 (Due 2028) | 4.1 | % |  | 3.1 | % |  | 11,000 |  |  | 12,108 |
Tranches 6 & 7 (Due 2033) | 5.3 | % |  | 4.2 | % |  | 16,000 |  |  | 19,609 |
Tranche 8 (Due 2036) | 5.4 | % |  | 4.3 | % |  | 8,000 |  |  | 9,947 |
Total NWFCS Credit Facility assumed |  |  |  |  | $45,000 |  |  | $53,502 |
(a)Estimated effective fixed interest rates as of September 30, 2020 after consideration of estimated patronage refunds. (b)The fair market value premium will be amortized as a benefit to interest expense over the maturity term of each tranche. Fund II Mortgage Payable We assumed Fund II's two mortgages payable (the “Fund II Mortgages Payable”) to MetLife totaling $25.0 million. Quarterly payments of interest only are due on the Fund II Mortgages Payable through their respective maturities. The Fund II Mortgages Payable are collateralized by Fund II Timberlands and do not have any recourse to the Company or the Operating Partnership. The pertinent details of the Fund II Mortgages Payable are as follows:
Maturity Date |  | Stated Fixed Interest Rate (a) |  | Stated Principal Amount |  | Est. Fair Value at Merger Date (b)
September 2022 |  | 2.0 | % |  | $11,000 |  |  | $11,061 |
September 2022 |  | 2.0 | % |  | 14,000 |  |  | 14,023 |
|  |  |  | $25,000 |  |  | $25,084 |
(a)Beginning January 1, 2021, this will transition from a fixed to a variable interest rate of 3-month LIBOR plus 1.700%. (b)The fair market value premium has been amortized as a benefit to interest expense over the original maturity term of each mortgage. Fund III Mortgage Payable We assumed Fund III’s two mortgages payable (the “Fund III Mortgages Payable”) to NWFCS totaling $32.4 million. Quarterly payments of interest only are due on the Fund III Mortgages Payable through their respective maturities. The Fund III Mortgages Payable are collateralized by Fund III Timberlands and do not have any recourse to the Company or the Operating Partnership. The pertinent details of the Fund III Mortgages Payable are as follows:
Maturity Date |  | Stated Fixed Interest Rate |  | Effective Fixed Interest Rate (a) |  | Stated Principal Amount |  | Est. Fair Value at Merger Date (b)
December 2023 |  | 5.1 | % |  | 3.9 | % |  | $17,980 |  |  | $19,915 |
October 2024 |  | 4.5 | % |  | 3.2 | % |  | 14,400 |  |  | 15,844 |
|  |  |  |  |  | $32,380 |  |  | $35,759 |
(a)Estimated effective fixed interest rates as of September 30, 2020 after consideration of estimated patronage refunds. (b)The fair market value premium will be amortized as a benefit to interest expense over the maturity term of each mortgage. DEBT COVENANTS — EXCLUDING TIMBER FUNDS In connection with our $350 million Term Credit Agreement, $300 million Incremental Term Loan Agreement, $250 million 2020 Incremental Term Loan Agreement and $300 million Revolving Credit Facility, customary covenants must be met, the most significant of which include interest coverage and leverage ratios. The covenants listed below, which are the most significant financial covenants in effect as of September 30, 2020, are calculated on a trailing 12-month basis:
| Covenant Requirement |  | Actual Ratio |  | Favorable
Covenant EBITDA to consolidated interest expense should not be less than | 2.5 to 1 |  | 9.42 to 1 |  | 6.92
Covenant debt to covenant net worth plus covenant debt shall not exceed | 65 | % |  | 48 | % |  | 17 | %
In connection with our $45 million NWFCS Credit Facility, customary covenants must be met, the most significant of which include interest coverage and debt-to-capitalization ratios. The covenants listed below, which are the most significant financial covenants in effect as of September 30, 2020, are calculated on a trailing 12-month basis:
| Covenant Requirement |  | Actual Ratio |  | Favorable
Covenant loan-to-appraised value shall not exceed | 50% |  | 11% |  | 39 | %
Covenant EBITDA to consolidated interest expense should not be less than | 2.5 to 1 |  | 9.42 to 1 |  | 6.92
Covenant debt to covenant net worth plus covenant debt shall not exceed | 65 | % |  | 48 | % |  | 17 | %
In addition to these financial covenants listed above, the 2022 Notes, Term Credit Agreement, Incremental Term Loan Agreement, 2020 Incremental Term Loan Facility, Revolving Credit Facility, and NWFCS Credit Facility include customary covenants that limit the incurrence of debt and the disposition of assets, among others. At September 30, 2020, we were in compliance with all applicable covenants. DEBT COVENANTS — TIMBER FUNDS The Fund II Mortgages Payable to MetLife contains a requirement to maintain a loan-to-value ratio of less than 50%, with the denominator defined as fair market value of the timberland pledged as collateral. The Fund III Mortgages Payable to NWFCS contain a requirement to maintain a minimum interest coverage ratio of 1.5:1, minimum working capital of $500,000, and a loan-to-value ratio of less than 50%, with the denominator defined as fair market value. Both Timber Funds are in compliance with their respective debt covenants as of September 30, 2020.

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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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