8. Borrowing Arrangements

CBIZ had two primary debt arrangements at December 31, 2014 that provide the Company with the capital necessary to meet its working capital needs as well as the flexibility to continue with its strategic initiatives, including business acquisitions and share repurchases: the 4.875% 2010 Convertible Senior Subordinated Notes (“2010 Notes”) in an aggregate outstanding principal amount of $97.6 million and a $400.0 million unsecured credit facility (the “credit facility”). A third debt arrangement, the 2006 Convertible Senior Subordinated Notes (“2006 Notes”), has been significantly reduced as a result of the repurchase of most of the outstanding 2006 Notes in 2010 and 2011 as is discussed more fully below.

2010 Convertible Senior Subordinated Notes

On September 27, 2010, CBIZ sold and issued $130.0 million of 2010 Notes to qualified institutional buyers pursuant to Rule 144A of the Securities Act of 1933, as amended. The 2010 Notes are direct, unsecured, senior subordinated obligations of CBIZ and rank (i) junior in right of payment to all of CBIZ’s existing and future senior indebtedness, (ii) equal in right of payment with any other future senior subordinated indebtedness, and (iii) senior in right of payment to all existing and future obligations, if any, that are designated as subordinated to the 2010 Notes. In connection with the issuance and sale of the 2010 Notes, CBIZ entered into an indenture (the “2010 Indenture”) dated as of September 27, 2010, with U.S. Bank National Association as trustee.

The terms of the 2010 Notes are governed by the 2010 Indenture. The 2010 Notes bear interest at a rate of 4.875% per annum, payable in cash semi-annually in arrears on April 1 and October 1 beginning April 1, 2011. The 2010 Notes mature on October 1, 2015 unless earlier redeemed, repurchased or converted. The holders of the 2010 Notes may convert their 2010 Notes beginning July 31, 2015, or earlier if the market price per share of CBIZ common stock exceeds 135% of the conversion price for at least 20 days during the period of 30 consecutive trading days ending on the final trading day of the preceding quarter. The 2010 Notes are convertible into CBIZ common stock at a rate equal to 134.9255 shares per $1,000 principal amount of the 2010 Notes (equal to an initial conversion price of approximately $7.41 per share), subject to adjustment as described in the 2010 Indenture. Upon conversion, CBIZ will deliver for each $1,000 principal amount of 2010 Notes, an amount consisting of cash equal to the lesser of $1,000 or the conversion value (as defined in the 2010 Indenture) and, to the extent that the conversion value exceeds $1,000, at CBIZ’s election or as required by the rules of the New York Stock Exchange, cash or shares of CBIZ common stock in respect to the remainder.

If CBIZ undergoes a “fundamental change” (as defined in the 2010 Indenture), holders of the 2010 Notes will have the right, subject to certain conditions, to require CBIZ to repurchase for cash all or a portion of their 2010 Notes at a repurchase price equal to 100.0% of the principal amount of the 2010 Notes to be repurchased plus accrued and unpaid interest, including additional amounts, if any.

During the year ended December 31, 2014, the Company paid cash of $30.6 million and issued 1.5 million shares of CBIZ common stock in exchange for retiring $32.4 million of its outstanding $130.0 million 2010 Notes in privately negotiated transactions. Notes repurchased are deemed to be extinguished.

The carrying amount of the 2010 Notes at December 31, 2014 and 2013 was as follow (in thousands):


	2014			2013
Principal amount of notes	$	97,650		$	130,000
Unamortized discount		(1,831	)		(5,494	)

Net carrying amount	$	95,819		$	124,506

The discount on the liability component of the 2010 Notes is being amortized using the effective interest method based upon an annual effective rate of 7.5%, which represented the market rate for similar debt without a conversion option at the issuance date. The discount is being amortized over the term of the 2010 Notes which is five years from the date of issuance. At December 31, 2014, the unamortized discount had a remaining amortization period of approximately 9 months.

At December 31, 2014 and 2013, the 2010 Notes were classified as a non-current liability. The 2010 Notes mature on October 1, 2015 and it is Management’s intention to retire the 2010 Notes during the year ended December 31, 2015 with the amounts available under the credit facility. In addition, the Company may repurchase additional 2010 Notes in privately negotiated transactions.

2006 Convertible Senior Subordinated Notes

On May 30, 2006, CBIZ sold and issued $100.0 million in convertible senior subordinated notes. These 2006 Notes are direct, unsecured, senior subordinated obligations of CBIZ and rank (i) junior in right of payment to all of CBIZ’s existing and future senior indebtedness, (ii) equal in right of payment with any other future senior subordinated indebtedness, and (iii) senior in right of payment to all subordinated indebtedness. The 2006 Notes bear interest at a rate of 3.125% per annum, payable in cash semi-annually in arrears on each June 1 and December 1. The 2006 Notes are convertible into CBIZ common stock at a rate equal to 94.1035 shares per $1,000 principal amount of the 2006 Notes (equal to an initial conversion price of approximately $10.63 per share), subject to adjustment as described in the 2006 Indenture.

On September 27, 2010, concurrent with the closing of the 2010 Notes, CBIZ repurchased $60.0 million of the 2006 Notes at par through privately negotiated transactions. On June 1, 2011, the note holders provided notice to the Company to redeem an additional $39.3 million of the 2006 Notes. The 2006 Notes were settled in cash for the principal amount and any accrued and unpaid interest. The remaining $750,000 of 2006 Notes may be redeemed by CBIZ at any time until the due date of June 1, 2026. At December 31, 2014 and 2013, the 2006 Notes were classified as a non-current liability since the remaining note holders cannot cause the redemption of their notes until June 1, 2016. It is Management’s intention to retire the remaining $750,000 of the 2006 Notes during the year ended December 31, 2015 with the amounts available under the credit facility.

The carrying amount of the 2006 Notes at December 31, 2014 and 2013 was as follow (in thousands):


	2014		2013
Principal amount of notes	$	750	$	750
Unamortized discount		—		—

Net carrying amount	$	750	$	750

For the years ended December 31, 2014 and 2013, CBIZ recognized interest expense on the 2010 Notes and the 2006 Notes as follows (in thousands):


	2014		2013
Contractual coupon interest	$	5,719	$	6,361
Amortization of discount		2,728		2,840
Amortization of deferred financing costs		644		720

Total interest expense	$	9,091	$	9,921

Bank Debt

On July 28, 2014, CBIZ replaced its $275.0 million unsecured credit facility with a new $400.0 million unsecured credit facility (the “credit facility”) with Bank of America, N.A., as agent for a group of eight participating banks. The credit facility will provide the Company with the continued ability to grow through strategic acquisitions and the flexibly to refinance the 2010 Notes. In addition, the new credit facility will enable the Company to lower borrowing costs and simplify its capital structure. The new credit facility will expire in July 2019. The balance outstanding under the then-applicable credit facility was $107.4 million and $48.5 million at December 31, 2014 and December 31, 2013, respectively. Rates for the years ended December 31, 2014 and 2013 were as follows:


	2014		2013
Weighted average rates		2.44%		2.99%

Range of effective rates		1.87% - 4.00%		1.88% - 3.91%

CBIZ had approximately $185.0 million of available funds under the credit facility at December 31, 2014. Available funds under the credit facility are based on a multiple of earnings before interest, taxes, depreciation and amortization as defined in the credit facility, and are reduced by letters of credit and outstanding borrowings on the credit facility. Under the credit facility, loans are charged an interest rate consisting of a base rate or Eurodollar rate plus an applicable margin, letters of credit are charged based on the same applicable margin, and a commitment fee is charged on the unused portion of the credit facility.

Management’s intention is to retire the 2010 and 2006 Notes during the year ended December 31, 2015 with the amounts available under the credit facility. In addition, the Company may repurchase additional 2010 Notes in privately negotiated transactions.

The credit facility provides CBIZ operating flexibility and funding to support seasonal working capital needs and other strategic initiatives such as acquisitions and share repurchases. The credit facility is subject to certain financial covenants that may limit CBIZ’s ability to borrow up to the total commitment amount. Covenants require CBIZ to meet certain requirements with respect to (i) a total leverage ratio and (ii) minimum fixed charge coverage ratio. As of December 31, 2014, CBIZ believes it is in compliance with its debt covenants. The credit facility also places restrictions on CBIZ’s ability to create liens or other encumbrances, to make certain payments, investments, loans and guarantees and to sell or otherwise dispose of a substantial portion of assets, or to merge or consolidate with an unaffiliated entity. According to the terms of the credit facility, CBIZ is not permitted to declare or make any dividend payments, other than dividend payments made by one of its wholly-owned subsidiaries to the parent company. The credit facility contains a provision that, in the event of a defined change in control, the credit facility may be terminated.