7. Long-Term Debt

Long-term debt and short-term loans are summarized as follows:


	2018		2017
Bonds payable:
Senior notes, interest rate of 5.75%, maturing 2023	$	700,000,000	$	700,000,000
Recovery Zone Facility Bonds, maturing 2036		77,090,000		81,620,000
Outstanding line of credit, weighted average interest rate of 6.25% for 2018		—		—
Notes payable due to banks, weighted average interest rate of 3.68% for 2018 and 3.24% for 2017		94,535,898		103,471,449
Less unamortized prepaid loan costs		(6,038,125)		(7,221,134)
Total long-term debt		865,587,773		877,870,315
Less current portion		12,848,013		12,210,571
Long-term debt, net of current portion	$	852,739,760	$	865,659,744

In June 2013, the Company issued $700.0 million aggregate principal amount of senior notes due in 2023 (the “Notes”) in a private placement. The Notes bear an interest rate of 5.75% per annum and were issued at par. The Company filed a registration statement with the Securities and Exchange Commission and exchanged the private placement notes with registered notes.

The Company may redeem all or a portion of the Notes at any time on or after June 15, 2018 at the following redemption prices (expressed as percentages of the principal amount), if redeemed during the 12-month period beginning June 15 of the years indicated below:


Year
2018	102.875%
2019	101.917%
2020	100.958%
2021 and thereafter	100.000%

The Company has a $175.0 million line of credit (the “Line”) that matures in September 2022. The Line provides the Company with various interest rate options based on the prime rate, the Federal Funds Rate, or the London Interbank Offering Rate. The Line allows the Company to issue up to $20.0 million in unused letters of credit, of which $9.4 million of unused letters of credit were issued at September 29, 2018. The Company is not required to maintain compensating balances in connection with the Line. At September 29, 2018, the Company had no borrowing outstanding under the Line.

In December 2010, the Company completed the funding of $99.7 million of Recovery Zone Facility Bonds (the “Bonds”) for construction and equipping of an approximately 830,000 square foot new warehouse and distribution center to be located in Buncombe County, North Carolina (the “Project”). The final maturity date of the Bonds is January 1, 2036.

Under a Continuing Covenant and Collateral Agency Agreement (the “Covenant Agreement”) between certain financial institutions and the Company, the financial institutions would hold the Bonds until June 2021, subject to certain events. Mandatory redemption of the Bonds by the Company in the annual amount of $4.5 million began on January 1, 2014. During fiscal year 2018, the Covenant Agreement was amended to change certain terms and to extend the maturity to September 2026. The Company may redeem the Bonds without penalty or premium at any time prior to September 26, 2026.

Interest earned by bondholders on the Bonds is exempt from Federal and North Carolina income taxation. The interest rate on the Bonds is equal to one month LIBOR (adjusted monthly) plus a credit spread, adjusted to reflect the income tax exemption.

The Company’s obligation to repay the Bonds is collateralized by the Project. The Covenant Agreement incorporates substantially all financial covenants included in the Line.

The Notes, the Bonds and the Line contain provisions that under certain circumstances would permit lending institutions to terminate or withdraw their respective extensions of credit to the Company. Included among the triggering factors permitting the termination or withdrawal of the Line to the Company are certain events of default, including both monetary and non-monetary defaults, the initiation of bankruptcy or insolvency proceedings, and the failure of the Company to meet certain financial covenants designated in its respective loan documents. The Company was in compliance with all financial covenants related to the Notes, the Bonds and Line at September 29, 2018.

The Company’s long-term debt agreements generally have cross-default provisions which could result in the acceleration of payments due under the Company’s line of credit, Bond and Notes indenture in the event of default under any one instrument.

In September, 2017 the Company refinanced approximately $60 million secured borrowing obligations that were scheduled to mature in fiscal years 2018-2020 with a LIBOR-based floating rate loan maturing in October 2027. In December 2017, the Company entered into an interest rate swap contract to convert the variable interest rate on this loan to a fixed interest rate. The notional amount of the interest rate swap at inception was $58.5 million and declines each month by $0.5 million, consistent with the required principal payments of the loan. The interest rate swap has a fixed interest rate leg of 3.92% and a variable interest rate leg based on 1-month LIBOR.

The Company will recognize any differences between the variable interest rate payments and the fixed interest rate settlements with the swap counterparties as an adjustment to interest expense over the life of the swap. The Company has designated the swap as a cash flow hedge and recognizes the unrealized gains or unrealized losses as either assets or liabilities at fair value on its Consolidated Balance Sheets. As of September 29, 2018, the fair value changes of the interest rate swap was not material.

To the extent the interest rate swap is determined to be ineffective, the Company recognizes the changes in the estimated fair value of the swap in earnings. For the year ended September 28, 2018, there was no ineffectiveness recognized in earnings.

Failure of the swap counterparty to make payments would result in the loss of any potential benefit to the Company under the swap agreement. In this case, the Company would still be obligated to pay the variable interest payments underlying the debt agreements. Additionally, failure of the swap counterparty would not eliminate the Company’s obligation to continue to make payments under the existing swap agreement if it continues to be in a net pay position.

At September 29, 2018, property and equipment with an undepreciated cost of approximately $207 million was pledged as collateral for long-term debt. Long-term debt and Line agreements contain various restrictive covenants requiring, among other things, minimum levels of net worth and maintenance of certain financial ratios. In addition, certain loan agreements containing provisions outlining minimum tangible net worth requirements restrict the ability of the Company to pay cash dividends in excess of the current annual per share dividends paid on the Company’s Class A and Class B Common Stock. Further, the Company is prevented from paying cash dividends at any time that it is in default under the indenture governing the Notes. In addition, the terms of the indenture may restrict the ability of the Company to pay additional cash dividends based on certain financial parameters.

Components of interest costs are as follows:


	2018		2017		2016
Total interest costs	$	48,707,921	$	48,675,895	$	47,807,738
Interest capitalized		(1,138,218)		(1,217,862)		(1,477,434)
Interest expense	$	47,569,703	$	47,458,033	$	46,330,304

Maturities of long-term debt at September 29, 2018 are as follows:


Fiscal Year
2019	$	14,130,664
2020		14,286,665
2021		14,453,256
2022		14,625,277
2023		714,804,840
Thereafter		99,325,196
Less unamortized prepaid loan costs		(6,038,125)
Total	$	865,587,773