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Debt
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Mar. 31, 2012
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| Debt |
Note 9. Debt Long-term debt consists of the following (in thousands):
As of March 31, 2012, the Company was in compliance with the respective covenants of its outstanding indebtedness. Senior Secured Notes As disclosed in Note 4 “Acquisitions”, concurrent with the Acquisition, Polymer issued $560.0 million of 7.75% senior secured notes due 2019. The Senior Secured Notes are fully, unconditionally and jointly and severally guaranteed on a senior secured basis by each of Polymer’s wholly-owned domestic subsidiaries (see Note 22 “Financial Guarantees and Condensed Consolidating Financial Statements” for further information). Furthermore, the indenture governing the Senior Secured Notes (the “Indenture”), among other restrictions, limits the Company’s ability and the ability of the Company’s restricted subsidiaries to: (i) incur or guarantee additional debt or issue disqualified stock or preferred stock; (ii) pay dividends and make other distributions on, or redeem or repurchase, capital stock; (iii) make certain investments; (iv) repurchase stock; (v); incur certain liens; (vi) enter into transactions with affiliates; (vii) merge or consolidate; (viii) enter into agreements that restrict the ability of subsidiaries to make dividends or other payments to Polymer; (ix) designate restricted subsidiaries as unrestricted subsidiaries; and (x) transfer or sell assets. Subject to certain exceptions, the Indenture permits the Company and its restricted subsidiaries to incur additional indebtedness, including senior indebtedness and secured indebtedness. The Indenture also does not limit the amount of additional indebtedness that Parent or Holdings may incur. Under the Indenture governing our Senior Secured Notes and under the credit agreement governing our ABL Facility (discussed below), our ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by our ability to satisfy tests based on Adjusted EBITDA. The Company defines “Adjusted EBITDA” as net income (loss) before interest expense (net of interest income), income and franchise taxes and depreciation and amortization, further adjusted to exclude certain unusual, non-cash, non-recurring and other items permitted in calculating covenant compliance under the Indenture and the credit agreement governing our ABL Facility. ABL Facility As disclosed in Note 4 “Acquisitions”, concurrent with the Acquisition, Polymer entered into a senior secured asset-based revolving credit facility to provide for borrowings not to exceed $50.0 million, subject to borrowing base availability, with a maturity of four years. The ABL Facility provides borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as swing line loans. The ABL Facility is comprised of (i) a revolving tranche of up to $42.5 million (the “Tranche 1 Sub-Facility”) and (ii) a first-in, last out revolving tranche of up to $7.5 million (the “Tranche 2 Sub-Facility”). Based on current borrowing base availability, the borrowings under the ABL Facility will bear interest at a rate per annum equal to, at our option, either (A) Adjusted London Interbank Offered Rate (“LIBOR”) (adjusted for statutory reserve requirements) plus (i) 3.50% in the case of the Tranche 1 Sub-Facility or (ii) 5.50% in the case of the Tranche 2 Sub-Facility; or (B) the higher of (a) the administrative agent’s Prime Rate and (b) the federal funds effective rate plus 0.5% plus (x) 2.50% in the case of the Tranche 1 Sub-Facility or (y) 4.50% in the case of the Tranche 2 Sub-Facility. The ABL Facility contains certain customary representations and warranties, affirmative covenants and events of default, including among other things payment defaults, breach of representations and warranties, covenant defaults, cross-defaults and cross acceleration to certain indebtedness, bankruptcy and insolvency defaults, certain events under ERISA, certain monetary judgment defaults, invalidity of guarantees or security interests, and change of control. If such an event of default occurs, the lenders under the ABL Facility would be entitled to take various actions, including the acceleration of amounts due under the ABL Facility and all actions permitted to be taken by a secured creditor. As of March 31, 2012, the Company had no borrowings under the ABL Facility. Further, as of March 31, 2012, the borrowing base availability was $34.6 million and since the Company had outstanding letters of credit of $10.9 million, the resulting net availability under the ABL Facility was $23.7 million. The aforementioned letters of credit were primarily provided to certain administrative service providers and financial institutions. None of these letters of credit had been drawn on as of March 31, 2012. Short-term Borrowings In the first quarter of 2012, the Company entered into a short-term credit facility to finance insurance premium payments. The outstanding indebtedness under this short-term borrowing facility was $1.4 million as of March 31, 2012. This facility has an interest rate of 2.63% and matures at various dates through October 1, 2012. Borrowings under this facility are included in Short-term borrowings in the Consolidated Balance Sheets. Subsidiary Indebtedness Argentina Indebtedness Short-term borrowings The Company’s subsidiary in Argentina entered into short-term credit facilities to finance working capital requirements. The outstanding indebtedness under these short-term borrowing facilities was $3.0 million and $5.0 million as of March 31, 2012 and December 31, 2011, respectively. These facilities mature at various dates through December 2012. As of March 31, 2012 and December 31, 2011, the weighted average interest rate on these borrowings was 3.87% and 3.00%, respectively. Borrowings under these facilities are included in Short-term borrowings in the Consolidated Balance Sheets. Long-term borrowings In January 2007, the Company’s subsidiary in Argentina entered into an arrangement (the “Argentina Credit Facility”) with a banking institution in Argentina to finance the installation of a new spunmelt line at its facility near Buenos Aires, Argentina. The maximum borrowings available under the Argentina Credit Facility, excluding any interest added to principal, were 33.5 million Argentine pesos with respect to an Argentine peso-denominated loan and $26.5 million with respect to a U.S. dollar-denominated loan and are secured by pledges covering (i) the subsidiary’s existing equipment lines; (ii) the outstanding stock of the subsidiary; and (iii) the new machinery and equipment being purchased, as well as a trust assignment agreement related to a portion of receivables due from certain major customers of the subsidiary. As of March 31, 2012 and December 31, 2011, the face amount of the outstanding indebtedness was approximately $14.7 million and $15.5 million, respectively, consisting of the U.S. dollar-denominated loan. Concurrent with the Acquisition, the Company repaid and terminated the Argentine peso-denominated loans. As a part of the Acquisition purchase accounting process, the Company adjusted the recorded book value of the outstanding Argentina Credit Facility indebtedness that existed as of January 28, 2011 to its fair market value as of that date. As a result, the Company recorded a purchase accounting adjustment that created a contra-liability of $0.63 million and similarly reduced goodwill as of the opening balance sheet date. The Company is amortizing the contra-liability over the remaining term of the loan and including the amortization expense in Interest expense, net in the Consolidated Statements of Operations. The unamortized contra-liability of $0.5 million is included in Long-term debt in the March 31, 2012 Consolidated Balance Sheet. Accordingly, as of March 31, 2012, $14.2 million is the carrying amount of the Argentina Credit Facility.
The interest rate applicable to borrowings under these term loans is based on LIBOR plus 290 basis points for the U.S. dollar-denominated loan and Buenos Aires Interbanking Offered Rate plus 475 basis points for the Argentine peso-denominated loan. Principal and interest payments began in July 2008 with the loans maturing as follows: annual amounts of approximately $3.5 million beginning in 2011 and continuing through 2015, and the remaining $1.7 million in 2016. Suzhou Credit Facility In the third quarter of 2010, the Company’s subsidiary in Suzhou, China entered into a three-year U.S. dollar denominated construction loan arrangement (the “Suzhou Credit Facility”) with a banking institution in China to finance a portion of the installation of the new spunmelt line at its manufacturing facility in Suzhou, China. The maximum borrowings available under the Suzhou Credit Facility, excluding any interest added to principal, amounts to $20.0 million. As of March 31, 2012, we had borrowed $20.0 million under the Suzhou Credit Facility. The three-year term of the agreement began with the date of the first draw down on the Suzhou Credit Facility, which occurred in fourth quarter of fiscal 2010. The Company was not required to pledge any security for the benefit of the Suzhou Credit Facility. The interest rate applicable to borrowings under the Suzhou Credit Facility is based on three-month LIBOR plus an amount to be determined at the time of funding based on the lender’s internal head office lending rate (400 basis points at the time the credit agreement was executed), but in no event would the interest rate be less than one-year LIBOR plus 250 points. The Company is obligated to repay $4.0 million of the principal balance in the fourth quarter of 2012, with the remaining $16.0 million to be repaid in the fourth quarter of 2013. As of March 31, 2012 and December 31, 2011, the outstanding balance under the Suzhou Credit Facility was $20.0 million. Other Subsidiary Indebtedness As of March 31, 2012 and December 31, 2011, the Company also had other documentary letters of credit not associated with the ABL Facility in the amount of $7.2 million and $4.4 million, respectively, which was primarily provided to certain raw material vendors. None of these letters of credit had been drawn on as of either March 31, 2012 or December 31, 2011. |
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