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BORROWINGS | 3 Months Ended
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Mar. 31, 2013
BORROWINGS |
4. | BORROWINGS
Bank Loans and Overdraft Facilities As of March 31, 2013, the Company had outstanding liability of € 30.4 million ($39.0 million) from the term loans from Alfa-Bank, Bank Zenit and Raiffeisenbank drawn by Whitehall:
| • |  | The loan agreement with Alfa-Bank, dated July 22, 2008, matures on October 18, 2014. The credit limit under this agreement is €20.0 million ($25.6 million). This loans has financial covenants that need to be met. The loan as of March 31, 2013 consists of sixteen open tranches released between October 12, 2012 and February 28, 2013, and are repayable between April 12, 2013 and October 28, 2013. As of March 31, 2013, the Company had outstanding liability of €19 million ($24.4 million) from this term loan. Further repayments were made after the balance sheet date. Only a quarter of the limit is currently utilized.
| • |  | The loan agreement with Bank Zenit, dated August 16, 2012, matures on April 25, 2014. The credit limit under this agreement is €10.0 million ($12.8 million). This loan has financial covenants that need to be met. The loan as of March 31, 2013 consists of three open tranches released between January 28, 2013 and March 11, 2013, and are repayable between October 25, 2013 and March 7, 2014. As of March 31, 2013, the Company had outstanding liability of €6.4 million ($8.2 million) from this term loan. Further repayments were made after the balance sheet date. Only a half of the limit is currently utilized.
| • |  | The loan agreement with Raiffeisenbank, dated October 26, 2012, matures on September 30, 2013. The credit limit under this agreement is €5.0 million ($6.4 million). This loan has financial covenants that need to be met. The loan as of March 31, 2013 consists of four open tranches released between October 29, 2012 and November 20, 2012, and are repayable on September 30, 2013. As of March 31, 2013, the Company had outstanding liability of €5.0 million ($6.4 million) from this term loan.
The aforementioned loans drawn by Whitehall are guaranteed by Whitehall companies. The loan agreement with Alfa-Bank and with Bank Zenit are secured by the Whitehall’s inventory. As of March 31, 2013, the Company had outstanding term loans including accrued interest of 1,251 million Russian rubles ($40.3 million) from Grand Invest Bank, Sberbank and Russian Standard bank drawn by Russian Alcohol Group.
| • |  | The loan agreement with Grand Invest Bank, dated November 25, 2011, matures on November 23, 2013. As of March 31, 2013, the Company has outstanding liability of 110 million Russian rubles ($3.5 million) from this term loan. This loan has the turnover clauses that need to be met. It was fully repaid after the balance sheet date.
| • |  | The second loan agreement with Grand Invest Bank, dated December 19, 2012, matures on November 22, 2013. As of March 31, 2013, the Company has outstanding liability of 150 million Russian rubles ($4.9 million) from this term loan. This loan has the turnover clauses that need to be met. It was fully repaid after the balance sheet date.
| • |  | The loan agreement with Sberbank dated November 23, 2012, matures on November 22, 2013. As of March 31, 2013 outstanding debt is 520 (521.4 including accrued interest) million Russian rubles ($16.8 million). This loan is secured by equipment, inventory and pledge on real estate. This loan has turnover clauses and financial covenants that need to be met.
| • |  | The related party loan agreement with Russian Standard Bank dated February 27, 2013, matures on February 27, 2014. As of March 31, 2013 outstanding debt is 465 (469.7 including accrued interest) million Russian rubles ($15.1 million). This loan is secured by pledge of rights of claims. There are no financial covenants related to this loan.
As of March 31, 2013, Bols Hungary had an overdraft facility dated August 2, 2012, maturing on August 1, 2013. The credit limit under this agreement is 500 million Hungarian forint ($2.1 million). As of March 31, 2013, the loan was utilized in the amount 350.1 million Hungarian forint ($1.5 million). The loan is secured by inventory and receivables. Bank loans and overdraft facilities include $0.8 million of interest on RTL Credit facility. Refer to Note 9 “Related Party Transactions”. Following loan agreements were closed during the quarter ended March 31, 2013:
| • |  | Loan agreements with Alfa Bank - in the amount of 724 million Russian rubles ($23.3 million) repaid together with all interest accrued;
| • |  | Loan agreement with Moscow Credit Bank - in the amount of 900 million Russian rubles (29.0 million) repaid together with all interest accrued;
| • |  | Overdraft facility with Nomos-Bank;
| • |  | Overdraft facility with Sberbank.
Convertible Senior Notes (the “CSN”) On March 7, 2008, the Company completed the issuance of $310 million aggregate principal amount of 3% Convertible Senior Notes due 2013 with an interest due semi-annually on the 15th of March and September, beginning on September 15, 2008. The CSN were to be convertible in certain circumstances into cash and, if applicable, shares of our common stock, based on an initial conversion rate of 14.7113 shares per $1,000 principal amount, subject to certain adjustments. The proceeds from the CSN were used to fund the cash portions of the acquisition of Copecresto Enterprises Limited and Whitehall. In the period from May 2012 to March 2013, the Company repurchased $52.1 million principal amount of CSN in six tranches for $50.2 million. The maturity period of the CSN was on March 15, 2013. On that day the Company failed to pay $257.9 million principal due on the CSN and accrued interest of $4.2 million related to these Notes. Total obligations under the CSN are shown net of deferred finance costs, amortized over the life of the borrowings using the effective interest rate method as shown in the table below:
|  | March 31, 2013 |  |  | December 31, 2012 |
Convertible Senior Notes (CSN) |  | $ | 257,858 |  |  | $ | 257,858 |
Unamortized debt discount |  |  | 0 |  |  |  | (148 | )
Debt discount related to ASC 470-20 |  |  | 0 |  |  |  | (788 | )
Total |  | $ | 257,858 |  |  | $ | 256,922 |
The fair value of the CSN as of March 31, 2013 and as of December 31, 2012 was $58.0 million and $138.1 million, respectively. The ASC Topic 470-20 requires the issuer of convertible debt instruments with cash settlement features to separately account for the liability ($290.3 million as of the date of the issuance of the CSN) and equity components ($19.7 million as of the date of the issuance of the CSN) of the instrument. The debt component was recognized at the present value of its cash flows discounted using a 4.5% discount rate, our borrowing rate at the date of the issuance of the CSN for a similar debt instrument without the conversion feature. The equity component, recorded as additional paid-in capital, was $12.8 million, which represents the difference between the proceeds from the issuance of the CSN and the fair value of the liability, net of deferred taxes of $6.9 million as of the date of the issuance of the CSN. ASC Topic 470-20 also requires an accretion of the resultant debt discount over the expected life of the CSN, which was March 7, 2008 to March 15, 2013. For the period ended March 31, 2013 and March 31, 2012 the additional pre-tax non-cash interest expense recognized in the consolidated statement of operations was $0.8 million and $1.1 million, respectively. Accumulated amortization related to the debt discount was $19.7 million and $18.9 million as of March 31, 2013 and December 31, 2012, respectively. Under the terms of the CSN Indenture, the failure to pay principal when done constituted an Event of Default. The Company addressed the default under CSN through the Plan of Reorganization as described in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on June 18, 2013. Effective June 5, 2013, the outstanding balance of CSN was cancelled. Senior Secured Notes (the “SSN”) On December 2, 2009, the Company issued $380 million 9.125% Senior Secured Notes due 2016 and €380 million ($487.1 million) 8.875% Senior Secured Notes due 2016 in an unregistered offering to institutional investors. The Company used a portion of the net proceeds from the SSN to redeem the Company’s outstanding 2012 Notes, having an aggregate principal amount of €245.4 million ($314.6 million) on January 4, 2010. The remainder of the net proceeds from the SSN was used to (i) purchase Lion Capital’s remaining equity interest in Russian Alcohol Group by exercising the Lion Option and the Co-Investor Option, pursuant to the terms and conditions of the Lion Option Agreement and the Co-Investor Option Agreement, respectively (ii) repay all amounts outstanding under Russian Alcohol Group credit facilities; and (iii) repay certain other indebtedness. On December 9, 2010, the Company issued an additional €50.0 million ($64.1 million) 8.875% Senior Secured Notes due 2016 in an unregistered offering to institutional investors. The Company used the net proceeds from the additional 2016 Notes to repay its term loans and overdraft facilities with Bank Handlowy w Warszawie S.A and Bank Zachodni WBK S.A. As of March 31, 2013 and December 31, 2012 the Company had accrued interest of $27.9 million and $7.1 million respectively, related to the SSN, with the next coupon due for payment on June 1, 2013, that was not paid. The failure to pay principal when due on the CSN constituted an Event of Default under the SSN Indenture. Under the 2016 SSN Indenture, if an Event of Default occurs and is continuing, then the Trustee or holders of not less than 25% of the aggregate principal amount of the outstanding 9.125% Senior Secured Notes due 2016 and 8.875% Senior Secured Notes due 2016 may, declare the principal plus any accrued and unpaid interest on the SSN to be immediately due and payable. The default on CSN caused the SSN to become callable on demand. The Company addressed the default under SSN through the Plan of Reorganization as described in our Annual Report on Form 10-K for the year December 31, 2012 filed with the SEC on June 18, 2013. Effective June 5, 2013, all SSN were cancelled. Total obligations under the SSN are shown net of deferred finance costs, amortized over the life of the borrowings using the effective interest rate method as shown in the table below:
|  | March 31, 2013 |  |  | December 31, 2012 |
Senior Secured Notes due 2016 (SSN) |  | $ | 931,174 |  |  | $ | 947,127 |
Unamortized debt discount |  |  | (2,516 | ) |  |  | (2,628 | )
Total |  | $ | 928,658 |  |  | $ | 944,499 |
The fair value of the SSN as of March 31, 2013 and as of December 31, 2012 was $729.3 million and $590.9 million, respectively. Debt Security (the “RTL Notes”) On May 7, 2012, the Company issued $70 million principal amount of senior notes due March 18, 2013, bearing an interest rate of 3.00% to Russian Standard Bank. Pursuant to the Amended SPA, upon approval of the Company’s shareholders, and after the satisfaction of certain other conditions including the receipt of certain Polish regulatory waivers, RTL was to purchase such number of shares of common stock at a purchase price of $5.25 per share sufficient to repay the then-outstanding principal amount of the Debt Security, totaling approximately 13.3 million shares of common stock and sell to CEDC the entire principal amount of the Debt Security. In addition, interest payable on the Debt Security prior to the Second Closing was, at the option of RTL and after the Second Closing, to be effectively paid in shares of common stock at a price $3.44 per share of common stock. Pursuant to the Amended SPA, the final maturity date for the Debt Security was to be extended to July 31, 2016. On March 1, 2013, with effect from February 25, 2013 the Company and RTL have entered into a credit facility with an aggregate principal amount of $50 million (the “RTL Credit Facility”). Pursuant to the terms of the RTL Credit Facility, $50 million aggregate principal amount of the RTL Notes was converted into a new term loan from RTL to the Company in an aggregate principal amount of $50 million. As of March 31, 2013 the remaining balance of RTL Notes of $20 million was not paid and was overdue. The Company addressed the unsettled RTL Notes through the Plan of Reorganization as described in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on June 18, 2013. Total obligations under Debt Security amortized over the life of the borrowings using the effective interest rate method as are shown in the table below:
|  | March 31, 2013 |  |  | December 31, 2012 |
Debt Security (RTL Notes) |  | $ | 20,000 |  |  | $ | 70,000 |
Total |  | $ | 20,000 |  |  | $ | 70,000 |
The fair value of the Debt Security as of March 31, 2013 and December 31, 2012 was $21.1 million and $70.4 million, respectively. As of March 31, 2013, the Company had accrued interest of $1.1 million, related to the Debt Security, with the coupon due for payment on March 18, 2013, which was not settled. Total accumulated unamortized debt discount related to the Company’s debt was $12.7 million and $13.6 million as of March 31, 2013 and December 31, 2012, respectively. The Debt Security was cancelled by the effectiveness of the Plan of Reorganization. Conversion of RTL Notes As mentioned above, on March 1, 2013, with effect from February 25, 2013 the Company and Roust Trading Ltd. (“Roust Trading”) entered into a credit facility with an aggregate principal amount of $50 million (the “RTL Credit Facility”). Pursuant to the terms of the RTL Credit Facility, $50 million aggregate principal amount of the 3% senior notes due 2013 issued by the Company to RTL in May, 2012, (the “RTL Notes”) was converted into a new term loan from Roust Trading to the Company in an aggregate principal amount of $50 million (the “Conversion”). The amounts owed under the RTL Credit Facility are to be used for working capital and general corporate purposes. The RTL Credit Facility bears interest at 3.00% per annum. Accrued interest under the RTL Credit Facility should have been paid by the Company on March 18, 2013. On the last day of the first interest period under the RTL Credit Facility, the Company should have paid to Roust Trading an amount equal to the amount of interest accrued on $50 million of the RTL Notes between September 18, 2012 and the day falling immediately prior to the date on which the Conversion takes place. Both, the first interest payment and the additional interest were not paid as of March 31, 2013. As of March 31, 2013, total outstanding debt under RTL Credit Facility is $50.8 million. The RTL Credit facility was cancelled by the effectiveness of the Plan of Reorganization.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6928386&loc=d3e21475-112644 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 02 -Paragraph 19, 20, 22 -Article 5 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 129 -Paragraph 2, 4 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 210 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.5-02.19,20,22) -URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682 + Details
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