Debt | 3 Months Ended |
Mar. 31, 2015 |
Debt Disclosure [Abstract] | |
Debt | Debt |
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Unsecured Convertible Senior Notes |
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On December 7, 2010, we issued $200 million in aggregate principal amount of 3.00% Convertible Senior Notes due December 15, 2015 unless earlier repurchased or converted (the “Notes”). The unsecured Notes were offered and sold only to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The Notes are governed by the terms of an indenture dated December 7, 2010 (the “Indenture”), which was filed with the SEC on December 8, 2010. |
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The Notes bear interest at a rate of 3.00% per year, payable semiannually in arrears on June 15 and December 15 of each year, which payments began on June 15, 2011. We may in certain instances be required to pay additional interest in connection with any events of default relating to our failure to comply with our reporting obligations to the trustee under the Indenture and to the SEC. After any such default under the Indenture, if the trustee or the holders of at least 25% in aggregate principal amount of the Notes give us notice of, and direct us to cure, the default and the default is not cured within 60 days thereafter, then unless a waiver is obtained from the holders of more than 50% in aggregate principal amount of the Notes, an event of default will occur under the Indenture. Upon any such event of default, we may elect that for the first 180 days (or such lesser amount of time during which the event of default continues), the sole remedy be the payment of additional interest at an annual rate equal to 0.50%. In the event that such additional interest becomes payable because of our failure to timely file certain reports with the SEC and the trustee, the filing of such reports will cure the event of default and the interest rate will be reduced (so long as no other events of default then exist). If we elect to pay such additional interest and the event of default is not cured within the 180-day period, or if we do not make such an election to pay additional interest when the event of default first occurs, the trustee or the holders of at least 25% in aggregate principal amount of the Notes may declare the Notes to be due and payable immediately. |
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Amortization recorded to interest expense pertaining to deferred issuance costs for the three months ended March 31, 2015 and 2014 was $300,000 and $300,000, respectively. |
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The Notes are convertible at any time prior to the close of business on the third business day immediately preceding the maturity date, at the holder’s option, into shares of our common stock at an initial conversion rate of 51.4536 shares per $1,000 principal amount of Notes, which represents an initial conversion price of approximately $19.43 per share. The conversion rate is subject to adjustment for certain events that occur prior to maturity, such as a change in control transaction as defined in the Indenture. |
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We may not redeem the Notes prior to the maturity date. If a fundamental change (such as a change in control event or if our Common Stock ceases to be listed or quoted on any of the New York Stock Exchange, the Nasdaq Global Select Market or the Nasdaq Global Market or any of their respective successors) occurs prior to the maturity date, holders may require us to repurchase for cash all or part of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. |
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The Indenture provides for customary events of default (subject in certain cases to grace and cure periods) including, without limitation, (i) the failure to pay amounts due under the Notes, (ii) the failure to deliver the shares of our Common Stock due upon conversion of any Note, (iii) our failure to comply with other agreements contained in the Indenture or in the Notes, including our agreement to timely file certain reports with the trustee, (iv) payment defaults on, or acceleration of, other indebtedness, (v) the failure to pay certain judgments, and (vi) certain events of bankruptcy, insolvency or reorganization with respect to the Company. An event of default under the Indenture (other than an event of default related to certain events of bankruptcy, insolvency or reorganization) will allow either the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes to cause the acceleration of the Notes. An event of default related to certain events of bankruptcy, insolvency or reorganization with respect to the Company will automatically cause the acceleration of the Notes. |
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As of March 31, 2015, the estimated fair value of our Notes was approximately $200.4 million. The fair value of the Notes was estimated using market prices of the Notes, which are based on Level 2 inputs. |
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Senior Secured Credit Agreement |
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2015 Credit Agreement |
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On March 2, 2015 (the “Closing Date”), we entered into an amended and restated credit agreement (the “Credit Agreement”) by and among the Company, as borrower, certain of the Company’s wholly owned direct and indirect subsidiaries, as guarantors, Silicon Valley Bank, as administrative agent, swingline lender and letter of credit issuer, and the other lenders parties thereto (Silicon Valley Bank and the other lenders hereinafter collectively referred to as the “Lenders”). The Credit Agreement amended and restated our prior credit agreement dated as of December 21, 2012, as amended (the “Prior Credit Agreement”), by and among Ixia, the guarantors, Silicon Valley Bank, as administrative agent, swingline lender, and letter of credit issuer (as successor to Bank of America, N.A. in such capacities), and the other lenders party thereto. |
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The Credit Agreement provides for a (i) term loan (the “Term Loan”) in the aggregate principal amount of $40 million, which amount was advanced to the Company on March 3, 2015, and (ii) revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan, the “Credit Facility”) in an aggregate amount of up to $60 million, with sub-limits of $25 million for the issuance of standby letters of credit and $15 million for swingline loans. The aggregate amount available under the Credit Facility may, upon our request and subject to the receipt of increased commitments from the Lenders or additional lenders, be increased by an aggregate amount of up to $80 million. We are permitted to voluntarily prepay outstanding loans under the Credit Facility at any time without premium or penalty. Prior to the maturity of the Credit Facility, we may re-borrow amounts under the Revolving Credit Facility, but we may not re-borrow amounts that are repaid or prepaid under the Term Loan. |
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The maturity date of the Credit Facility is February 15, 2018; provided, however, that if, at any time between June 15, 2015 and the maturity date for the Notes (i.e., December 15, 2015), we do not have total available liquidity (defined as cash, cash equivalents, and marketable securities plus availability under the Revolving Credit Facility) of $25 million in excess of the amount then required to repay our Notes in full, all amounts outstanding under the Credit Facility will become due and payable and the Revolving Credit Facility will terminate, on September 14, 2015 (or if such date has passed, within 2 business days after the date we fail to have the required total available liquidity). If subsequent to June 15, 2015 and prior to September 14, 2015 we do not have the required total available liquidity but thereafter (and prior to September 14, 2015) achieve and maintain such liquidity level, the accelerated maturity date of September 14, 2015 shall not apply. |
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Debt issuance costs were approximately $1.2 million, which were capitalized to deferred issuance costs and are being amortized to interest expense over the three year term of the Credit Facility using the effective interest method. During the three months ended March 31, 2015, amortization recorded to interest expense pertaining to deferred issuance costs was not material. |
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As required by the terms of the Credit Agreement, we have deposited the funds advanced under the Term Loan of $40 million, together with additional cash, cash equivalents and marketable securities in the aggregate amount of $50 million, in collateral accounts (the “Collateral Accounts”). The $90 million deposited in the Collateral Accounts as of March 31, 2015 consists of $10 million in cash and cash equivalents, which is included in the Restricted cash line item on our condensed consolidated balance sheet, and $80 million in marketable securities, which is included in the Marketable securities, restricted line item on our condensed consolidated balance sheet. Subsequent to March 31, 2015, as required under the Credit Agreement, we deposited additional cash, cash equivalents and marketable securities in the Collateral Accounts in the aggregate amount of $25 million. We may only withdraw amounts deposited in the Collateral Accounts for the repurchase or repayment of the Notes. We may use the proceeds of the Revolving Credit Facility for (i) working capital, capital expenditures and general corporate purposes, (ii) share repurchases, (iii) the partial refinancing of the Notes, and/or (iv) acquisitions, in each case as permitted by applicable law and the Credit Agreement. The restrictions on acquisitions as set forth in the Credit Agreement include a restriction that precludes the Company from funding an acquisition in whole or in part with cash unless the Company will have, after giving effect to the transaction, cash, cash equivalents and marketable securities in an amount not less than $75 million in excess of the amount then required to be on deposit in the Collateral Accounts. |
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The Company plans to satisfy its repayment obligations under the Notes, and to pay the purchase price for any earlier Note repurchases (whether mandatory or negotiated by the Company) using some combination of (i) cash, cash equivalents and marketable securities, including those deposited in the Collateral Accounts, (ii) borrowings under the Revolving Credit Facility, and/or (iii) future cash flows from operations. |
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The Term Loan requires quarterly repayments of principal on the last day of the eleven fiscal quarters following the Closing Date, commencing with the fiscal quarter ending June 30, 2015. The first four payments will be in the amount of $500,000 each, the following four payments will be in the amount of $1.0 million each, and the next three payments will be in the amount of $1.5 million each. The remaining principal balance of the Term Loan will be due and payable on the maturity date of the Credit Facility. |
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The Company’s and the guarantors’ obligations under the Credit Agreement are secured by (i) a first priority perfected security interest in substantially all existing and after acquired tangible and intangible personal property of the Company and the guarantors and (ii) the pledge by the Company and the guarantors of (a) all outstanding equity securities of their existing and future domestic subsidiaries, including, in the case of the Company, the outstanding equity securities of each of the guarantors, and (b) 65% of the outstanding equity securities of their existing and future respective first-tier foreign subsidiaries, including, in the case of Catapult Communications Corporation (one of our wholly owned domestic subsidiaries), 65% of the outstanding equity securities of Ixia Technologies International Limited, a company organized under the laws of Ireland. |
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Interest rates for the Term Loan and for the first year of the Revolving Credit Facility are established, at our option, at a rate per annum of (i) 4.25% above the Eurodollar rate or (ii) 3.25% above a defined base rate. After the first anniversary of the Closing Date, interest rates for the Revolving Credit Facility are established, at the Company’s option, based on the Eurodollar rate or the defined base rate. Such interest rates range from 2.0% to 3.0% above the Eurodollar rate for Eurodollar-based borrowings and from 1.0% to 2.0% above the defined base rate for base rate borrowings, in each case depending on the Company’s leverage ratio. We are also required to pay a quarterly commitment fee, ranging from 0.30% to 0.50% per annum, on the undrawn portion of the Revolving Credit Facility. Letter of credit fees accrue based on the daily amount available to be drawn under outstanding letters of credit and range from 2.0% to 3.0%, depending on our leverage ratio. Swingline loans bear interest at the defined base rate plus the applicable margin for loans under the Revolving Credit Facility based on the defined base rate. If we default under the Credit Facility, the Lenders may increase the interest rate(s) to 2.0% more than the rate(s) otherwise applicable. The weighted average interest rate applicable to the Term Loan for the three months ended March 31, 2015 was 4.42%, which was based on the one month Eurodollar rate plus 4.25%. |
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The Credit Agreement requires the Company to comply with certain covenants, including maintaining (i) a fixed charge coverage ratio (as defined in the Credit Agreement) of not less than 1.25 to 1.00, measured quarterly on a trailing 12 months basis, (ii) a consolidated senior leverage ratio (as defined in the Credit Agreement) of not greater than 2.50 to 1.00 through December 31, 2015 and 2.25 to 1.00 thereafter, measured quarterly on a trailing 12 months basis, and (iii) a consolidated total leverage ratio (as defined in the Credit Agreement) of not greater than 3.00 to 1.00, measured quarterly on a trailing 12 months basis. The consolidated funded indebtedness (as defined in the Credit Agreement) used in the calculation of the consolidated leverage ratio is reduced by the amounts deposited in the Collateral Accounts (except in connection with the calculation of the applicable margin for loans). |
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The Credit Agreement also contains reporting covenants typical for transactions comparable to the Credit Facility provided for therein, including covenants to furnish the lenders with financial statements, business plans, annual budgets, and other financial and business information and with notice of certain material events and information regarding collateral. The Credit Agreement also contains customary affirmative covenants, including covenants relating to the payment of obligations, preservation of the existence of and registrations for patents, trademarks, trade names and copyrights, maintenance of properties and insurance, compliance with laws and material contractual obligations, books and records, inspection rights, use of proceeds, addition of subsidiary guarantors, and security for the Credit Facility. The Credit Agreement contains customary negative covenants, including restrictions relating to liens and additional indebtedness, investments, mergers, liquidations and other fundamental changes, the sale and other disposition of properties and assets, restricted payments, changes in lines of business, transactions with affiliates, entering into certain burdensome agreements, and use of proceeds. |
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The Credit Agreement provides for customary events of default, including the non-payment of amounts due, failure to perform under covenants, breaches of representations and warranties, cross-defaults relating to certain indebtedness, institution of insolvency proceedings, inability to pay debts as they become due, entry of certain judgments, events relating to the Employee Retirement Income Security Act of 1974, as amended, invalidity of loan documents, change of control events, and ineffectiveness of subordination provisions. The occurrence of an event of default may result in the acceleration of all of our outstanding obligations under the Credit Agreement and in an increase in the applicable interest rate(s) as described above. |
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Prior Credit Agreement |
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The Company’s Prior Credit Agreement provided for a credit facility (the “Prior Credit Facility”) that originally consisted of a revolving loan commitment of up to $150 million. As a result of the termination of certain lenders’ commitments under the Prior Credit Facility, the aggregate loan amount was reduced to $67.5 million in January 2015 and further reduced to $46.5 million in March 2015 prior to the date of the amendment and restatement of the Prior Credit Facility on March 2, 2015. As described below and due to our defaults under the Prior Credit Agreement, we were at the time of its amendment and restatement blocked from borrowing and obtaining letters of credit under the Prior Credit Facility. As of December 31, 2014, and immediately prior to the March 2015 amendment and restatement of the Prior Credit Agreement, no amounts were outstanding under the Prior Credit Facility. |
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The Prior Credit Facility was originally scheduled to mature on December 21, 2016, subject to earlier termination under certain circumstances relating to our available liquidity. On December 12, 2014, the maturity date for the Prior Credit Facility was advanced to January 31, 2015, and on January 30, 2015, the maturity date was extended to March 2, 2015. |
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The Prior Credit Agreement required that we comply with certain covenants, including maintaining an interest coverage ratio and a maximum leverage ratio, timely providing certain periodic financial statements to the lenders, and complying with the Indenture governing our Notes, which Indenture requires us to timely file certain reports with the trustee. For the quarters ended September 30, 2014 and December 31, 2014, our leverage ratio exceeded 3.00 to 1.00 and therefore constituted events of default under the Prior Credit Agreement. During 2014, the administrative agent under the Prior Credit Agreement provided us with notices that we were in default under the Prior Credit Agreement as a result of our failure to timely deliver to the administrative agent our financial statements and a related compliance certificate for the quarter ended June 30, 2014 and a compliance certificate relating to the quarter ended September 30, 2014, the event of default that had occurred under the Indenture as a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 with the trustee and the SEC, and our not being in compliance with the leverage ratio requirements as of September 30, 2014. In connection with such events of default, we were, commencing on or about August 29, 2014, blocked from borrowing and obtaining letters of credit under the Prior Credit Facility. |