Notes Payable and Long-Term Obligations | 3 Months Ended |
Oct. 31, 2014 |
Debt Disclosure [Abstract] | ' |
Notes Payable and Long-Term Obligations | ' |
Notes Payable and Long-Term Obligations |
Long-term debt outstanding: |
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| | | | | | | | | | | |
| October 31, | | July 31, | | October 31, |
| 2014 | | 2014 | | 2013 |
Secured Credit Facility | $ | — | | | $ | — | | | $ | 366,797 | |
|
Oaktree Senior Notes | — | | | — | | | 218,595 | |
|
Guaranteed Loan | 7,760 | | | 8,333 | | | 7,761 | |
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ABL Facility | 8,000 | | | 6,000 | | | — | |
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Notes | 230,000 | | | 230,000 | | | — | |
|
Term Loan Facility, net | 402,645 | | | 403,082 | | | — | |
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Total outstanding debt | 648,405 | | | 647,415 | | | 593,153 | |
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Less: current portion | (12,116 | ) | | (10,088 | ) | | (5,888 | ) |
Total long-term debt | $ | 636,289 | | | $ | 637,327 | | | $ | 587,265 | |
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As of October 31, 2014, the current portion of long-term debt is presented net of an unamortized discount of $0.5 million related to the Term Loan Facility’s stated original issue discount of $2.0 million. The non-current portion of long-term debt is presented net of an unamortized discount of $1.3 million. |
Additionally, in accordance with ASC 470-50-40-2 – Debt – "Modifications and Extinguishments," as a result of certain lenders that participated in the Company’s debt structure both prior to and after the refinancing, it was determined that a portion of the debt refinancing was considered to be a debt modification. Accordingly, the Company recorded approximately $3.6 million, of the Oaktree call premium that is associated with the modified debt (Term Loan Facility) as a contra-debt liability. As of October 31, 2014, the current portion of long-term debt is presented net of these unamortized creditor fees of $0.8 million and the non-current portion of long-term debt is presented net of these unamortized creditor fees of $2.3 million. |
In accordance with the guidance, approximately $5.2 million related to the Company’s previous original issue discount on the Oaktree Notes was also determined to be associated with the modified debt (Term Loan Facility) as a contra-debt liability. As of October 31, 2014, the current portion of long-term debt is presented net of this unamortized discount of $1.2 million and the non-current portion of long-term debt is presented net of $3.3 million. |
These balances are presented on the Company’s Condensed Consolidated Balance Sheets as a contra-debt liability and will be amortized within Interest expense, net on the Company’s Condensed Consolidated Statement of Operations over the term of the Term Loan Facility. |
Net interest expense for the three months ended October 31, is as follows: |
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| Three Months Ended | | | | |
October 31, | | | | |
| 2014 | | 2013 | | | | |
Secured Credit Facility | $ | — | | | $ | 5,818 | | | | | |
| | | |
Oaktree Senior Notes | — | | | 6,953 | | | | | |
| | | |
Guaranteed Loan | 101 | | | 128 | | | | | |
| | | |
ABL Facility | 150 | | | — | | | | | |
| | | |
Notes | 3,976 | | | — | | | | | |
| | | |
Term Loan Facility | 4,527 | | | — | | | | | |
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Capitalized interest | (190 | ) | | (14 | ) | | | | |
Other | 220 | | | 239 | | | | | |
| | | |
Amortization of deferred financing costs and debt discounts (1) | 1,452 | | | 1,724 | | | | | |
| | | |
Interest expense, net | $ | 10,236 | | | $ | 14,848 | | | | | |
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(1) Represents non-cash amortization of deferred charges incurred as a result of debt refinancings. |
Description of Refinancing |
On February 19, 2014, the Company refinanced its debt capital structure. The Company entered into a 4.5 year senior secured term loan facility (the “Term Loan Facility”) in an aggregate principal amount of $415 million, a 4.5 year senior secured asset-based revolving credit facility (the “ABL Facility”) in an aggregate principal amount of $125 million and issued $230 million in 7.000% Senior Notes due March 2019 (the “Notes”). Pursuant to the Warrant Exercise Agreement, OCM PF/FF Adamantine Holdings, Ltd. (a subsidiary of Oaktree) exercised its warrant to purchase 4,420,859 shares of Diamond’s common stock at the $10 exercise price per share for $44.2 million, less a warrant cash exercise and contractual modification inducement fee of $15 million. The Warrant Exercise Transaction closed on February 19, 2014, concurrent with the refinancing transactions and the Company derecognized the warrant liability of approximately $84.1 million on that date. |
Diamond used the net proceeds of the Term Loan Facility, the Notes and the Warrant Exercise Transaction to (1) prepay approximately $348 million of indebtedness outstanding under, and terminate, the Secured Credit Facility, (2) prepay approximately $276 million of indebtedness outstanding under, and terminate, the Oaktree Senior Notes, (3) pay approximately $32.3 million of prepayment premiums to the holders of the Oaktree Senior Notes, and (4) pay fees related to the preparation, negotiation, execution and delivery of the definitive documentation for the Term Loan Facility, the Notes and the ABL Facility. In accordance with ASC 835-30-45-3 "Imputation of Interest - Other Presentation Matters," the Company incurred $16.6 million of new debt issuance costs associated with the February 2014 debt refinancing. $2.1 million of these debt issuance costs were expensed to Loss on debt extinguishment based on the portion of the refinancing that was considered a debt modification for those lenders that had continued participation in the Company’s refinanced debt structure. The remaining $14.5 million debt issuance costs were recorded as deferred financing charges and will be amortized over the life of the respective new debt agreements into Interest expense, net. Debt issuance costs largely included arrangement fees paid to underwriters, legal fees, accounting fees, consulting fees, and printing fees. The Company recorded the current portion of these costs in Prepaid expenses and other current assets and the non-current portion was recorded in Other long-term assets in the Company’s Condensed Consolidated Balance Sheets. |
In accordance with ASC 470-50-40-2 – "Debt – Modifications and Extinguishments," the Company recorded a Loss on debt extinguishment of $83.0 million in the Consolidated Statement of Operations in fiscal 2014. Of the $83.0 million, approximately $70.3 million related to the extinguishment of the Oaktree Senior Notes, $10.6 million related to non-cash charges resulting from the write-off of unamortized transaction costs and fees, and $2.1 million related to new third-party debt issuance costs. |
Debt After Refinancing |
In December 2010, Kettle Foods obtained, and Diamond guaranteed, a 10-year fixed rate loan (the “Guaranteed Loan”) in the principal amount of $21.2 million, of which $7.8 million was outstanding as of October 31, 2014. Principal and interest payments were due monthly throughout the term of the loan. The Guaranteed Loan was being used to purchase equipment for the Beloit, Wisconsin plant expansion. Borrowed funds were placed in an interest-bearing escrow account and made available as expenditures were approved for reimbursement. As the cash was used to purchase non-current assets, such restricted cash was classified as non-current on the balance sheet. In December 2012, the remaining balance within the escrow account was released back to the lender and was used to pay down the outstanding loan balance. Also, as part of the paydown, the Company paid a 4% prepayment penalty, which was recorded in Interest expense, net. |
The Guaranteed Loan provides for customary affirmative and negative covenants, which are similar to the covenants under the Secured Credit Facility, as defined below. The financial covenants within the Guaranteed Loan were reset to match those in the Waiver and Third Amendment to the Company's Secured Credit Facility, as described in more detail below. |
Additionally, on February 19, 2014, Diamond closed the Warrant Exercise Agreement, pursuant to which Oaktree agreed to exercise in full its warrant to purchase an aggregate of 4,420,859 shares of Diamond common stock, by paying in cash the exercise price of approximately $44.2 million; less a cash exercise and contractual modification inducement fee of $15.0 million. The warrant was issued to Oaktree in connection with the Securities Purchase Agreement, dated May 22, 2012 (“Securities Purchase Agreement”), under which Diamond issued the Oaktree Senior Notes. The $15.0 million inducement fee was included within Warrant exercise fee on the Company’s Consolidated Statement of Operations in the 2014 Annual Report on Form 10-K. |
The Warrant Exercise Agreement provided that so long as Oaktree and/or its affiliates hold at least 10% of Diamond’s outstanding common stock, Oaktree will have the right to nominate one member of Diamond’s Board of Directors. In addition, until the later of (a) twelve months after Oaktree no longer has the right to nominate a member of Diamond’s Board of Directors or (b) twelve months after any director nominated by Oaktree under the Warrant Exercise Agreement or the Securities Purchase Agreement no longer serves as a director, Oaktree and its affiliates agree not to: acquire or beneficially own more than 30% of the outstanding common stock of Diamond; commence or support any tender offer for Diamond common stock; make or participate in any solicitation of proxies to vote or seek to influence any person with respect to voting its Diamond common stock; publicly announce a proposal or offer concerning any extraordinary transaction with Diamond; form, join or participate in a group for the purpose of acquiring, holding, voting or disposing of any Diamond securities; take any actions that could reasonably be expected to require Diamond to make a public announcement regarding the possibility of such an acquisition, tender offer or proxy solicitation; enter into any agreements with a third party regarding any such prohibited actions; or request Diamond to amend or waive such provisions. Upon the closing of the transactions contemplated by the Warrant Exercise Agreement, the Securities Purchase Agreement, and Diamond’s obligations thereunder, terminated. The common stock issued upon exercise of the warrant was issued in a private placement pursuant to exemptions from the registration requirements of the Securities Act of 1933 and are covered by a Registration Rights Agreement entered into on May 29, 2012 in connection with the Securities Purchase Agreement. |
The Term Loan Facility will mature in 4.5 years and will amortize in equal quarterly installments in an aggregate annual amount equal to 1.0% of the original principal amount of the Term Loan Facility with the balance payable on the maturity date of the Term Loan Facility. The Term Loan Facility permits the Company to increase the term loans, or add a separate tranche of term loans, by an amount not to exceed $100 million plus the maximum amount of additional term loans that the Company could incur without its senior secured leverage ratio exceeding 4.50 to 1.00 on a pro forma basis after giving effect to such increase or addition. Amounts outstanding bear interest at a rate per annum equal to: (i) the Eurodollar Rate (as defined in the Term Loan Facility and subject to a “floor” of 1.00%) plus the applicable margin or (ii) the Base Rate (as defined in the Term Loan Facility), which is the greatest of (a) Credit Suisse’s prime rate, (b) the federal funds effective rate plus 0.50% and (c) the Eurodollar Rate for an interest period of one month plus 1.00%, plus, in each case, the applicable margin to be agreed with the lenders party thereto. |
Loans under the ABL facility are available up to a maximum amount outstanding at any one time equal to the lesser of (a) $125 million and (b) the amount of the Borrowing Base, in each case, less customary reserves. Under the ABL Facility, the Company has a $20 million sublimit for the issuance of letters of credit, and a Swing Line Facility of up to $12.5 million for same day borrowings. Borrowing Base is defined as (a) 85% of the amount of the Company’s eligible accounts receivable; plus (b) the lesser of (i) 70% of the book value of eligible inventory in the US and (ii) 85% times the net orderly liquidation value of Diamond’s eligible inventory in the U.S.; less (c) in each case, customary reserves. |
Under the ABL Facility, Diamond may elect that the loans bear interest at a rate per annum equal to: (i) the LIBOR Rate plus the applicable margin; or (ii) the Base rate plus applicable margin. “LIBOR Rate” means the rate per annum equal to (i) the Intercontinental Exchange Benchmark Administration Ltd. LIBOR Rate (“ICE LIBOR”), at approximately 11:00 a.m., London time, two Business Days prior to the commencement of the requested Interest Period. “Base Rate” means the greatest of (a) the Federal Funds Rate plus 0.5%, (b) the LIBOR Rate (which rate shall be calculated based upon an interest period of 1 month and shall be determined on a daily basis), plus 1.00%, and (c) the rate of interest announced, from time to time, by Wells Fargo at its principal office in San Francisco as its “prime rate”. The LIBOR Rate shall be available for interest periods of one week or, one, two, three or six months and, if all lenders agree, twelve months. “Applicable Margin” means, as of any date of determination and with respect to Base Rate Loans or LIBOR Rate Loans, as applicable, the applicable margin set forth in the following table that corresponds to the Average Daily Net Availability of Borrower for the most recently completed fiscal quarter period. |
The Term Loan Facility and ABL Facility provide for customary affirmative and negative covenants. The Term Loan Facility has customary cross-default provisions and the ABL Facility contains cross-acceleration provisions, in each case that may be triggered if Diamond fails to comply with obligations under its other credit facilities or indebtedness. The Term Loan Facility has a first priority perfected lien on substantially all property, plant and equipment, capital stock, intangibles and second priority lien on the ABL Priority Collateral, subject to customary exceptions. The ABL Facility requires Diamond to maintain a minimum fixed charge coverage ratio of 1.1:1.0 if at any time excess availability is less than 10% of maximum availability; and requires Diamond to apply substantially all cash collections to reduce outstanding borrowings under the ABL Facility if excess availability falls below 12.5% of maximum availability for a period of 5 consecutive business days. The ABL Facility is secured by a first-priority lien on accounts receivable, inventory, cash and deposit accounts and a second-priority lien on all real estate, equipment and equity interests of the Company under, and guarantors of, the ABL Facility. |
The Notes, which will mature on March 15, 2019, were offered only to (i) qualified institutional buyers in reliance on Rule 144A of the Securities Act of 1933, as amended (“Securities Act”), and (ii) to certain non-U.S. persons in offshore transactions in reliance on Regulation S of the Securities Act. The initial issuance and sale of the Notes were not registered under the Securities Act, and the Notes may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and the registration or qualification requirements of other applicable securities laws. The terms of the Notes do not provide for registration rights. Interest on the Notes is payable on March 15 and September 15 of each year, commencing September 15, 2014. On or after March 15, 2016, Diamond may redeem all or a part of the Notes at a price equal to 103.50% of the principal amount of the Notes, plus accrued and unpaid interest, with such optional redemption prices decreasing to 101.75% on and after March 15, 2017 and 100.00% on and after March 15, 2018. Before March 15, 2016, Diamond may redeem some or all of the Notes at a price equal to 100.00% of the principal amount of the Notes redeemed, plus accrued and unpaid interest to the redemption date and the make-whole premium. Before March 15, 2016, Diamond may redeem up to 35% of the Notes with the net cash proceeds of certain equity offerings at a redemption price equal to 107.00% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of redemption. If Diamond experiences a change of control, Diamond must offer to purchase for cash all or any part of each holder’s Notes at a purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest, if any. The indenture pursuant to which the Notes were issued contains customary covenants that, among other things, limit Diamond’s ability and Diamond’s restricted subsidiaries’ ability to incur additional indebtedness, make restricted payments, enter into transactions with affiliates, create liens, pay dividends on or repurchase stock, make specified types of investments, and sell all or substantially all of their assets or merge with other companies. Each of the covenants is subject to a number of important exceptions and qualifications. |
For the three months ended October 31, 2014 and October 31, 2013, the blended interest rate for the Company’s consolidated borrowings, and excluding the Oaktree Senior Notes, was 5.28% and 6.33%, respectively. For the three months ended October 31, 2014 and October 31, 2013, the blended interest rate for the Company’s consolidated short-term borrowings, excluding the Oaktree Senior Notes, was 1.67% and 6.26%, respectively. As of October 31, 2014, the Company was compliant with financial and reporting covenants under the new refinanced debt structure. |