Long-Term Debt | 6 Months Ended |
Mar. 31, 2014 |
Debt Disclosure [Abstract] | ' |
Long-Term Debt | ' |
3. Long-Term Debt |
As of March 31, 2014 and September 31, 2013, the Company’s long-term debt consisted of the following: |
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(in thousands) | | March 31, | | | September 30, | |
2014 | 2013 |
Term loan principal and interest due in quarterly installments through January 31, 2021, subject to acceleration to November 15, 2017 | | $ | 600,000 | | | $ | — | |
Prior term loan, principal and interest repaid on January 31, 2014 | | | — | | | | 546,525 | |
Original issue discount on term loan, net of accumulated amortization | | | (1,432 | ) | | | (4,403 | ) |
Senior notes, due February 15, 2018; semi-annual cash interest payments due each February 15th and August 15th (interest rate of 12.50%) | | | 212,000 | | | | 250,000 | |
Original issue discount and initial purchase discount on senior notes, net of accumulated amortization | | | (5,256 | ) | | | (7,003 | ) |
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| | | 805,312 | | | | 785,119 | |
Less current portion | | | 6,000 | | | | 5,600 | |
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Long-term debt | | $ | 799,312 | | | $ | 779,519 | |
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On January 31, 2014, the Company completed a refinancing transaction by entering into the senior secured credit facilities consisting of a term loan facility and a senior revolver. In connection with the refinancing transaction, the prior senior secured credit facilities were repaid and replaced with the senior secured credit facilities. The Company incurred $11.1 million of expenses related to the refinancing transaction including $7.2 million related to the write-off of deferred financing costs and $3.9 million related to the write-off of original issue discount related to the prior indebtedness. These expenses are recorded on the Company’s consolidated statement of operations as Extinguishment of debt. |
On February 26, 2014, the Company redeemed $38.0 million aggregate principal amount of the outstanding senior notes, in accordance with the provisions of the indenture governing the senior notes. In connection with the partial redemption of the senior notes, the Company incurred $3.6 million of expenses including $2.4 million related to redemption premium, $1.0 million related to the write-off of original issue discount and initial purchase discount, and $0.2 million related to the write-off of deferred financing costs. These expenses are recorded on the Company’s consolidated statement of operations as Extinguishment of debt. |
At September 30, 2013, the Company had $785.1 million of indebtedness, consisting of $546.5 million of indebtedness under the prior term loan and incremental term loan facilities and unamortized original issue discount of $4.4 million, $250.0 million aggregate principal amount of the 12.5% senior notes due 2018 (the “senior notes”) and unamortized original issue discount and initial purchase discount of $7.0 million. As of September 30, 2013, the Company did not have any borrowing under the prior senior revolving credit facility (the “prior senior revolver”). |
Senior Secured Credit Facilities |
On January 31, 2014, the Company and NMH Holdings, LLC (“Parent”) entered into a new senior credit agreement (the “senior credit agreement”) with Barclays Bank PLC, as administrative agent, and the other agents and lenders named therein, for the new senior secured credit facilities (the “senior secured credit facilities”), consisting of a $600.0 million term loan facility (the “term loan facility”), of which $50.0 million was deposited in a cash collateral account in support of issuance of letters of credit under an institutional letter of credit facility (the “institutional letter of credit facility”), and a $100.0 million senior secured revolving credit facility (the “senior revolver”). The term loan facility has a seven-year maturity and the senior revolver has a five-year maturity; provided, that if the Company’s senior notes due 2018 are not refinanced in full on or prior to the date that is three months prior to February 15, 2018, such maturity dates shall spring forward to November 15, 2017. The senior credit agreement provides that the Company may make one or more offers to the lenders, and consummate transactions with individual lenders that accept the terms contained in such offers, to extend the maturity date of the lender’s term loans and/or revolving commitments, subject to certain conditions, and any extended term loans or revolving commitments will constitute a separate class of term loans or revolving commitments. |
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All of the Company’s obligations under the senior secured credit facilities are guaranteed by Parent and the subsidiary guarantors named therein (the “Subsidiary Guarantors”). Pursuant to the Guarantee and Security Agreement, dated as of January 31, 2014 (the “guarantee and security agreement”), among Parent, as parent guarantor, the Company, certain subsidiaries of the Company, as subsidiary guarantors and Barclays Bank, PLC, as administrative agent, subject to certain exceptions, the obligations under the senior secured credit facilities are secured by a pledge of 100% of the Company’s capital stock and the capital stock of certain domestic subsidiaries and a security interest in substantially all of the Company’s tangible and intangible assets and the tangible and intangible assets of Parent and each Subsidiary Guarantor. |
Borrowings under the senior secured credit facilities bear interest, at the Company’s option, at: (i) an ABR rate equal to the greater of (a) the prime rate of Barclays Bank PLC, (b) the federal funds rate plus 1/2 of 1.0%, and (c) the Eurodollar rate for an interest period of one-month beginning on such day plus 100 basis points, plus 2.75% (provided that the ABR rate applicable to the term loan facility will not be less than 2.00% per annum); or (ii) the Eurodollar rate (provided that the Eurodollar rate applicable to the term loan facility will not be less than 1.00% per annum), plus 3.75%. The Company is also required to pay a commitment fee to the lenders under the senior revolver at an initial rate of 0.50% of the average daily unutilized commitments thereunder. The Company must also pay customary letter of credit fees. |
Term loan |
As of March 31, 2014, the Company had $600 million of borrowings under the term loan. At March 31, 2014, the variable interest rate on the term loan was 4.75%. |
The senior credit agreement requires us to make mandatory prepayments, subject to certain exceptions, with: (i) beginning in fiscal year 2015, 50% (which percentage will be reduced upon our achievement of certain first lien leverage ratios) of our annual excess cash flow (as defined in the senior credit agreement); (ii) 100% of net cash proceeds of all non-ordinary course assets sales or other dispositions of property, subject to certain exceptions and thresholds; and (iii) 100% of the net cash proceeds of any debt incurrence, other than debt permitted under the senior credit agreement. We are required to repay the term loan facility portion of the senior secured credit facilities in quarterly principal installments of 0.25% of the principal amount commencing on June 30, 2014, with the balance payable at maturity. The senior credit agreement permits us to offer to the lenders newly issued notes in exchange for their term loans in one or more permitted debt exchange offers, subject to the conditions set forth in the senior credit agreement. In addition, if, on or prior to July 31, 2014, we prepay or reprice any portion of the term loan facility, we will be required to pay a prepayment premium of 1% of the loans being prepaid or repriced. |
Prior term loan |
The prior term loan was issued at a price equal to 98.5% of its face value. The prior senior credit agreement also included an annual provision for the prepayment of a portion of the outstanding term loan amounts beginning in fiscal 2011 equal to an amount ranging from 0 to 50% of a calculated amount, depending on the Company’s leverage ratio, if the Company generated certain levels of cash flow. The Company was not required to make such a prepayment of its prior term loan. The Company was required to repay the prior term loan in quarterly principal installments of 0.25% of the original principal amount, with the balance payable at maturity. |
Senior revolver |
During the six months ended March 31, 2014, the Company drew $9.3 million under the senior revolver and repaid $9.3 million during the period. At March 31, 2014, the Company had no outstanding borrowings under the senior revolver and $100.0 million of availability under the senior revolver. The Company had $44.7 million of standby letters of credit issued under the institutional letter of credit facility primarily related to the Company’s workers’ compensation insurance coverage. The Company’s institutional letter of credit facility provided for the issuance of letters of credit up to the $50.0 million limit, and letters of credit in excess of that amount reduced availability under the Company’s senior revolver. The interest rate for borrowings under the senior revolver was 6.0% as of March 31, 2014. |
The senior revolver includes borrowing capacity available for borrowings on same-day notice, referred to as the “swingline loans.” Any swingline loans or other borrowings under the senior revolver would have maturities less than one year, and would be reflected under Current portion of long-term debt on the Company’s consolidated balance sheets. |
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Prior senior revolver |
The prior senior revolver provided for borrowings of up to $75.0 million. |
Senior Notes |
In February 2011, the Company issued $250.0 million of 12.5% senior notes due 2018 (the “senior notes”) at a price equal to 97.7% of their face value, for net proceeds of $244.3 million. The net proceeds were further reduced by an initial purchasers’ discount of $5.6 million. The senior notes are the Company’s unsecured obligations and are guaranteed by certain of the Company’s existing subsidiaries. |
The Company redeemed $38 million aggregate principal amount of the outstanding senior notes on February 26, 2014, in accordance with the provisions of the indenture governing the senior notes. The redemption price of the senior notes was 106.250% of the principal amount redeemed, plus accrued and unpaid interest to, but not including, the redemption date. |
Covenants |
The senior credit agreement and indenture governing the senior notes contain negative covenants, including, among other things, limitations on the Company’s ability to incur additional debt, transfer or sell assets, pay dividends, redeem stock or make other distributions or investments, and engage in certain transactions with affiliates. The senior credit agreement contains a springing financial covenant that requires the Company to maintain a specified consolidated leverage ratio in the event the Company borrows in excess of 30% of its senior revolver commitment if, at the end of any fiscal quarter our usage of the senior revolver exceeds 30% of the commitments thereunder, we are required to maintain at the end of each such fiscal quarter, commencing with the quarter ending June 30, 2014, a consolidated first lien leverage ratio of not more than 5.50 to 1.00. This consolidated first lien leverage ratio will step down to 5.00 to 1.00 commencing with the fiscal quarter ending March 31, 2017. The springing financial covenant was not in effect as of March 31, 2014 as our usage of the senior revolver did not exceed the threshold for the quarter ended March 31, 2014. |
The Company is restricted from paying dividends to Parent in excess of $15.0 million, except for dividends used for the repurchase of equity from former officers and employees and for the payment of management fees, taxes, and certain other exceptions. |
Derivatives |
The Company entered into an interest rate swap in a notional amount of $400.0 million effective March 31, 2011, maturing on September 30, 2014. The Company entered into this interest rate swap to hedge the risk of changes in the floating rate of interest on borrowings under the term loan. |
On October 15, 2012, the Company amended the terms of its interest rate swap agreement in connection with the amendment and restatement of the terms of the old senior secured credit facilities. The notional amount of the interest rate swap of $400.0 million and maturity date of September 30, 2014 remained unchanged. Under the new terms of the interest rate swap, the Company receives from the counterparty a quarterly payment based on a rate equal to the greater of 3-month LIBOR and 1.25% per annum, and the Company makes payments to the counterparty based on a fixed rate of 2.08% per annum, in each case on the notional amount of $400.0 million, settled on a net payment basis. Based on the applicable margin of 5.25% under the Company’s prior term loan, this swap effectively fixed the Company’s cost of borrowing for $400.0 million of the old term loan at 7.3% per annum for the term of the swap. As a result of the modification of the terms of the interest rate swap agreement, the fair value of the interest rate swap was increased by $68 thousand and the increase in fair value is being amortized into Other income (expense) over the remaining term of the interest rate swap agreement. |
Prior to the January 31, 2014 refinancing transaction, the Company accounted for the interest rate swap as a cash flow hedge and the effectiveness of the hedge relationship was assessed on a quarterly basis. The fair value of the swap agreement, representing the price that would be paid to transfer the liability in an orderly transaction between market participants, was recorded in current liabilities (under Other accrued liabilities) and was determined based on pricing models and independent formulas using current assumptions. The change in fair market value was recorded in the consolidated statements of comprehensive loss. |
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In conjunction with the January 31, 2014 refinancing transaction, the Company de-designated the interest rate swap agreement as a cash flow hedge. Subsequent to the January 31, 2014 refinancing transaction, prospective mark to market adjustments will be recognized in earnings and accumulated mark to market adjustments are being amortized and recognized in earnings over the term of the interest rate swap agreement which matures on September 30, 2014. For the three months and six months ending March 31, 2014, the Company recognized $0.6 million of interest expense, related to the amortization of the previously mark to market adjustments. As of March 31, 2014, the unamortized historical mark to market adjustments balance was $1.1 million net of tax effect of $0.7 million. |