Debt | 9 Months Ended |
Sep. 28, 2013 |
Debt Disclosure [Abstract] | |
Debt | 12. Debt |
Outstanding debt obligations at September 28, 2013 and December 31, 2012 were as follows: |
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| | September 28, | | | December 31, | |
2013 | 2012 |
Debt: | | | | | | | | |
Revolving Credit Facility | | $ | 25,000 | | | $ | 79,304 | |
Convertible Notes | | | 85,000 | | | | 85,000 | |
Term Notes | | | 96,250 | | | | 100,000 | |
Equipment and working capital notes | | | 3,569 | | | | 1,100 | |
Mortgages | | | 715 | | | | 963 | |
Capital leases | | | 73 | | | | 99 | |
Other | | | 253 | | | | 435 | |
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Total debt | | | 210,860 | | | | 266,901 | |
Less: debt discount, net of accretion | | | (16,975 | ) | | | (19,306 | ) |
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Total debt, net of unaccreted discount | | $ | 193,885 | | | $ | 247,595 | |
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Less current portion of long-term debt | | | 12,800 | | | | 9,135 | |
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Total long-term debt, net of unaccreted discount | | $ | 181,085 | | | $ | 238,460 | |
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Credit Agreement |
In November 2012, the Company entered into a Credit Agreement with certain financial institutions (collectively, the “Lenders”), to be guaranteed by certain domestic subsidiaries of the Company (each a “Guarantor” and collectively the “Guarantors”). Pursuant to the Credit Agreement, the Lenders made available to the Company an initial term loan facility of $100,000,000 (the “Term Loan Facility”) and an initial revolving credit facility of $200,000,000 (the “Revolving Credit Facility”). |
Interest on the amounts outstanding under the credit facilities is calculated using either an ABR Rate or Eurodollar rate, plus the applicable margin. The applicable margins for Eurodollar Loans are between 1.375% to 1.875%, and for ABR Loans are between 0.375% and 0.875%. The Credit Agreement provides for a possible expansion of the facilities by an aggregate additional $150,000,000, which can be allocated as additional term loans and/or additional revolving credit loans. The amounts available under the Term Loan Facility and Revolving Credit Facility are to be available for general corporate purposes and to repay existing indebtedness. The stated maturity of both of these credit facilities is November 20, 2017, and there are scheduled quarterly principal payments due on the outstanding amount of the Term Loan Facility. A portion of the Revolving Credit Facility may be used for the issuance of letters of credit, and a portion of the amount of the Revolving Credit Facility is available for borrowings in certain agreed upon foreign currencies. |
The proceeds of the Term Loan Facility and a portion of the proceeds of the Revolving Credit Facility, along with cash on hand, were used by the Company to contribute all funds necessary to redeem all of the Company’s Senior Secured Notes in December 2012 (the “Redemption”). As of September 28, 2013 and December 31, 2012, we had $25.0 and $79.3 million outstanding on our Revolving Credit Facility, respectively. As of September 28, 2013 and December 31, 2012, we had $7.7 and $7.6 million in letters of credit outstanding, respectively. We had $167.3 million and $113.1 million available under the Revolving Credit Facility at September 28, 2013 and December 31, 2012, respectively. |
The Credit Agreement contains various affirmative and negative covenants and restrictions, which among other things, will require the Company and certain Subsidiaries to provide certain financial reports to the Lenders, require the Company to maintain certain financial covenants relating to consolidated leverage and interest coverage, limit maximum annual capital expenditures, and limit the ability of the Company and its subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other equity distributions, purchase or redeem capital stock or debt, make certain investments, sell assets, engage in certain transactions, and effect a consolidation or merger. The Credit Agreement also contains customary events of default. |
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Pledge and Security Agreement; Trademark Security Agreement; Patent Security Agreement. |
Pursuant to the Credit Agreement, on November 20, 2012, the Loan Parties and the Administrative Agent entered into a Pledge and Security Agreement (the “Pledge and Security Agreement”), pursuant to which each Loan Party pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all personal property, whether now owned by or owing to, or after acquired by or arising in favor of such Loan Party (including under any trade name or derivations), and whether owned or consigned by or to, or leased from or to, such Loan Party, and regardless of where located, except for specific excluded personal property identified in the Pledge and Security Agreement (collectively, the “Collateral”). Notwithstanding the foregoing, the Collateral does not include, among other items, more than 65% of the capital stock of the first tier foreign subsidiaries of the Company. The Pledge and Security Agreement contains other customary representations, warranties and covenants of the parties. The Credit Agreement provides that the obligation to grant the security interest can cease upon the obtaining of certain corporate family ratings for the Company, but the obligation to grant a security interest is subject to subsequent reinstatement if the ratings are not maintained as provided in the Credit Agreement. |
In connection with the Pledge and Security Agreement, certain of the Loan Parties delivered a Patent Security Agreement and a Trademark Security Agreement in favor of the Administrative Agent pursuant to which each of the Loan Parties signatory thereto pledges, assigns and grants to the Administrative Agent, on behalf of and for the ratable benefit of the Lenders, a security interest in all of its right, title and interest in, to and under all registered patents, patent applications, registered trademarks and trademark applications owned by such Loan Parties. |
Convertible Senior Notes |
On March 7, 2011, the Company issued $85.0 million of Convertible Senior Notes (the “Convertible Notes”) due on March 1, 2031. The Convertible Notes will mature on March 31, 2031, unless earlier redeemed, repurchased by the Company or converted, and are convertible into cash or shares, or a combination thereof, at the Company’s election. Interest on the Convertible Notes is payable semiannually in arrears, on March 1 and September 1 of each year, and commenced on September 1, 2011 at an annual rate of 2.75%. |
The Company separately accounted for the debt and equity components of the Convertible Notes to reflect the issuer’s non-convertible debt borrowing rate, which interest costs are to be recognized in subsequent periods. The note payable principal balance at the date of issuance of $85.0 million was bifurcated into a debt component of $60.5 million and an equity component of $24.5 million. The difference between the note payable principal balance and the value of the debt component is being accreted to interest expense over the term of the notes. The debt component was recognized at the present value of associated cash flows discounted using a 8.25% discount rate, the borrowing rate at the date of issuance for a similar debt instrument without a conversion feature. The Company paid approximately $3.7 million of issuance costs associated with the Convertible Notes. The Company recorded $1.0 million of debt issuance costs as an offset to additional paid-in capital. The balance of $2.7 million of debt issuance costs is classified as other non-current assets and will be amortized over the term of the notes using the effective interest method. |
The carrying amount of the principal amount of the liability component, the unamortized discount, and the net carrying amount are as follows as of September 28, 2013: |
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| | September 28, | | | | | |
2013 | | | | |
Principal amount of debt | | $ | 85,000 | | | | | |
Unamortized discount | | | 16,975 | | | | | |
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Carrying value of debt | | $ | 68,025 | | | | | |
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Interest expense associated with the Convertible Notes consisted of the following for the year to date period ended September 28, 2013: |
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| | September 28, | | | | | |
2013 | | | | |
Contractual coupon rate of interest | | $ | 1,753 | | | | | |
Accretion of Convertible Notes discount and amortization of deferred financing costs | | | 2,594 | | | | | |
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Interest expense for the convertible notes | | $ | 4,347 | | | | | |
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The effective interest yield of the Convertible Notes due in 2031 is 8.5% at September 28, 2013 and the cash coupon interest rate is 2.75%. |
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Senior Secured Notes |
In November 2009, the Company issued 8 1/8% Senior Secured Notes (the “Senior Secured Notes”) with a face value of $210 million. Interest on the Senior Secured Notes was payable semi-annually in arrears, on June 1 and December 1 of each year, commencing on June 1, 2010 at an annual rate of 8 1/8%. The effective interest rate of the Senior Secured Notes was approximately 8.75% after consideration of the $6.7 million of deferred financing costs (included in other non-current assets which are being amortized over the term using the effective interest method). The principal balance of the Senior Secured Notes was scheduled to mature on December 1, 2016. |
The Senior Secured Notes were guaranteed by the Company’s U.S. domestic subsidiaries and were secured by a second priority lien, subject to first priority liens securing the Old Revolving Credit Agreement, on substantially all of the Company’s assets and those of its domestic subsidiaries. The indenture governing the Senior Secured Notes contained covenants which restricted the Company and its subsidiaries. These restrictions limited or prohibited, among other things, the Company’s ability to incur additional indebtedness; repay subordinated indebtedness prior to stated maturities; pay cash dividends on or redeem or repurchase stock or make other distributions; make investments or acquisitions; sell certain assets or merge with or into other companies; sell stock in our subsidiaries; and create liens on their assets. There are no financial covenants associated with the Senior Secured Notes. |
During 2012, Altra Industrial retired the remaining principal balance of the 8 1/8% Senior Secured Notes, of $198.0 million. |
Old Revolving Credit Agreement |
Prior to entering into the current Credit Agreement, Altra Industrial had previously entered into a senior secured credit facility, (the “Old Revolving Credit Agreement”), that provided for borrowing capacity in an initial amount of up to $65.0 million (subject to adjustment pursuant to a borrowing base and subject to increase from time to time in accordance with the terms of the credit facility). |
The Old Revolving Credit Agreement was replaced with the new Revolving Credit Facility in November 2012. |
Equipment and Working Capital Notes |
The Company entered into a 24.6 million RMB ($3.9 million) loan with a bank to equip its new facility in Changzhou, China during 2012. The loan had a remaining principal balance of 7.0 million RMB ($1.1 million) at December 31, 2012. The note was refinanced in an amount of approximately 6.5 million RMB ($1.1 million) during the quarter ended September 28, 2013 with a new bank. The note is due in installments from July through September 2014, when the note expires. Interest is payable monthly at 5.04%. |
The Company entered into a 15.4 million RMB ($2.5 million) loan with a bank to equip its new facility in Changzhou, China during the quarter ended September 28, 2013. The loan has a remaining principal balance of 15.4 million RMB ($2.5 million) at September 28, 2013. The note is due in in installments between June and August of 2016, when the note expires. Interest is payable monthly at 5.54%. The note is callable by the bank at its discretion and as such, has been included in the current portion of long-term debt in the balance sheet at September 28, 2013. |
Mortgage |
The Company has a mortgage with a bank on its facility in Heidelberg, Germany with an interest rate of 2.9% and is payable in monthly installments over the next three years. As of September 28, 2013 and December 31, 2012, the mortgage had a remaining principal balance of €0.5 million or $0.7 million and €0.7 million or $1.0 million, respectively. |
Capital Leases |
The Company leases certain equipment under capital lease arrangements, whose obligations are included in both short-term and long-term debt. Capital lease obligations amounted to approximately $0.1 million at September 28, 2013 and December 31, 2012. Assets subject to capital leases are included in property, plant and equipment with the related amortization recorded as depreciation expense. |
Overdraft Agreements |
Certain of our foreign subsidiaries maintain overdraft agreements with financial institutions. There were no borrowings as of September 28, 2013 or December 31, 2012 under any of the overdraft agreements. |