| Long -Term Debt | NOTE E—LONG –TERM DEBT
Long-term debt consisted of the following at June 30, 2016 and
December 31, 2015:
June 30,
December 31,
2016 2015
Loan Payable, related to New Market Tax Credit program $
— $ 255
3.80% Convertible Senior Notes due July 2017, net of debt discount
in 2015
— 93,403
10.50% Senior Secured Notes due June 2017, including the debt
premium in 2015
— 205,081
9.00% Senior Unsecured Notes due July 2017
— 40,000
Zochem Credit Facility, interest payable at variable rates
— 17,500
Macquarie Credit Facility, interest payable at variable rates 26,888 59,451
Credit Agreement, interest payable at variable rates
— 17,389
26,888 433,079
Less portion currently payable 26,888 433,079
$
— $
—
NMTC Loans
The loans payable associated with the NMTC program were interest
only loan with principal due in June 2016. On January 22,
2016, the minority equity holders, as lenders, issued Notices of
Non-Payment to the Company as a result of annual payments not made
in accordance with the loan agreements. These notices resulted in
events of default under the NMTC loan agreements. On June 16,
2016, Horsehead Zinc Recycling (“HZR”), Horsehead and
the Company, as guarantor, entered into Forbearance Agreements (the
“Forbearances”) with the lenders. In consideration for
the Forbearances, HZR, Horsehead and the Company agreed, among
other things, to pay forbearance fees to each Lender of $100 upon
execution of the Forbearances. On June 24, 2016, HZR repaid in
full an aggregate amount of $878 outstanding under the NMTC loan
agreements. The NMTC loan agreements terminated by their terms upon
repayment. This payment represented the loan payable of $255,
dividends paid to the equity holders of $170 and $360 paid to
exercise a purchase option. Upon exercise of the purchase option,
the minority interest was eliminated via a reclassification
adjustment totaling $3,669 to additional paid in capital and this
amount was treated as a noncash adjustment on the Consolidated
Statement of Cash Flows for the six months ended June 30, 2016.
Convertible Senior Notes
On July 27, 2011, the Company issued $100,000 of the
Convertible Notes in a private placement. The Company received
proceeds of $100,000 and recognized $3,481 in issuance costs in
connection with the offering. The Company used the proceeds from
the offering for the initial stages of construction for the
Mooresboro zinc facility and for general corporate purposes,
including working capital needs, investment in business
initiatives, capital expenditures and acquisitions.
The commencement of the Debtors’ Chapter 11 cases filed on
February 2, 2016 constituted an event of default that rendered
the financial obligations under the Convertible Notes automatically
and immediately due and payable. As a result, the Company
reclassified the Convertible Notes to Current maturities of
long-term debt in the Consolidated Balance Sheet at
December 31, 2015 and as Liabilities Subject to Compromise in
the Consolidated Balance Sheet at June 30, 2016. See Note
B – Voluntary Reorganization Under Chapter
11
In accordance with the guidance under ASC 815-15 Embedded
Derivatives Debt
with Conversion and other Options Imputation of
Interest
Costs of $3,481 associated with the issuance were allocated to the
liability and equity components in proportion to the allocation of
the fair value of the Convertible Notes. As such, $2,721 were
accounted for as debt issuance costs attributable to the liability
component of the Convertible Notes and were capitalized as a
component of other assets. These costs were to be amortized to
interest expense over the term of the Convertible Notes and are
included as a component of interest expense. Due to the filing of
relief under Chapter 11 of the Bankruptcy Code, all remaining debt
issuance costs were reclassified to current and are included in
Prepaid expenses and other current assets in the Consolidated
Balance Sheet at December 31, 2015. The remaining issuance
costs of $760 were accounted for as equity issuance costs and were
recorded in additional-paid in capital in 2011. On the date of the
bankruptcy filing, the Company reclassified the remaining deferred
finance costs of $652 related to the Convertible Notes. This amount
is included in Liabilities Subject to Compromise as an offset to
the par value of the Convertible Notes in the Consolidated Balance
Sheet at June 30, 2016.
ABL Facility
On September 28, 2011, the Company’s subsidiary
Horsehead entered into an ABL Facility (the “ABL
Facility”), as borrower, with PNC Bank, as agent and lender,
to support liquidity needs for the Company’s Mooresboro zinc
facility and to allow for the availability of previously restricted
cash. Horsehead Holding Corp. also entered into the ABL Facility,
as guarantor of Horsehead’s obligations. The ABL Facility
provided for a five-year senior secured revolving credit facility
in an aggregate principal amount of up to $60,000.
The ABL Facility was terminated on July 6, 2015 when an
$80,000 secured revolving credit facility became effective among
Horsehead, HMP, INMETCO and Macquarie, as administrative agent and
sole arranger . The Macquarie Credit Facility replaced both the
$20,000 INMETCO Facility (as defined below) and the $60,000 ABL
Facility.
Senior Secured Notes
On July 26, 2012, June 3, 2013 and July 29,
2014, the Company completed private placements to issue an
aggregate of $205,000 in principal amount of 10.50% Senior Secured
Notes due 2017 (the “Secured Notes”). The Company
received total proceeds of $204,429 and recognized approximately
$8,415 in issuance costs in connection with the offerings. The
total net proceeds from the offerings were $196,014. The Company
used the proceeds from the Secured Notes to pay for the completion
of the construction of the Company’s Mooresboro zinc facility
and the remainder for general corporate purposes, including working
capital needs, investment in other business initiatives and other
capital expenditures. The Company recorded an initial debt carrying
value of $204,429 (net of the debt discount and debt premiums) and
was accreting the long-term debt balance to par value over the term
of the Secured Notes using the interest method as required by ASC
835-30 Imputation of
Interest
The commencement of the Debtors’ Chapter 11 cases filed on
February 2, 2016 constituted an event of default that rendered
the financial obligations under the Senior Secured Notes
automatically and immediately due and payable. As a result, the
Company reclassified the Senior Secured Notes to Current maturities
of Long-term debt in the Consolidated Balance Sheet at
December 31, 2015. On the date of the bankruptcy filing, the
remaining net premium of $75 was written off and the Senior Secured
Notes were recorded at their par value of $205,000.
Costs of $8,415 associated with the issuance of the Senior Secured
Notes were capitalized as a component of other assets. These costs
were to be amortized to interest expense over the term of the
Senior Secured Notes. Due to the filing of relief under Chapter 11
of the Bankruptcy Code, all remaining debt issuance costs were
reclassified to current and are included in Prepaid expenses and
other current assets in the Consolidated Balance Sheet at
December 31, 2015. On the date of the bankruptcy filing, the
Company reclassified the remaining deferred finance costs of $2,106
related to the Senior Secured Notes. This amount is included in
Liabilities Subject to Compromise as an offset to the par value of
the Senior Secured Notes in the Consolidated Balance Sheet at
June 30, 2016.
Credit Agreement
On August 28, 2012, Horsehead and HHC entered into a Credit
Agreement (the “Credit Agreement”) with Banco Bilbao
Vizcaya Argentaria, S.A., a Spanish bank. The Credit Agreement
provided for the financing of up to €18,583 (approximately
$25,805) for purchases under the contracts between Horsehead and
Tecnicas Reunidas (“TR”), S.A., a Spanish corporation
providing equipment and related products and services for the
Mooresboro zinc facility and additional financing of $968 for the
premium for the insurance on such loan which was issued by Compania
Espanola de Seguros de Credito a la Exportacion. The facility
became effective on November 14, 2012.
The commencement of the Debtors’ Chapter 11 cases filed on
February 2, 2016 constituted an event of default that rendered
the financial obligations under the Credit Agreement automatically
and immediately due and payable. As a result, the Company has
reclassified all remaining obligations under the Credit Agreement
to Current maturities of Long-term debt in the Consolidated Balance
Sheet at December 31, 2015 and the outstanding amount of
$17,389 was reclassified to Liabilities Subject to Compromise in
the Consolidated Balance Sheet at June 30, 2016. See Note
B – Voluntary Reorganization
Under Chapter 11
The Company incurred issuance costs of $1,248 in connection with
the Credit Agreement. These costs were capitalized in the
Company’s Consolidated Balance Sheet as a component of other
assets. The issuance costs were to be amortized to interest expense
over the term of the Credit Agreement. Due to the filing of relief
under Chapter 11 of the Bankruptcy Code, all remaining debt
issuance costs were reclassified to current and are included in
Prepaid expenses and other current assets in the Consolidated
Balance Sheet at December 31, 2015. On the date of the
bankruptcy filing, the Company wrote off all remaining deferred
finance costs of $789 related to the Credit Agreement. This amount
is included in Liabilities Subject to Compromise as an offset to
the amount outstanding in the Consolidated Balance Sheet at June
30, 2016.
Zochem Revolving Credit and Security Agreement
On April 29, 2014, Zochem entered into, as borrower, a $20,000
revolving credit facility with PNC Bank, as agent and lender. The
Company also entered into the 2014 Zochem Facility as a guarantor
of Zochem’s obligations.
The 2014 Zochem Facility provided for a twenty-nine month senior
secured revolving credit facility in an aggregate principal amount
of up to $20,000. At December 31, 2015, the Company had
$17,500 in outstanding borrowings under the 2014 Zochem Facility.
There was no undrawn availability at December 31, 2015. The
carrying amount of the debt approximated fair value at
December 31, 2015.
On January 6, 2016 and January 13, 2016, the Company
received notices of default, effective November 30, 2015 and
December 31, 2015, from PNC Bank related to failure to comply
with the required fixed charge coverage ratio under the 2014 Zochem
Credit Facility following transfers of funds to Horsehead in 2015.
The notice sent on January 13, 2016, demanded immediate
payment of all outstanding obligations under the 2014 Zochem Credit
Facility. On January 14, 2016, Zochem and the Company entered
into a forbearance agreement with PNC Bank. In consideration for
the forbearance, Zochem agreed, among other things, to pay a
forbearance fee to PNC Bank of $1,000 due and payable on
February 1, 2016 and provide a mortgage on Zochem’s
currently unencumbered property in Ontario, Canada. The forbearance
remained effective until February 1, 2016. The forbearance fee
is included in interest expense in the Consolidated Statement of
Operations for the six months ended June 30, 2016. See
Note B – Voluntary Reorganization
Under Chapter 11
The Company incurred total issuance costs of $201 in connection
with the 2014 Zochem Facility. These costs were capitalized in the
Company’s Consolidated Balance Sheet as a component of other
assets. The issuance costs were to be amortized to interest expense
over the remaining term of the 2014 Zochem Facility, however, based
upon the notices of default, which stated defaults as of
November 30, 2015 and December 31, 2015, the remaining
deferred finance costs were written off in December 2015.
On February 8, 2016, the Debtors entered into the DIP Credit
Agreement and used initial proceeds therefrom , among other things,
to repay in full and terminate all obligations under the 2014
Zochem Facility, pay fees and expenses incurred through the closing
date of the DIP Facility and pay other amounts permitted in the
budget (including any permitted variances) and for general
corporate purposes. See Note F – Debtor In Possession
Financing
INMETCO Senior Secured Revolving Credit Agreement
On June 24, 2013, INMETCO entered into a Senior Secured
Revolving Credit Agreement (the “INMETCO Facility”), as
borrower, with Wells Fargo Bank, N.A., as lender. The Company
entered into a guaranty of INMETCO’s obligations under the
INMETCO Facility. INMETCO entered into the INMETCO Facility to
support working capital requirements and for general corporate
purposes. On March 31, 2014, the Company entered into the
First Amendment to the Credit Agreement which amended certain
provisions of the Credit Agreement including the increase of the
maximum advances allowed from $15,000 to $20,000.
The INMETCO Facility was terminated on July 6, 2015 when a new
$80,000 secured revolving credit facility became effective among
Horsehead, HMP and INMETCO and Macquarie, as administrative agent
and sole arranger. The Macquarie Credit Facility replaced both the
$20,000 INMETCO Facility and the $60,000 ABL Facility.
INMETCO incurred issuance costs of $151 in connection with the
INMETCO Facility. These costs were capitalized in the
Company’s Consolidated Balance Sheet as a component of other
assets. The issuance costs were being amortized to interest expense
over the term of the INMETCO Facility. The remaining unamortized
issuance costs related to the INMETCO Facility were written off to
interest expense during the third quarter of 2015.
Senior Unsecured Notes
On July 29, 2014, the Company completed the private placement
of $40,000 aggregate principal amount of 9.00% Senior Notes due
2017 (the “Unsecured Notes”). The Company received net
proceeds of $38,686 after deducting approximately $1,314 in
issuance costs in connection with the offering.
The Unsecured Notes were issued pursuant to an indenture, dated as
of July 29, 2014, among the Company, the Guarantors and U.S.
Bank National Association, as trustee. In February 2016, in
connection with the Chapter 11 cases, Wilmington Trust, National
Association, was appointed as trustee under the indenture governing
the Unsecured Notes.
The commencement of the Debtors’ Chapter 11 cases constituted
an event of default that rendered the financial obligations under
the Senior Unsecured Notes automatically and immediately due and
payable. As a result, the Company reclassified the Senior Unsecured
Notes to Current maturities of Long-term debt in the Consolidated
Balance Sheet at December 31, 2015 and as Liabilities Subject
to Compromise in the Consolidated Balance Sheet at June 30,
2016. See Note B – Voluntary Reorganization
Under Chapter 11
Costs of $1,314 associated with the issuance of the Unsecured Notes
were capitalized as a component of other assets. These costs were
being amortized to interest expense over the term of the Unsecured
Notes. Due to the filing of relief under Chapter 11 of the
Bankruptcy Code, all remaining debt issuance costs were
reclassified to current and are included in Prepaid expenses and
other current assets in the Consolidated Balance Sheet at
December 31, 2015. On the date of the bankruptcy filing, the
Company reclassified remaining deferred finance costs of $618
related to the Unsecured Notes. This amount is included in
Liabilities Subject to Compromise as an offset to the aggregate
principal amount of the Senior Unsecured Note in the Consolidated
Balance Sheet at June 30, 2016.
Macquarie Revolving Credit Facility
On June 30, 2015, the Company’s wholly owned direct and
indirect subsidiaries, INMETCO, Horsehead and HMP, entered into the
Macquarie Credit Facility with Macquarie, which became effective on
July 6, 2015 and had a maturity date of May 15, 2017. The
new $80,000 facility replaced both the ABL Facility and the INMETCO
Facility. The Company had $59,451 in outstanding borrowings at
December 31, 2015 and no remaining availability. The carrying
amount of the debt approximated fair value at December 31,
2015.
On January 5, 2016, the Company received a notice of default,
as of December 31, 2015, from Macquarie related to, among
other things, insufficient borrowing base availability under the
Macquarie Credit Facility. As a result of receiving this notice,
the Company reclassified indebtedness outstanding under the
Macquarie Credit Facility to Current maturities of long-term debt
in the Consolidated Balance Sheet at December 31, 2015. On
January 15, 2016, Horsehead, INMETCO and HMP entered into a
forbearance agreement with Macquarie. Pursuant to the forbearance
agreement, cash held in certain of the Debtors’ third-party
bank accounts was transferred to accounts controlled by Macquarie.
Disbursements of funds from the controlled accounts were subject to
a budget as specified in the forbearance agreement. Pursuant to the
forbearance agreement, the Company agreed, among other things,
(i) to pay down to $40,000 outstanding borrowings under the
Macquarie Credit Facility and (ii) to pay a restructuring fee
in an amount ranging from $1,000 to $2,500 in the event the
obligations under the Macquarie Credit Facility are not paid in
full by February 1, 2016, with the amount of such fee
increasing over time from February 1, 2016 through
April 30, 2016. The forbearance remained effective until
February 1, 2016. The obligations under the Macquarie Credit
Agreement were not paid in full by February 1 st
The Company incurred total issuance costs of $1,635 in connection
with the Macquarie Credit Facility. These costs were initially
capitalized in the Company’s Consolidated Balance Sheet as a
component of other assets and were to be amortized to interest
expense over the remaining term, however, based upon the notice of
default as of December 31, 2015, all deferred finance costs
were written off at December 31, 2015.
Tecnicas Reunidas, S.A. Settlement
In January 2016, Horsehead Corporation reached a settlement
agreement with one of the primary contractors for work associated
with the construction of portions of the Mooresboro facility, TR.
The agreement settled all known claims and disputes between
Horsehead Corporation and TR relating to the construction of the
Mooresboro facility. As a result, in 2016, the Company recorded a
net settlement amount of approximately $7,200, of which $5,000 was
received in cash and recorded as a loan payable to TR. The loan
payable was subsequently reclassified to Liabilities Subject to
Compromise.
Other
At June 30, 2016, the Company had a total of $7,939 in letters
of credit that are cash collateralized and recorded as Restricted
cash in the Company’s Consolidated Balance Sheet at June 30,
2016. The restricted cash will be used to collateralize
self-insured claims for workers’ compensation and other
general insurance claims. The letter of credit outstanding on the
Zochem Facility was canceled on June 22, 2016.
At December 31, 2015, the Company had a total of $364 in
letters of credit outstanding under the 2014 Zochem Facility and
$7,939 in letters of credit that are cash collateralized and
recorded as Restricted Cash in the Company’s Consolidated
Balance Sheet at December 31, 2015. The letters of credit and
restricted cash will be used to collateralize self-insured claims
for workers’ compensation and other general insurance
claims. |
