| Debt | 8. Debt
At March 31, 2016 and 2015 the Company's debt consisted of the following:
As at March 31,
2016
2015
6.50% Senior Notes due 2019
$
$
Revolving credit facilities
Short-term credit facility
—
Less: portion classified as current
)
)
$
$
Senior Notes due 2019
In March 2014, Niska Partners completed a private placement of senior unsecured notes due 2019 (the "6.50% Senior Notes" or "Notes") through its subsidiaries Niska Gas Storage Finance Corp. and Niska Gas Storage Canada ULC (together, the "Issuers"). Net proceeds from the offering of approximately $563.3 million, after deducting underwriters' discounts and fees, along with borrowings under our asset-based revolving credit facilities, were used to redeem the then outstanding principal amount of $643.8 million of the 8.875% Senior Notes due 2018. Including a call premium of approximately $28.6 million and the write-off of unamortized deferred financing costs of $8.1 million, the Company recognized a loss of $36.7 million, which was recorded as a loss on extinguishment of debt in fiscal 2014. Costs directly related to the issuance of the new Notes were capitalized as deferred financing costs and are amortized to interest expense over the term of the debt.
On December 3, 2014, the U.S. Securities and Exchange Commission accepted and made effective the Company's exchange offer whereby holders of the 6.50% Senior Notes were permitted to exchange such Senior Notes for new freely transferable Senior Notes. The terms of the new units are identical to the units issued on March 17, 2014 except that the new units are registered under the Securities Act and generally do not contain restrictions on transfer. The exchange offer was completed on January 7, 2015 and substantially all the holders of the Senior Notes accepted the offer.
The 6.50% Senior Notes are senior unsecured obligations which are: (1) effectively junior to Niska Partners' secured obligations to the extent of the value of the collateral securing such debt; (2) equal in right of payment with all existing and future senior unsecured indebtedness of the Company; and (3) senior in right of payment to any future subordinated indebtedness of Niska Partners. The 6.50% Senior Notes are fully and unconditionally guaranteed by Niska Partners and certain of its direct and indirect subsidiaries on a senior unsecured basis, and are: (1) effectively junior to each guarantor's secured obligations; (2) equal in right of payment with all existing and future senior unsecured indebtedness of each guarantor; and (3) senior in right of payment to any future subordinated indebtedness of each guarantor. Interest on the 6.50% Senior Notes is payable semi-annually on October 1 and April 1, and will mature on April 1, 2019. As of March 31, 2016, the estimated fair market value of the Notes was $460.0 million.
Prior to October 1, 2016, the Company has the option to redeem up to 35% of the aggregate principal amount of the 6.50% Senior Notes using net cash proceeds from certain equity offerings at a price of 106.50% plus accrued and unpaid interest. The Company may also redeem all or a part of the 6.50% Senior Notes at redemption prices (expressed as percentages of principal amount) equal to 103.25% during the twelve-month period beginning on October 1, 2016, 101.625% during the twelve-month period beginning on October 1, 2017 and at par beginning on October 1, 2018, plus accrued and unpaid interest. The Company is not required to make mandatory redemptions or sinking fund payments with respect to the 6.50% Senior Notes.
The indenture governing the 6.50% Senior Notes limits Niska Partners' ability to pay distributions in respect of, repurchase or pay dividends on its membership interests (or other capital stock) or make other restricted payments. However, it does not prohibit certain types or amounts of restricted payments, including a general basket of $75.0 million of restricted payments.
The indenture governing the Notes contains certain other covenants that, among other things, limit Niska Partners and certain of its subsidiaries' ability to:
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incur additional debt or issue certain capital stock;
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pay dividends on, repurchase or make distributions in respect of its capital stock or repurchase or retire subordinated indebtedness;
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make certain investments;
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sell assets;
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create liens;
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consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;
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enter into certain transactions with its affiliates; and
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permit restrictions on the ability of its subsidiaries to make distributions.
The occurrence of events involving the Company or certain of its subsidiaries may constitute an event of default under the indenture. Such events include failure to pay interest, principal, or the premium on the Notes when due; failure to comply with the merger, asset sale or change of control covenants; certain defaults on other indebtedness; and certain insolvency proceedings. In the case of an event of default, the holders of the Notes are entitled to remedies, including the acceleration of payment of the Notes by request of the holders of at least 25% in aggregate principal amount of the Notes, and any action by the trustee to collect payment of principal, interest or premium in arrears.
Upon the occurrence of a change of control together with a decrease in the ratings of the 6.50% Senior Notes by either Moody's or S&P by one or more gradations within 90 days of the change of control event, Niska Partners must offer to repurchase the Notes at 101% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any, to the date of repurchase.
The Company's ability to repurchase the 6.50% Senior Notes upon a change of control will be limited by the terms of its debt agreements, including the Credit Agreement. In addition, the Company cannot assure that it will have the financial resources to repurchase the Notes upon a change of control.
Revolving credit facilities
Niska Partners, through its subsidiaries, Niska Gas Storage US, LLC and AECO Gas Storage Partnership has senior secured asset-based revolving credit facilities, consisting of a U.S. revolving credit facility and a Canadian revolving credit facility (the "Revolving Credit Facilities", or the "Credit Agreement").
These revolving credit facilities previously provided for revolving loans and letters of credit in an aggregate principal amount of up to $200.0 million for each of the U.S. and Canadian revolving credit facilities. Loans under the U.S. revolving facility will be denominated in U.S. dollars and loans under the Canadian revolving facility may be denominated, at Niska Partners' option, in either U.S. or Canadian dollars.
On February 29, 2016, the Company completed an amendment and extension of its Credit Agreement, which included the approval of a change of control associated with the Transaction. The amended and restated Revolving Credit Facilities extends the term of the original agreement from June 29, 2016 to September 30, 2016 and allows for an additional term extension to December 31, 2016 providing that the Transaction has closed. The maximum capacity of the amended and restated Credit Agreement was reduced to $160.0 million for each of the U.S. and Canadian revolving credit facilities effective February 29, 2016 and effective June 29, 2016, interest on borrowings under the Credit Agreement will increase by 1% to the extent that the Company's consolidated leverage ratio is above 5.0 to 1.0.
Borrowings under the Revolving Credit Facilities are limited to a borrowing base calculated as the sum of specified percentages of eligible cash equivalents, eligible accounts receivable, the net liquidating value of hedge positions in broker accounts, eligible inventory, issued but unused letters of credit, and certain fixed assets minus the amount of any reserves and other priority claims. Borrowings bear interest at a floating rate, which (1) in the case of U.S. dollar loans can be either LIBOR plus an applicable margin or, at the Company's option, a base rate plus an applicable margin, and (2) in the case of Canadian dollar loans can be either the bankers' acceptance rate plus an applicable margin or, at the Company's option, a prime rate plus an applicable margin. The Credit Agreement provides that the Company may borrow only up to the lesser of the level of our then current borrowing base and our committed maximum borrowing capacity, which is currently $320.0 million. As of March 31, 2016, the borrowing base collateral totaled $225.3 million.
Obligations under the Credit Agreement are guaranteed by Niska Partners and all of the Company's direct and indirect wholly owned subsidiaries (subject to certain exceptions) and secured by a lien on substantially all of the Company's and its direct and indirect subsidiaries' current and fixed assets (subject to certain exceptions). Certain fixed assets will only be required to be part of the collateral to the extent such fixed assets are included in the borrowing base under the Credit Agreement. The aggregate borrowing base under the Credit Agreement includes $150.0 million (the "PP&E Amount") due to a first-priority lien on fixed assets granted to the lenders.
The Credit Agreement contains limitations on Niska Partners' ability to incur additional debt or to pay distributions in respect of, repurchase or pay dividends on its membership interests (or other capital stock) or make other restricted payments. These limitations are similar to those contained in the indenture governing the 6.50% Senior Notes, but contain certain substantive differences. As of March 31, 2016, Niska Partners was in compliance with all covenant requirements under the 6.50% Senior Notes and the Credit Agreement.
The following fees are applicable under each revolving credit facility: (1) an unused revolver fee based on the unused portion of the respective revolving credit facility; (2) a letter of credit participation fee on the aggregate stated amount of each letter of credit equal to the applicable margin for LIBOR loans or bankers' acceptance loans, as applicable; and (3) certain other customary fees and expenses of the lenders and agents. The Company is required to make prepayments under the Credit Agreement at any time when, and to the extent that, the aggregate amount of the outstanding loans and letters of credit under the Credit Agreement exceeds the lesser of the aggregate amount of commitments in respect of such revolving credit facilities and the applicable borrowing base.
The Credit Agreement contains customary covenants, including, but not limited to, restrictions on the Company's and its subsidiaries' ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets subject to security interests under the Credit Agreement, make acquisitions, loans, advances or investments, pay distributions, sell or otherwise transfer assets, optionally prepay or modify terms of any subordinated indebtedness or enter into transactions with affiliates. The Credit Agreement requires the maintenance of a fixed charge coverage ratio of 1.1 to 1.0 at the end of each fiscal quarter when excess availability under both the U.S. revolving credit facility and the Canadian revolving credit facility is less than 15% of the aggregate amount of availability under both revolving credit facilities. Such fixed charge coverage ratio will be tested at the end of each quarter until such time as average excess availability exceeds 15% for thirty consecutive days.
The Credit Agreement provides that, upon the occurrence of certain events of default, the Company's obligations thereunder may be accelerated and the lending commitments terminated. Such events of default include payment defaults to the lenders, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, including the notes, voluntary and involuntary bankruptcy proceedings, material money judgments, material events relating to pension plans, certain change of control events and other customary events of default. As of March 31, 2016, $106.0 million (March 31, 2015—$193.5 million) in borrowings, with a weighted average interest rate of 4.27% (March 31, 2015—3.98%), were outstanding under the Credit Facilities. Issued letters of credit amounted to $9.6 million and $5.8 million as of March 31, 2016 and 2015, respectively.
Short-term Credit Facility
On July 28, 2015, the Company entered into a credit agreement with Brookfield for a $50.0 million short-term credit facility (the "Short-term Credit Facility"), which may be borrowed on subject to certain customary conditions. As of March 31, 2016, the outstanding amount of $40.1 million under the Short-term Credit Facility bears interest at an annual rate of 10%, which is payable in cash on a quarterly basis, unless the Company elects to pay such interest in-kind by capitalizing accrued interest into the principal amount. During the year ended March 31, 2016, $1.1 million of interest was accrued and paid in-kind.
Amounts borrowed under the Short-term Credit Facility may be prepaid without premium and penalty, and all amounts due and owing under the Short-term Credit Facility will be payable on the earlier of January 28, 2017 or the first to occur of (a) the acceleration of the loans during the continuance of an event of default under the Short-term Credit Facility; (b) the date on which the Merger Agreement is terminated in accordance with its terms; (c) the date that is 90 days after the date on which the required lenders have determined that the acquisition of the business of the Company and its subsidiaries pursuant to the Merger Agreement cannot or will not be consummated for any reason, including without limitation regulatory matters or legal bars; and (d) any uncured breach of any other agreement between the Company and certain affiliates, on the one hand, and any lenders or any affiliate thereof, on the other hand, which results in termination of such agreement.
The Company's obligations under the Short-term Credit Facility are secured by substantially all of the assets of the Company and its subsidiaries that guarantee the obligations under its Revolving Credit Facilities. The Short-term Credit Facility requires the Company to comply with certain affirmative and negative covenants, with the Company permitted to enter into activities to the extent permitted by both the Merger Agreement and the Company's Revolving Credit Facilities. The Company is also subject to customary events of default, substantially consistent with its Revolving Credit Facilities.
On June 9, 2016, the CPUC issued a decision which approved the transfer of control of the Wild Goose facility to Brookfield, effective immediately. The Company believes that it is probable that the Merger will be completed on or before July 31, 2016 at which time the Company will pursue replacement financing. See Notes 1 and 26 for additional information on the Merger. Should the merger not close as anticipated, the maturity of the Revolving Credit Facilities on September 30, 2016 would require the Company to seek a further extension of the maturity date or raise additional funds to repay the amounts projected to be outstanding at that time because the Company does not expect to have sufficient resources to completely repay the outstanding balances of the Revolving Credit Facilities and the Short-Term Credit Facility on their respective maturity dates. Failure to repay the Revolving Credit Facilities when due would also constitute an event of default under the terms of the 6.50% Senior Notes. Management can provide no assurance that the Company will be able to obtain a further extension of the maturity date or raise additional funds to repay the Revolving Credit Faclities and Short-Term Credit Facility upon maturity.
Restrictions
Niska Partners has no independent assets or operations other than its investments in its subsidiaries. The 6.50% Senior Notes, Revolving Credit Facilities and Short-term Credit Facility have been jointly and severally guaranteed by Niska Partners and substantially all of its subsidiaries. Niska Partners' subsidiaries have no significant restrictions on their ability to pay distributions or make loans to Niska Partners, which are prepared and measured on a consolidated basis, and have no restricted assets as of March 31, 2016.
The Company's principal debt covenant is the fixed charge coverage ratio, which is included in the Credit Agreement and in the Indenture. When the fixed charge coverage ratio is less than 2.0 times, Niska Partners is restricted in its ability to issue new debt. When the fixed charge coverage ratio is below 1.75 to 1.0, the Company is restricted in its ability to pay distributions. When the Company's FCCR is below 1.1 times, the Company will be unable to borrow the last 15% of availability without triggering an event of default. At March 31, 2016, the fixed charge coverage ratio was 0.3 to 1.0 and the Company was subject to the above restrictions limiting the last 15% of availability under the Credit Agreement. Accordingly, the availability under the Credit Agreement has been reduced by 15%, to $191.5 million. As of March 31, 2016, $56.9 million of the Company's availability remained unutilized. |
