| Long-Term Obligations | Note 12 — Long-Term Obligations Long-term obligations consisted of the following:
December 31, 2020
December 31, 2019
Principal Amount
Gross Carrying Amount
Deferred Financing Costs*
Net Carrying Amount
Net Carrying Amount
Senior secured term loan facility (“Term Loan Credit Agreement”)
$
694,220
$
694,220
$
(4,055
)
$
690,165
$
718,596
6.125% Senior Notes — due 2023
22,924
22,924
(145
)
22,779
347,015
6.625% Senior Notes — due 2026
107,254
107,254
(939
)
106,315
494,910
First Lien Party City Notes
161,669
206,775
—
206,775
—
First Lien Anagram Notes
110,000
152,301
(966
)
151,335
—
Second Lien Anagram Notes
84,687
152,032
—
152,032
—
Finance lease obligations
13,983
13,983
—
13,983
14,990
Total long-term obligations
1,194,737
1,349,489
(6,105
)
1,343,384
1,575,511
Less: current portion
(13,576
)
(13,576
)
—
(13,576
)
(71,524
)
Long-term obligations, excluding current portion
$
1,181,161
$
1,335,913
$
(6,105
)
$
1,329,808
$
1,503,987
*The Company incurred and capitalized third-party costs as deferred financing, which is being amortized over the life of the debt. Senior secured term loan facility (“Term Loan Credit Agreement”) The Term Loan Credit Agreement was amended in February 2018, lowering ABR and LIBOR margins to their current levels. As the Term Loan Credit Agreement is a loan syndication, the Company assessed, on a creditor-by-creditor basis, whether the refinancing should be accounted for as an extinguishment or a modification for each creditor and, during 2018, the Company wrote-off $186 of existing deferred financing costs, a $102 capitalized original issue discount and $58 of capitalized call premium. The write-offs were recorded in other expense in the Company’s consolidated statement of operations and comprehensive (loss) income. The remaining deferred financing costs, original issue discount and capitalized call premium will continue to be amortized over the life of the Term Loan Credit Agreement, using the effective interest method. Additionally, in conjunction with the amendment, the Company incurred $856 of banker and legal fees, $800 of which were recorded in other expense during 2018. The rest of the costs are being amortized over the term of the debt. During August 2018, the Company executed a refinancing of its debt portfolio and issued $500,000 of new 6.625% senior notes, maturing in 2026. The Company used the proceeds from the notes to: (i) reduce the outstanding balance under its existing ABL Facility, which is included in loans and notes payable on the Company’s condensed consolidated balance sheet, by $90,000 and (ii) voluntarily prepay $400,000 of the outstanding principal under its existing Term Loan Credit Agreement. Additionally, as part of the refinancing, the Company extended the maturity of the ABL Facility to August 2023 As the partial prepayment of the Term Loan Credit Agreement was in accordance with the terms of such agreement, at the time of such prepayment the Company wrote-off a pro-rata portion of the existing capitalized deferred financing costs and original issuance discounts, $1,824, for investors who did not participate in the new notes. Such amount was recorded in other expense in the Company’s consolidated statement of operations and comprehensive (loss) income. To the extent that investors in the Term Loan Credit Agreement participated in the new notes, the Company assessed whether the refinancing should be accounted for as an extinguishment on a creditor-by-creditor basis and wrote-off $968 of existing deferred financing costs and original issuance discounts. Such amount was recorded in other expense in the Company’s consolidated statement of operations and comprehensive (loss) income. Additionally, in conjunction with the issuance of the notes, the Company incurred third-party fees (principally banker fees). To the extent that such fees related to investors for whom their original debt was not extinguished, the Company expensed the portion of such fees, $ 2,270 in aggregate, that related to such investors. Such amount was recorded in other expense in the Company’s consolidated statement of operations and comprehensive (loss) income. The remainder of the third-party fees, $ 6,230 , have been capitalized and will be amortized over the remaining life of the debt using the effective interest method. Further, the Company compared the borrowing capacities of the pre-amendment facility and the post-amendment facility, on a creditor-by-creditor basis, and concluded that $29 of existing deferred financing costs should be written-off. Such amount was recorded in other expense in the Company’s consolidated statement of operations and comprehensive (loss) income. The remaining capitalized costs, and $986 of new third-party costs incurred in conjunction with the extension, are being amortized over the revised term of the ABL Facility. During June 2019, in conjunction with a sale/leaseback transaction, the Company amended the Term Loan Credit Agreement and financed its Los Lunas, New Mexico facility. See Note 5, Sales/Leaseback Transaction, for further detail. The finance lease obligations above include $11,990 related to the Los Lunas, New Mexico facility. The Term Loan Credit Agreement, as amended, provides for two pricing options for outstanding loans: (i) an ABR for any day, a rate per annum equal to the greater of (a) the prime rate in effect on such day, (b) the federal funds effective rate in effect on such day plus 0.5%, (c) the adjusted LIBOR rate plus 1% and (d) 1.75% or (ii) the LIBOR rate, with a LIBOR floor of 0.75%, in each case plus an applicable margin. The applicable margin for ABR and LIBOR borrowings are 1.75% and 2.75%, respectively, and will drop to 1.50% and 2.50%, respectively, if PCHI’s Senior Secured Leverage Ratio, as defined by the agreement, falls below 3.2 to 1.0. The term loans under the Term Loan Credit Agreement mature on August 19, 2022. The Company is required to repay installments on the loans in quarterly principal amounts of 0.25%, with the remaining amount payable on the maturity date. Additionally, outstanding term loans are subject to mandatory prepayment, subject to certain exceptions, with (i) 100% of net proceeds above a threshold amount of certain asset sales/insurance proceeds, subject to reinvestment rights and certain other exceptions, (ii) 100% of the net cash proceeds of any incurrence of debt other than debt permitted under the Term Loan Credit Agreement, and (iii) 50% of Excess Cash Flow, as defined in the agreement, if any (reduced to 25% if PCHI’s first lien leverage ratio (as defined in the agreement) is less than 3.50 to 1.00, but greater than 2.50 to 1.00, and 0% if PCHI’s first lien leverage ratio is less than 2.50 to 1.00). The term loans may be voluntarily prepaid at any time without premium or penalty, other than customary breakage costs with respect to loans based on the LIBOR rate. All obligations under the agreement are jointly and severally guaranteed by PC Intermediate, PCHI and each existing and future domestic subsidiary of PCHI. PCHI and each guarantor has secured its obligations, subject to certain exceptions and limitations, by a first-priority lien on substantially all of its assets (other than accounts receivable, inventory, cash and certain related assets), including a pledge of all of the capital stock held by PC Intermediate, PCHI and each guarantor, and a second-priority lien on its accounts receivable, inventory, cash and certain related assets. The Term Loan Credit Agreement contains certain customary affirmative covenants and events of default. Additionally, it contains negative covenants which, among other things and subject to certain exceptions, restrict the ability of PCHI to:
•
incur additional indebtedness;
•
pay dividends on capital stock or redeem, repurchase or retire capital stock;
•
make certain investments, loans, advances and acquisitions;
•
engage in transactions with affiliates;
•
create liens; and
•
transfer or sell certain assets. At December 31, 2020, all outstanding borrowings were based on LIBOR and were at a weighted average interest rate of 3.25%. 6.125% Senior Notes — Due 2023 (“6.125% Senior Notes”) The 6.125% Senior Notes mature on August 15, 2023. Interest on the notes is payable semi-annually in arrears on February 15 and August 15 of each year. The notes are guaranteed, jointly and severally, on a senior basis by each of PCHI’s existing and future wholly-owned domestic subsidiaries. The notes and the guarantees are general unsecured senior obligations and are effectively subordinated to all other secured debt to the extent of the assets securing such secured debt. The indenture governing the notes contains certain covenants limiting, among other things and subject to certain exceptions, PCHI’s ability to:
•
incur additional indebtedness or issue certain disqualified stock and preferred stock;
•
pay dividends or distributions, redeem or repurchase equity;
•
prepay subordinated debt or make certain investments;
•
engage in transactions with affiliates;
•
consolidate, merge or transfer all or substantially all of PCHI’s assets;
•
create liens; and
•
transfer or sell certain assets. The indenture governing the notes also contains certain customary affirmative covenants and events of default. The Company may redeem the notes, in whole or in part, at par. Also, if the Company experiences certain types of change in control, as defined, the Company may be required to offer to repurchase the Senior Notes at 101% of their principal amount. In connection with issuing the notes, the Company incurred and capitalized third-party costs. Capitalized costs are being amortized over the life of the debt and are included in long-term obligations, excluding current portion, in the Company’s consolidated balance sheet. . 6.625% Senior Notes — Due 2026 (“6.625% Senior Notes”) The 6.625% Senior Notes mature on August 1, 2026. Interest on the notes is payable semi-annually in arrears on February 1st and August 1st of each year. The notes are guaranteed, jointly and severally, on a senior basis by each of PCHI’s existing and future wholly-owned domestic subsidiaries. The notes and the guarantees are general unsecured senior obligations and are effectively subordinated to all other secured debt to the extent of the assets securing such secured debt. The indenture governing the notes contains certain covenants limiting, among other things and subject to certain exceptions, PCHI’s ability to:
•
incur additional indebtedness or issue certain disqualified stock and preferred stock;
•
pay dividends or distributions, redeem or repurchase equity;
•
prepay subordinated debt or make certain investments;
•
engage in transactions with affiliates;
•
consolidate, merge or transfer all or substantially all of PCHI’s assets;
•
create liens; and
•
transfer or sell certain assets. The indenture governing the notes also contains certain customary affirmative covenants and events of default. On or after August 1, 2021, the Company may redeem the notes, in whole or in part, at the following (expressed as a percentage of the principal amount to be redeemed):
Twelve-month period beginning on August 1,
Percentage
2021
103.313
%
2022
101.656
%
2023 and thereafter
100.000
% In addition, the Company may redeem up to 40% of the aggregate principal amount outstanding on or before August 1, 2021 with the cash proceeds from certain equity offerings at a redemption price of 106.625% of the principal amount. The Company may also redeem some or all of the notes before August 1, 2021 at a redemption price of 100% of the principal amount plus a premium that is defined in the indenture. Also, if the Company experiences certain types of change in control, as defined, the Company may be required to offer to repurchase the notes at 101% of their principal amount. First Lien Party City Notes, First Lien Anagram Notes, Second Lien Anagram Notes On July 30, 2020 (the “Settlement Date”), the Company and certain of its direct or indirect subsidiaries, including PCHI, Anagram Holdings, LLC, a Delaware limited liability company and wholly owned direct subsidiary of PCHI (“Anagram Holdings”), and Anagram International, Inc., a Minnesota corporation and wholly owned direct subsidiary of Anagram Holdings, completed certain refinancing transactions, including, among other things: (i) the exchange of $327,076 of 6.125% Senior Notes due 2023 (the “2023 Notes”) and $392,746 of 6.625% Senior Notes due 2026 (the “2026 Notes” and, together with the 2023 Notes, the “Existing Notes”) issued by PCHI, in each case tendered in the Company’s offers to exchange pursuant to the terms described in a confidential offering memorandum, for (A) $156,669 of Senior Secured First Lien Floating Rate Notes due 2025 (the “First Lien Party City Notes”) issued by PCHI; (B) $84,687 of 10.00% PIK/Cash Senior Secured Second Lien Notes due 2026 (the “Second Lien Anagram Notes”) issued by Anagram Holdings and Anagram International (together, the “Anagram Issuers”); and (C) 15,942,551 shares of the Company’s common stock, $0.01 par value per share (the “Common Stock”); (ii) the issuance of $110,000 in the aggregate of 15.00% PIK/Cash Senior Secured First Lien Notes due 2025 (the “First Lien Anagram Notes”) by the Anagram Issuers and an additional $5,000 of First Lien Party City Notes in connection with a rights offering and a private placement, as applicable; and (iii) the solicitations of certain consents with respect to the indentures governing Existing Notes. The First Lien Party City Notes were issued pursuant to an indenture, dated as of the Settlement Date, among PCHI, as issuer, certain guarantors party thereto (the “Party City Guarantors”) and Ankura Trust Company, LLC (“Ankura”), as trustee and collateral trustee. The First Lien Party City Notes were issued in an aggregate amount of $161,669 and will mature on July 15, 2025. Interest on the First Lien Party City Notes accrues from the Settlement Date at a floating rate equal to the 6-month London Inter-Bank Offered Rate plus 500 basis points (with a floor of 75 basis points) per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing January 15, 2021. The First Lien Party City Notes are senior secured obligations of PCHI and the Party City Guarantors. The First Lien Party City Notes are pari passu in right of payment with all of PCHI’s other senior indebtedness, including the existing senior secured term loan facility and the ABL Facility, and are structurally subordinated to the First Lien Anagram Notes and the Second Lien Anagram Notes, to the extent of the value of the Anagram Collateral (as defined below). The First Lien Party City Notes are secured by a first priority lien on collateral that includes liens on substantially all assets (other than certain accounts, inventory, deposit accounts, securities accounts, related assets and general intangibles) of the Party City Guarantors, in each case subject to certain exceptions and permitted liens . The First Lien Anagram Notes were issued pursuant to an indenture, dated as of the Settlement Date, among Anagram Holdings, as issuer, Anagram International, as co-issuer, certain guarantors party thereto (the “Anagram Guarantors”) and Ankura, as trustee and collateral trustee. The First Lien Anagram Notes were issued in an aggregate amount of $110,000 and will mature on August 15, 2025. Interest on the First Lien Anagram Notes accrues from the Settlement Date at (i) a rate of 10.00% per annum, payable in cash; and (ii) a rate of 5.00% per annum payable by increasing the principal amount of the outstanding First Lien Anagram Notes or issuing additional First Lien Anagram Notes, as the case may be, in each case payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2021. The First Lien Anagram Notes are senior secured obligations of the Anagram Issuers and are pari passu in right of payment with all of the Anagram Issuers’ other senior indebtedness. The First Lien Anagram Notes are secured by a first priority lien on collateral that consists of substantially all assets and properties of the Anagram Issuers and the Anagram Guarantors, subject to certain exceptions and permitted liens (the “Anagram Collateral”). Such security interests are senior in priority to the security interests in such assets that secure the Second Lien Anagram Notes. The Second Lien Anagram Notes were issued pursuant to an indenture, dated as of the Settlement Date, among Anagram Holdings, as issuer, Anagram International, as co-issuer, the Anagram Guarantors and Ankura, as trustee and collateral trustee. The Second Lien Anagram Notes were issued in an aggregate amount of $84,687 and will mature on August 15, 2026. Interest on the Second Lien Anagram Notes accrues from the Settlement Date at (i) a rate of 5.00% per annum, payable, at the Anagram Issuers’ option, entirely in cash or entirely by increasing the principal amount of the outstanding Second Lien Anagram Notes or issuing additional Second Lien Anagram Notes, as the case may be; and (ii) a rate of 5.00% per annum payable by increasing the principal amount of the outstanding Second Lien Anagram Notes or issuing additional Second Lien Anagram Notes, as the case may be, in each case payable semi-annually in arrears on February 15 and August 15 of each year, commencing February 15, 2021; provided, however, that on August 15, 2025, interest will be required to be paid by increasing the principal amount of the Second Lien Anagram Notes or issuing the principal amount of the Second Lien Anagram Notes or issuing additional Second Lien Anagram Notes. On February 15, 2026, the Anagram Issuers will prepay in cash a portion of the Second Lien Anagram Notes then outstanding in an amount necessary such that the Second Lien Anagram Notes are not treated as “applicable high yield discount obligations” within the meaning of Section 163(i) of the Internal Revenue Code of 1986, as amended. The Second Lien Anagram Notes are senior secured obligations of the Anagram Issuers and are pari passu in right of payment with all of the Anagram Issuers’ other senior indebtedness. The Second Lien Anagram Notes are secured by a second priority lien on the Anagram Collateral. Such security interests are junior to the security interests in such assets that secure the First Lien Anagram Notes. The Company evaluated the refinancing transaction in accordance with ASC 470-60 Troubled Debt Restructuring. The exchange of the 2023 Notes and 2026 Notes for the First Lien Party City Notes, Second Lien Anagram Notes and shares of Company Common Stock, as well as the concurrent purchase by the participants in the exchange of First Lien Anagram Notes represents a troubled debt restructuring (“TDR”). As the future undiscounted cash flows of the restructured debt were less than the net carrying value of the Existing Notes (including accrued interest and unamortized discount) adjusted for Common Stock issued to the participants in the exchange and such participants’ purchase of and lenders’ participation in the First Lien Anagram Notes, the Company recognized a gain of $273,149 which reflects $18,902 of third-party fees incurred, and $27,007 of Common Stock issued in the exchange. The Company received $39,544 of cash from the participants in the exchange related to $44,500 of principal amount of First Lien Anagram Notes with an undiscounted value of $82,160, which includes interest expense. Interest expense is not currently recognized for this portion of the restructured debt. Another portion of the restructured debt related to one holder of Existing Notes did not result in gain recognition as the undiscounted cash flows of the restructured debt was higher than the carrying value of the existing debt. The carrying amount of this portion of the restructured debt is $ 32,328 and the interest expense will be recognized prospectively at a 3.5 % effective interest rate. Amounts attributed to purchasers of the First Lien Anagram Notes who were not participants in the exchange (principal balance of $ 50,500 ) are recognized at consideration received less allocated transaction costs (netting to $ 45,678 ) and the effective interest method will be used to recognize interest expense prospectively . Finance Lease Obligations Additionally, the Company has entered into various finance leases for building, machinery and equipment. At December 31, 2020 and December 31, 2019 the balances of such leases were $13,983 and $14,990, respectively. Other Subject to certain exceptions, PCHI may not make certain payments, including the payment of dividends to its shareholders (“restricted payments”), unless certain conditions are met under the terms of the indentures governing the senior notes, the ABL Facility and the Term Loan Credit Agreement. As of December 31, 2020, the most restrictive of these conditions existed in the Term Loan Credit Agreement, which limited restricted payments based on PCHI’s consolidated net income and leverage ratios. PCHI’s parent companies, PC Intermediate, PC Nextco and Party City Holdco, have no assets or operations other than their investments in their subsidiaries and income from those subsidiaries. At December 31, 2020, maturities of long-term obligations consisted of the following:
Long-Term Debt Obligations
Finance Lease Obligations
Totals
2021
$
12,492
$
1,084
$
13,576
2022
681,728
1,387
683,115
2023
22,924
431
23,355
2024
—
387
387
2025
359,076
365
359,441
Thereafter
259,286
10,330
269,616
Long-term obligations
$
1,335,506
$
13,983
$
1,349,489 |
