Borrowings | 9 Months Ended |
Sep. 30, 2013 |
Debt Disclosure [Abstract] | ' |
Borrowings | ' |
Borrowings |
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Borrowings consist of the following: |
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(dollars in thousands) | Interest Rate | | Maturity Date | September 30, | | December 31, |
2013 | 2012 |
Borrowings under ABL Facility | floating | | May 18, 2017 | $ | — | | | $ | — | |
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Senior Secured Notes | 6.88% | -1 | May 15, 2020 | 405,000 | | | 450,000 | |
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Promissory Note | 6.00% | | October, 2013 to September, 2016 | 738 | | | 903 | |
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RMB Loan Contract | floating | | January, 2014 | 9,780 | | | 9,522 | |
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RMB Working Capital Loan | floating | | September, 2014 | 5,135 | | | — | |
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BES Euro Line | floating | | December, 2013 | — | | | 4,362 | |
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AICEP Loan | 0.00% | | January, 2016 to July 30, 2018 | 2,348 | | | 1,272 | |
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Total borrowings | | | | 423,001 | | | 466,059 | |
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Plus — carrying value adjustment on debt related to the Interest Rate Agreement (1) | (857 | ) | | 408 | |
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Total borrowings — net | | | | 422,144 | | | 466,467 | |
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Less — long term debt due within one year | | | 15,146 | | | 4,583 | |
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Total long-term portion of borrowings — net | | $ | 406,998 | | | $ | 461,884 | |
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-1 | See Interest Rate Agreement under “Senior Secured Notes” below and in note 9. | | | | | | | | | |
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Amended and Restated ABL Credit Agreement |
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Libbey Glass and Libbey Europe entered into an Amended and Restated Credit Agreement, dated as of February 8, 2010 and amended as of April 29, 2011 and May 18, 2012 (as amended, the ABL Facility), with a group of four financial institutions. The ABL Facility provides for borrowings of up to $100.0 million, subject to certain borrowing base limitations, reserves and outstanding letters of credit. |
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All borrowings under the ABL Facility are secured by: |
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• | a first-priority security interest in substantially all of the existing and future personal property of Libbey Glass and its domestic subsidiaries (Credit Agreement Priority Collateral); | | | | | | | | | |
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• | a first-priority security interest in: | | | | | | | | | |
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• | 100 percent of the stock of Libbey Glass and 100 percent of the stock of substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries; | | | | | | | | | |
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• | 100 percent of the non-voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries; and | | | | | | | | | |
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• | 65 percent of the voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries | | | | | | | | | |
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• | a first priority security interest in substantially all proceeds and products of the property and assets described above; and | | | | | | | | | |
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• | a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (Notes Priority Collateral). | | | | | | | | | |
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Additionally, borrowings by Libbey Europe under the ABL Facility are secured by: |
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• | a first-priority lien on substantially all of the existing and future real and personal property of Libbey Europe and its Dutch subsidiaries; and | | | | | | | | | |
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• | a first-priority security interest in: | | | | | | | | | |
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• | 100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and | | | | | | | | | |
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• | 100 percent (or a lesser percentage in certain circumstances) of the outstanding stock issued by the first-tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries. | | | | | | | | | |
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Swingline borrowings are limited to $15.0 million, with swingline borrowings for Libbey Europe being limited to the US equivalent of $7.5 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swingline borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swingline rate, as defined in the ABL Facility. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 0.50 percent and 1.50 percent, respectively, at September 30, 2013. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the ABL Facility. The Commitment Fee was 0.375 percent at September 30, 2013. No compensating balances are required by the Agreement. The Agreement does not require compliance with a fixed charge coverage ratio covenant unless aggregate unused availability falls below $10.0 million. If our aggregate unused ABL availability were to fall below $10.0 million, the fixed charge coverage ratio requirement would be 1:00 to 1:00. Libbey Glass and Libbey Europe have the option to increase the ABL Facility by $25.0 million. There were no Libbey Glass or Libbey Europe borrowings under the facility at September 30, 2013 or at December 31, 2012. Interest is payable on the last day of the interest period, which can range from one month to six months depending on the maturity of each individual borrowing on the facility. |
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The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible accounts receivable and inventory. The borrowing base is the sum of (a) 85 percent of eligible accounts receivable and (b) the lesser of (i) 85 percent of the net orderly liquidation value (NOLV) of eligible inventory, (ii) 65 percent of eligible inventory, or (iii) $75.0 million. |
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The available total borrowing base is offset by rent reserves totaling $0.7 million and natural gas reserves totaling $0.2 million as of September 30, 2013. The ABL Facility also provides for the issuance of $30.0 million of letters of credit, which are applied against the $100.0 million limit. At September 30, 2013, we had $8.7 million in letters of credit outstanding under the ABL Facility. Remaining unused availability under the ABL Facility was $82.9 million at September 30, 2013, compared to $68.6 million under the ABL Facility at December 31, 2012. |
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Senior Secured Notes |
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On May 18, 2012, Libbey Glass closed its offering of the $450.0 million Senior Secured Notes. The notes offering was issued at par and had related fees of approximately $13.2 million. These fees will be amortized to interest expense over the life of the notes. |
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The Senior Secured Notes were issued pursuant to an Indenture, dated May 18, 2012 (Notes Indenture), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (Subsidiary Guarantors and together with the Company, Guarantors), and The Bank of New York Mellon Trust Company, N.A., as trustee (Notes Trustee) and collateral agent. Under the terms of the Notes Indenture, the Senior Secured Notes bear interest at a rate of 6.875 percent per year and will mature on May 15, 2020. Although the Notes Indenture does not contain financial covenants, the Notes Indenture contains other covenants that restrict the ability of Libbey Glass and the Guarantors to, among other things: |
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• | incur, assume or guarantee additional indebtedness; | | | | | | | | | |
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• | pay dividends, make certain investments or other restricted payments; | | | | | | | | | |
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• | create liens; | | | | | | | | | |
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• | enter into affiliate transactions; | | | | | | | | | |
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• | merge or consolidate, or otherwise dispose of all or substantially all the assets of Libbey Glass and the Guarantors; and | | | | | | | | | |
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• | transfer or sell assets. | | | | | | | | | |
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The Notes Indenture provides for customary events of default. In the case of an event of default arising from bankruptcy or insolvency as defined in the Notes Indenture, all outstanding Senior Secured Notes will become due and payable immediately without further action or notice. If any other event of default under the Notes Indenture occurs or is continuing, the Notes Trustee or holders of at least 25 percent in aggregate principal amount of the then outstanding Senior Secured Notes may declare all the Senior Secured Notes to be due and payable immediately. |
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The Senior Secured Notes and the related guarantees under the Notes Indenture are secured by (i) first priority liens on the Notes Priority Collateral and (ii) second priority liens on the Credit Agreement Priority Collateral. |
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Prior to May 15, 2015, we may redeem in the aggregate up to 35 percent of the Senior Secured Notes with the net cash proceeds of one or more equity offerings at a redemption price of 106.875 percent of the principal amount, provided that at least 65 percent of the original principal amount of the Senior Secured Notes must remain outstanding after each redemption and that each redemption occurs within 90 days of the closing of the equity offering. In addition, prior to May 15, 2015, but not more than once in any twelve-month period, we may redeem up to 10 percent of the Senior Secured Notes at a redemption price of 103 percent plus accrued and unpaid interest. The Senior Secured Notes are redeemable at our option, in whole or in part, at any time on or after May 15, 2015 at set redemption prices together with accrued and unpaid interest. |
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On May 7, 2013, Libbey Glass redeemed an aggregate principal amount of $45.0 million of the Senior Secured Notes in accordance with the terms of the Notes Indenture. Pursuant to the terms of the Notes Indenture, the redemption price for the Senior Secured Notes was 103 percent of the principal amount of the redeemed Senior Secured Notes, plus accrued and unpaid interest. At completion of the redemption, the aggregate principal amount of the Senior Secured Notes outstanding was $405.0 million. In conjunction with this redemption, we recorded $2.5 million of expense, representing $1.3 million for an early call premium and $1.2 million for the write off of a pro rata amount of financing fees. |
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For the nine months ended September 30, 2012, loss on redemption of debt included charges of $23.6 million for an early call premium and $11.0 million for the write off of the remaining financing fees and discounts from the former Senior Secured Notes. |
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We had an Interest Rate Agreement (Old Rate Agreement) in place through April 18, 2012 with respect to $80.0 million of our former Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. The Old Rate Agreement effectively converted this portion of our long-term borrowings from fixed rate debt to variable rate debt. The variable interest rate for our borrowings related to the Old Rate Agreement at April 18, 2012, excluding applicable fees, was 7.79 percent. Total remaining Senior Secured Notes not covered by the Old Rate Agreement had a fixed interest rate of 10.0 percent per year. On April 18, 2012, the swap was called at fair value. We received proceeds of $3.6 million. During the second quarter of 2012, $0.1 million of the carrying value adjustment on debt related to the Old Rate Agreement was amortized into interest expense. Upon the refinancing of the former Senior Secured Notes, the remaining unamortized balance of $3.5 million of the carrying value adjustment on debt related to the Old Rate Agreement was recognized as a gain in the loss on redemption of debt on the Condensed Consolidated Statements of Operations. |
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On June 18, 2012, we entered into an Interest Rate Agreement (New Rate Agreement) with respect to $45.0 million of our Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. The New Rate Agreement effectively converts this portion of our long-term borrowings from fixed rate debt to variable rate debt. Prior to May 15, 2015, but not more than once in any twelve-month period, the counterparty may call up to 10 percent of the New Rate Agreement at a call price of 103 percent. The New Rate Agreement is callable at the counterparty’s option, in whole or in part, at any time on or after May 15, 2015 at set call premiums. The variable interest rate for our borrowings related to the New Rate Agreement at September 30, 2013, excluding applicable fees, is 5.5 percent. The New Rate Agreement expires on May 15, 2020. Total remaining Senior Secured Notes not covered by the New Rate Agreement have a fixed interest rate of 6.875 percent per year through May 15, 2020. If the counterparty to this New Rate Agreement were to fail to perform, this New Rate Agreement would no longer afford us a variable rate. However, we do not anticipate non-performance by the counterparty. The interest rate swap counterparty was rated A+, as of September 30, 2013, by Standard and Poor’s. |
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The fair market value and related carrying value adjustment are as follows: |
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(dollars in thousands) | September 30, 2013 | | December 31, 2012 | | | |
Fair market value of Rate Agreements - asset (liability) | $ | (1,613 | ) | | $ | 298 | | | | |
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Adjustment to increase (decrease) carrying value of the related long-term debt | $ | (857 | ) | | $ | 408 | | | | |
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The fair value of the Old and New Rate Agreements are based on the market standard methodology of netting the discounted expected future fixed cash receipts and the discounted future variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate forward curves. See note 9 for further discussion and the net impact recorded on the Condensed Consolidated Statements of Operations. |
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Promissory Note |
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In September 2001, we issued a $2.7 million promissory note at an interest rate of 6.0 percent in connection with the purchase of our Laredo, Texas warehouse facility. At September 30, 2013, we had $0.7 million outstanding on the promissory note. Principal and interest with respect to the promissory note are paid monthly. |
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Notes Payable |
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We have an overdraft line of credit for a maximum of €1.0 million. At September 30, 2013, there were no borrowings under the facility, which has an interest rate of 5.80 percent. Interest with respect to the note is paid monthly. |
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RMB Loan Contract |
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On January 23, 2006, Libbey Glassware (China) Co., Ltd. (Libbey China), an indirect wholly owned subsidiary of Libbey Inc., entered into an RMB Loan Contract (RMB Loan Contract) with China Construction Bank Corporation Langfang Economic Development Area Sub-Branch (CCB). Pursuant to the RMB Loan Contract, CCB agreed to lend to Libbey China RMB 250.0 million, or the equivalent of approximately $40.8 million, for the construction of our production facility in China and the purchase of related equipment, materials and services. The loan has a term of eight years and bears interest at a variable rate as announced by the People’s Bank of China. As of the date of the initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of September 30, 2013, the annual interest rate was 5.90 percent. As of September 30, 2013, the outstanding balance was RMB 60.0 million (approximately $9.8 million) which is due on January 20, 2014. Interest is payable quarterly. The obligations of Libbey China are secured by a guarantee executed by Libbey Inc. for the benefit of CCB and a mortgage lien on the Libbey China facility. |
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RMB Working Capital Loan |
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On September 2, 2013, Libbey China entered into a RMB 31.5 million (approximately $5.1 million) working capital loan with CCB to cover seasonal working capital needs. The 364-day loan matures on September 1, 2014, and bears interest at a variable rate as announced by the People's Bank of China. The annual interest rate was 6.3% at September 30, 2013, and interest is paid monthly. The obligation is secured by a mortgage lien on the Libbey China facility. |
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BES Euro Line |
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In January 2007, Crisal (Libbey Portugal) entered into a seven-year €11.0 million line of credit (approximately $14.9 million) with Banco Espírito Santo, S.A. (BES). On August 14, 2013, Libbey Portugal pre-paid the final €3.3 million (approximately $4.5 million) principal payment along with accrued and unpaid interest on its BES Euro Line. |
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AICEP Loan |
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In July 2012, Libbey Portugal entered into a loan agreement with Agencia para Investmento Comercio Externo de Portugal, EPE (AICEP), the Portuguese Agency for investment and external trade. The amount of the loan is €1.7 million (approximately $2.3 million) at September 30, 2013, and has an interest rate of 0.0 percent. Semi-annual installments of principal are due beginning in January 2016 through the maturity date in July 2018. |
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Fair Value of Borrowings |
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The fair value of our debt has been calculated based on quoted market prices (Level 1 in the fair value hierarchy) for the same or similar issues. Our $405.0 million Senior Secured Notes had an estimated fair value of $423.2 million at September 30, 2013. At December 31, 2012, the $450.0 million outstanding Senior Secured Notes had an estimated fair value of $488.3 million. The fair value of the remainder of our debt approximates carrying value at September 30, 2013 and December 31, 2012 due to variable rates. |
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Capital Resources and Liquidity |
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Historically, cash flows generated from operations, cash on hand and our borrowing capacity under our ABL Facility have enabled us to meet our cash requirements, including capital expenditures and working capital requirements. At September 30, 2013, we had no borrowings under our ABL Facility and $8.7 million in letters of credit issued under that facility. As a result, we had $82.9 million of unused availability remaining under the ABL Facility at September 30, 2013. In addition, at September 30, 2013, we had $29.5 million of cash on hand. |
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Based on our operating plans and current forecast expectations, we anticipate that our level of cash on hand, cash flows from operations and borrowing capacity under our ABL Facility will provide sufficient cash availability to meet our ongoing liquidity needs. |
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On August 14, 2013, Libbey Portugal pre-paid the final €3.3 million (approximately $4.5 million) principal payment along with accrued and unpaid interest on its BES Euro Line. On October 10, 2013, Libbey China made a RMB 30.0 million (approximately $4.9 million) pre-payment of principal on the RMB Loan Contract using cash on hand. The remaining RMB 30.0 million (approximately $4.9 million) loan principal balance matures January 2014. |