7. Long-Term Debt

The total undiscounted face amount of Headwaters' outstanding long-term debt was approximately $504.9 million and $457.5 million as of September 30, 2012 and 2013, respectively. As of those dates, the discounted carrying value of long-term debt consisted of the following:

(in thousands)	2012		2013

7⁵/8% Senior secured notes, due April 2019	$	400,000	$	400,000
Convertible senior subordinated notes:
2.50%, due February 2014 (face amount $55,077 at September 30, 2012 and $7,687 at September 30, 2013), net of discount		51,278		7,553
8.75%, due February 2016 (face amount $49,791), net of discount		49,261		49,420

Total convertible senior subordinated notes, net of applicable discounts		100,539		56,973

Carrying amount of long-term debt, net of discounts		500,539		456,973
Less current portion		0		(7,553	)

Long-term debt	$	500,539	$	449,420

7⁵/8% Senior Secured Notes—In 2011, Headwaters issued $400.0 million of 7⁵/8% senior secured notes for net proceeds of approximately $392.8 million. Headwaters used most of the net proceeds to repay the former 11³/8% senior secured notes. Upon early repayment of the 11³/8% notes, the remaining unamortized balances of debt discount and debt issue costs related to those notes, aggregating approximately $8.8 million, were written off and charged to interest expense, as was $1.1 million of banking fees related to the tender offer. The 7⁵/8% notes mature in April 2019 and bear interest at a rate of 7.625%, payable semiannually. The notes are secured by substantially all assets of Headwaters; however, the note holders have a second priority position with respect to the assets that secure the ABL Revolver described below, currently consisting of certain trade receivables and inventories of Headwaters' light building products and heavy construction materials segments. The notes are senior in priority to all other outstanding and future subordinated debt.

Headwaters can redeem the 7⁵/8% notes, in whole or in part, at any time after March 2015 at redemption prices ranging from 103.8% to 100.0%, depending on the redemption date. In addition, through March 2014 Headwaters can redeem at a price of 107.6% up to 35% of the outstanding notes with the net proceeds from one or more equity offerings. Headwaters can also redeem up to 10% of the notes in any 12-month period through March 2014 at a price of 103%, and can redeem any portion of the notes at any time through March 2015 at a price equal to 100% plus a make-whole premium.

The senior secured notes limit Headwaters in the incurrence of additional debt and liens on assets, prepayment of future new subordinated debt, merging or consolidating with another company, selling all or substantially all assets, making investments and the payment of dividends or distributions, among other things. Headwaters was in compliance with all debt covenants as of September 30, 2013.

ABL Revolver—Since entering into the ABL Revolver, Headwaters has not borrowed any funds under the arrangement and has no borrowings outstanding as of September 30, 2013. Availability under the ABL Revolver cannot exceed $70.0 million, which includes a $35.0 million sub-line for letters of credit and a $10.5 million swingline facility. Availability under the ABL Revolver is further limited by the borrowing base valuations of the assets of Headwaters' light building products and heavy construction materials segments which secure the borrowings, currently consisting of certain trade receivables and inventories. In addition to the first lien position on these assets, the ABL Revolver lenders have a second priority position on substantially all other assets of Headwaters. As of September 30, 2013, Headwaters had secured letters of credit under terms of the ABL Revolver of approximately $22.7 million for various purposes and had availability under the ABL Revolver of approximately $47.3 million.

Subsequent to September 30, 2013, the termination date of the ABL Revolver was extended from October 2014 to October 2018. There is a contingent provision for early termination at any time within three months prior to the earliest maturity date of the senior secured notes or any of the convertible senior subordinated notes (currently November 2013), at which time any amounts borrowed must be repaid. The contingent provision for early termination is precluded if borrowing base capacity under the ABL Revolver and / or cash collateral is at least equivalent to the amount of notes maturing on such date.

Outstanding borrowings under the ABL Revolver accrue interest at Headwaters' option, at either i) the London Interbank Offered Rate (LIBOR) plus 1.75%, 2.0% or 2.25%, depending on Headwaters' average net excess availability under the ABL; or ii) the "Base Rate" plus 0.5%, 0.75% or 1.0%, again depending on average net excess availability. The base rate is subject to a floor equal to the highest of i) the prime rate, ii) the federal funds rate plus 0.5%, and iii) the 30-day LIBOR rate plus 1.0%. Fees on the unused portion of the ABL Revolver range from 0.25% to 0.375%, depending on the amount of the credit facility which is utilized. If there would have been borrowings outstanding under the ABL Revolver as of September 30, 2013, the interest rate on those borrowings would have been approximately 3.0% (2.5% under the agreement as currently amended).

The ABL Revolver contains restrictions and covenants common to such agreements, including limitations on the incurrence of additional debt and liens on assets, prepayment of subordinated debt, merging or consolidating with another company, selling assets, making acquisitions and investments and the payment of dividends or distributions, among other things. In addition, if availability under the ABL Revolver is less than 15%, Headwaters is required to maintain a monthly fixed charge coverage ratio of at least 1.0x for the preceding twelve-month period. Headwaters was in compliance with all covenants as of September 30, 2013.

2.50% Convertible Senior Subordinated Notes Due 2014—The 2.50% convertible senior subordinated notes, which mature in February 2014, are subordinate to the 7⁵/8% senior secured notes described above and rank equally with the 8.75% convertible senior subordinated notes described below, as well as any future issuances of senior subordinated debt. The conversion rate for the 2.50% notes is 33.9236 shares per $1,000 principal amount ($29.48 conversion price), subject to adjustment. Upon conversion, Headwaters is required to pay cash up to the principal amount of the notes, and shares of common stock to the extent the price of Headwaters' common stock exceeds the conversion price during a 20-trading-day observation period. The conversion rate is adjusted for certain corporate transactions referred to as "fundamental changes."

The 2.50% notes are convertible at the option of the holders prior to December 1, 2013 if any of the following criteria are met: 1) during any fiscal quarter the closing price of Headwaters' common stock exceeds $38.32 per share for at least 20 trading days during a period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter; 2) during the five-business-day period after any ten-consecutive-trading-day period, the notes trade at less than 98% of the product of the common stock trading price and the number of shares of common stock issuable upon conversion of $1,000 principal amount of the notes; or 3) upon the occurrence of specified corporate transactions. The 2.50% notes are convertible on or after December 1, 2013 regardless of the foregoing circumstances and have no early redemption options for either Headwaters or the holders of the notes. If a fundamental change in common stock occurs, including termination of trading, holders may require Headwaters to repurchase the notes at a price equal to the principal amount plus any accrued interest.

In connection with the issuance of the 2.50% notes, Headwaters entered into convertible note hedge and warrant transactions for the purpose of effectively increasing the common stock conversion price for the notes from $29.48 per share to $35.00 per share. The convertible note hedge terminates upon the maturity of the notes or when none of the notes remain outstanding due to conversion or otherwise.

In 2012, Headwaters issued approximately $49.8 million of new 8.75% convertible senior subordinated notes in exchange for cancellation of an equal amount of outstanding 2.50% notes, plus a cash payment of approximately $0.6 million. The unamortized balances of debt discount and debt issue costs related to the $49.8 million of retired 2.50% notes, aggregating approximately $4.5 million, were written off and charged to interest expense. Also in 2012, Headwaters repurchased and canceled $16.0 million in aggregate principal amount of the 2.50% notes for cash consideration of approximately $13.5 million. The $2.5 million gain was recorded in other income. Accelerated debt discount and debt issue costs aggregating approximately $1.6 million were charged to interest expense. In 2013, Headwaters repurchased and canceled approximately $47.4 million in aggregate principal amount of the 2.50% notes for cash consideration of approximately $47.7 million. The premiums and accelerated debt discount and debt issue costs aggregating approximately $2.4 million were charged to interest expense. As of September 30, 2013, approximately $7.7 million of the 2.50% notes remained outstanding.

8.75% Convertible Senior Subordinated Notes Due 2016—As noted above, in 2012 Headwaters issued approximately $49.8 million of 8.75% convertible senior subordinated notes in exchange for cancellation of an equal amount of outstanding 2.50% notes. The 8.75% notes have a maturity date of February 2016 with no early redemption options for either Headwaters or the holders of the notes. Other than the different interest rate and the two-year extended maturity date, the terms of the 8.75% notes, including the significant terms of conversion (substituting December 1, 2015 for the applicable December 1, 2013 dates for the 2.50% notes), are similar in all material respects to the terms of the 2.50% notes as described above. Headwaters' Chairman and CEO was a holder of $1.15 million of the 2.50% notes that were exchanged for 8.75% notes, which exchange was approved by the Board of Directors and occurred under the same terms as for the other exchange participants.

Former Convertible Senior Subordinated Notes—In addition to the 2.50% notes and 8.75% notes described above, Headwaters had other issues of convertible senior subordinated notes outstanding at various times during 2011 and 2012. All of the outstanding balances of these notes were repaid on or before their maturity dates. Early repayments often required premiums and the acceleration of recognition of unamortized debt discount and debt issue costs. All such premiums and additional interest expense related to these former notes totaled approximately $5.2 million and $2.5 million in 2011 and 2012, respectively.

Interest and Debt Maturities—During 2011, Headwaters incurred total interest costs of approximately $127.0 million, including approximately $20.1 million of non-cash interest expense. Interest expense for 2011 includes approximately $62.6 million of early repayment premiums, of which $59.0 million related to the retirement of the 11³/8% senior secured notes. During 2012, Headwaters incurred total interest costs of approximately $53.4 million, including approximately $14.2 million of non-cash interest expense. During 2013, Headwaters incurred total interest costs of approximately $42.9 million, including approximately $5.8 million of non-cash interest expense. Neither capitalized interest nor interest income was material for any period presented. The weighted-average interest rate on the face amount of outstanding long-term debt, excluding amortization of debt discount and debt issue costs, was approximately 7.2% at September 30, 2012 and 7.7% at September 30, 2013.

Future maturities of long-term debt as of September 30, 2013, including the outstanding 2.50% convertible notes which mature in February 2014, are shown in the following table.

Year ending September 30,	(in thousands)

2014	$	7,687
2016		49,791
2019		400,000

Total long-term debt	$	457,478