Note 12 - Long-Term Debt

12 Months Ended

Jun. 24, 2012

12. Long-Term Debt

Long-term debt consists of the following:

	June 24, 2012			June 26, 2011
Notes payable	$	—		$	133,722
First Amended Credit Agreement revolving credit facility		—			34,600
ABL Revolver		51,000			—
ABL Term Loan		50,000			—
Term B Loan		20,515			—
Capital lease obligation		37			342
Total debt		121,552			168,664
Current portion of long-term debt		(7,237	)		(342	)
Total long-term debt	$	114,315		$	168,322

Notes Payable

On May 26, 2006, the Company issued $190,000 of 11.5% senior secured notes (“2014 notes”) due May 15, 2014. The 2014 notes were guaranteed on a senior, secured basis by each of the Company’s existing and future restricted domestic subsidiaries.

First Amended Credit Agreement Revolving Credit Facility

Concurrent with the issuance of the 2014 notes, the Company amended its then existing senior secured asset-based revolving credit facility (“Amended Credit Agreement”). On September 9, 2010, the Company and the Subsidiary Guarantors (as co-borrowers) entered into the First Amendment to the Amended and Restated Credit Agreement (“First Amended Credit Agreement”) with Bank of America, N.A. (as both Administrative Agent and Lender). The First Amended Credit Agreement provided for a revolving credit facility of $100,000 that was scheduled to mature on September 9, 2015. However, if the 2014 notes had not been paid in full on or before February 15, 2014, the maturity date of the Company’s revolving credit facility would have been automatically adjusted to February 15, 2014.

Debt Refinancing

On May 24, 2012, the Company entered into a $150,000 senior secured credit facility (“ABL Facility”) with Wells Fargo Bank, N.A. (“Wells Fargo”) and Bank of America, N.A. The ABL Facility consists of a $100,000 revolving credit facility (“ABL Revolver”) and a $50,000 term loan (“ABL Term Loan”). Wells Fargo serves as the administrative agent, sole lead arranger and sole book runner. In addition, the Company entered into a $30,000 term loan (“Term B Loan”) with MacKay Shields LLC, a Delaware limited liability company, solely in its capacity as investment adviser or sub adviser with investment authority for certain discretionary client accounts. Wilmington Trust National Association (“Wilmington Trust”) serves as the administrative agent under the Term B Loan. The purpose of the new ABL Facility and the Term B Loan was to, among other things, refinance the Company’s existing indebtedness including the redemption of the 2014 notes and to repay in full amounts borrowed under, and terminate, the First Amended Credit Agreement. On May 24, 2012, the Company redeemed in full the $123,722 remaining principal amount of the outstanding 2014 notes at par and repaid amounts borrowed under, and terminated, the First Amended Credit Agreement, which had an outstanding principal balance of $35,000. The ABL Facility and the Term B Loan each have a maturity date of May 24, 2017. The Company has the ability to request that the borrowing capacity of the ABL Revolver be increased to as much as $150,000, at the discretion of the participating lenders.

ABL Facility

The ABL Facility is secured by a first-priority perfected security interest in substantially all owned or hereafter acquired property and assets, together with all proceeds and products thereof, of the Company, Unifi Manufacturing, Inc. and its subsidiary guarantors (the “Loan Parties”) other than the assets to which the Loan Parties have a second-priority lien. It is also secured by a first priority perfected security interest in all of the stock of (or other ownership interests in) each of the Loan Parties (other than the Company) and certain subsidiaries of the Loan Parties; provided, that only 65% of the stock of (or other ownership interests in) first tier controlled foreign corporations are pledged, together with all proceeds and products thereof. The ABL Facility is further secured by a second-priority lien on the Company’s indirect limited liability company membership interest in Parkdale America, LLC (“PAL”).

The ABL Facility includes representations and warranties made by the Loan Parties, affirmative and negative covenants and events of default that are usual and customary for financings of this type. Should excess availability under the ABL Revolver fall below the greater of $10,000 or 15% of maximum availability, an ABL Facility financial covenant requiring the Loan Parties to maintain a fixed charge coverage ratio on a monthly basis of at least 1.05 to 1.0 becomes effective. In addition, the ABL Facility contains certain restricted payment and restricted investment provisions, including a restriction on the payment of dividends and share repurchases, unless excess availability is greater than $20,000 for the entire thirty day period prior to the making of such a distribution or excess availability is greater than $10,000 for the entire thirty day period prior to the making of such a distribution and the fixed charge coverage ratio for the most recent twelve month period (as calculated on a pro forma basis as if the payment and any revolving loans made in connection therewith were made on the first day of such period) is at least 1.0 to 1.0. As of June 24, 2012, the Company had a fixed charge coverage ratio of 1.43 and was in compliance with all financial covenants.

The Company’s ability to borrow under the ABL Revolver will be limited to a borrowing base equal to specified percentages of eligible accounts receivable and inventory and is subject to certain conditions and limitations. ABL Revolver borrowings bear interest at the London Interbank Offer Rate (the “LIBOR Rate”) plus an applicable margin of 1.75% to 2.25% or the Base Rate plus an applicable margin of 0.75% to 1.25% with interest currently being paid on a monthly basis. The applicable margin is based on the average quarterly excess availability under the ABL Revolver. The Base Rate means the greatest of (i) the prime lending rate as publicly announced from time to time by Wells Fargo Bank, (ii) the Federal Funds Rate plus 0.5%, and (iii) the LIBOR rate plus 1.0%. There is also an unused line fee under the ABL Revolver of 0.25% to 0.375% of the unused line amount which is paid monthly.

The Company has $2,175 of standby letters of credit at June 24, 2012, none of which have been drawn upon. As of June 24, 2012, the Company had $37,122 of excess availability under the ABL Revolver.

Under the terms of the ABL Facility, the Company is required to hedge at least $50,000 of variable interest rate exposure so long as the outstanding principal of all indebtedness having variable interest rates exceeds $75,000. The weighted average interest rate for the ABL Revolver as of June 24, 2012, including the effects of all interest rate swaps, was 3.4%.

The ABL Term Loan bears interest at LIBOR plus an applicable margin of 2.25% to 2.75% or the Base Rate plus an applicable margin of 1.25% to 1.75% depending upon the Company’s level of excess borrowing availability with interest currently being paid on a monthly basis. The weighted average interest rate for the ABL Term Loan as of June 24, 2012, including the effects of all interest rate swaps, was 3.3%. The ABL Term Loan will be repaid in quarterly scheduled principal installments of $1,800 commencing on September 1, 2012 and a balloon payment of $14,000 in May 2017. The ABL Term Loan may be prepaid at par, in whole or in part, at any time before the maturity date, at the Company’s discretion, subject to the provisions of the Intercreditor Agreement.

Term B Loan

The Term B Loan is secured by a first-priority lien on the Company’s limited liability company membership interest in PAL and a second-priority lien on the ABL Facility first-priority collateral described above. Wells Fargo and Wilmington Trust entered into an Intercreditor Agreement (“Intercreditor Agreement”) on May 24, 2012 which confirmed the relative priority of their respective security interests. The Term B Loan also contains representations and warranties, affirmative and negative covenants and events of default comparable to those included in the ABL Facility.

The Term B Loan bears interest at LIBOR plus 7.50% (with a LIBOR floor of 1.25%) with interest payable monthly. The Term B Loan does not amortize and prepayments are only required if after-tax distributions from PAL are received by the Company (100% of such distributions up to the first $3,000 per calendar year and 50% thereafter), the Company sells all or any part of its membership interest in PAL or under certain other circumstances specified within the Intercreditor Agreement. The Company may prepay the Term B Loan at any time subject to the Intercreditor Agreement, in whole or in part, with a call premium of 3% during the first year, 2% during the second year, 1% during the third year and at par thereafter.

Optional and Mandatory Prepayments

On June 8, 2012, the Company made a $6,000 optional prepayment of the Term B Loan and recorded a $311 charge for the early extinguishment of debt related to the 3% call premium and the associated write-off of debt financing fees. On June 13, 2012, the Company made a $3,485 mandatory prepayment of the Term B Loan due to the receipt of a PAL after-tax distribution and recorded a $180 charge for the early extinguishment of debt related to the 3% call premium and the associated write-off of debt financing fees.

The following table presents the scheduled maturities of the Company’s long-term debt on a fiscal year basis:

		2013				2014				2015				2016				2017				Thereafter
Scheduled debt maturities		$	7,237			$	7,200			$	7,200			$	7,200			$	92,715			$	—

Debt Financing Fees

Debt financing fees are classified within other non-current assets and consist of the following:

	June 24, 2012			June 26, 2011
Balance at beginning of year	$	3,245		$	3,585
Amounts paid related to debt refinancing		3,127			825
Amortization charged to interest expense		(871	)		(415	)
Amounts charged to extinguishment of debt due to refinancing		(2,250	)		—
Amounts charged to extinguishment of debt due to prepayments		(381	)		(750	)
Balance at end of year	$	2,870		$	3,245

Amortization of the debt financing fees is classified within Interest expense and consists of the following:

	For the Fiscal Years Ended
	June 24, 2012		June 26, 2011		June 27, 2010
Amortization of debt financing fees	$	871	$	415	$	1,104

The components of Loss (gain) on extinguishment of debt consist of the following:

	For the Fiscal Years Ended
	June 24, 2012		June 26, 2011		June 27, 2010
Prepayment premium (discount) for 2014 notes	$	288	$	2,587	$	(65	)
Prepayment premium for Term B Loan		284		—		—
		572		2,587		(65	)

Non-cash charges due to refinancing		2,250		—		—
Non-cash charges due to prepayments		381		750		11
Loss (gain) on extinguishment of debt	$	3,203	$	3,337	$	(54	)

Subsequent Events

On June 25, 2012, the Company provided notice that it would make a $4,515 optional prepayment of the Term B Loan. This prepayment was subsequently completed on July 2, 2012, and the Company recorded a $232 charge for the early extinguishment of debt in the September 2012 quarter related to the 3% call premium and the associated write-off of debt financing fees.