Note 5 – Debt

The carrying values of the company's debt represent amortized cost and are summarized below with estimated fair values:



	March 31, 2012					December 31, 2011					March 31, 2011
	Carrying Value			Estimated Fair Value		Carrying Value			Estimated Fair Value		Carrying Value			Estimated Fair Value
(In thousands)	Carrying Value			Estimated Fair Value		Carrying Value			Estimated Fair Value		Carrying Value			Estimated Fair Value
Parent company¹ :
7½% Senior Notes due 2014	$	106,438		$	107,000	$	106,438		$	107,000	$	156,438		$	159,000
8⁷/8% Senior Notes due 2015	N/A			N/A		N/A			N/A		177,015			183,000
4.25% Convertible Senior Notes due 2016	145,687			184,000		143,367			172,000		136,816			205,000
Subsidiary²:
Credit Facility Term Loan	317,625			317,000		321,750			321,000		N/A			N/A
Preceding Credit Facility	N/A			N/A		N/A			N/A		160,000			159,000
Other	805			800		924			900		878			850
Less current portion	(16,730		)			(16,774		)			(20,158		)
Total long-term debt	$	553,825				$	555,705				$	610,989


¹	The fair value of the parent company debt is based on observable inputs, which include quoted prices for similar assets or liabilities in an active market and market-corroborated inputs (Level 2). See also Note 7 for discussion of fair value.


²	Credit facilities and other subsidiary debt may be traded on the secondary loan market, and the fair value of the Term Loan is based on either the last available trading price, if recent, or trading prices of comparable debt (Level 3). See also Note 7 for discussion of fair value.

7¹/2% AND 8⁷/8% SENIOR NOTES

The 7½% Senior Notes are callable, in whole or from time to time in part at 101.25% of par value and at par value after November 1, 2012. The indentures for the 7½% Senior Notes contain covenants that limit the ability of the company and its subsidiaries to incur debt and issue preferred stock, dispose of assets, make investments, pay dividends or make distributions in respect of the company's capital stock, create liens, merge or consolidate, issue or sell stock of subsidiaries, enter into transactions with certain shareholders or affiliates, and guarantee company debt. These covenants are generally less restrictive than the covenants under the Credit Facility or the prior CBL Facility. The 8⁷/8% Senior Notes were retired in 2011.

4.25% CONVERTIBLE SENIOR NOTES

The company's $200 million of Convertible Notes:


•	are unsecured, unsubordinated obligations of the parent company and rank equally with the company's 7½% Senior Notes.

•

are convertible at an initial conversion rate of 44.5524 shares of common stock per $1,000 in principal amount, equivalent to an initial conversion price of approximately $22.45 per share of common stock. The conversion rate is subject to adjustment based on certain dilutive events, including stock splits, stock dividends and other distributions (including cash dividends) in respect of the common stock. Holders of the Convertible Notes may tender their notes for conversion between May 15 and August 14, 2016, in multiples of $1,000 in principal amount, without limitation. Prior to May 15, 2016, holders of the Convertible Notes may tender the notes for conversion only under certain circumstances, in accordance with their terms.


•	may be settled, upon conversion, in shares, in cash or in any combination thereof at the company's option; the company's current intent and policy is to settle with a cash amount equal to the principal portion together with shares of the company's common stock to the extent that the obligation exceeds such principal portion.


•	are callable for redemption beginning February 19, 2014, under certain circumstances relating to the company's common stock trading price.

•

are accounted for in two components: (i) a debt component included in "Long-term debt, net of current portion" recorded at the issuance date, representing the estimated fair value of a similar debt instrument without the debt-for-equity conversion feature; and (ii) an equity component included in "Capital surplus" representing the issuance date estimated fair value of the conversion feature. This separation results in the debt being carried at a discount, which is accreted to the principal amount of the debt component using the effective interest rate method over the expected life of the Convertible Notes (through the maturity date).

To estimate the fair value of the debt component upon issuance, the company discounted the principal balance to result in an effective interest rate of 12.50%, the rate of similar instruments without the debt-for-equity conversion feature at the issuance date; this was also the effective interest rate in the first quarters of 2012 and 2011. The fair value of the equity component was estimated as the difference between the full principal amount and the estimated fair value of the debt component, net of an allocation of issuance costs and income tax effects. These were Level 3 fair value measurements (described in Note 7) and will be reconsidered in the event that any of the Convertible Notes are converted.

The carrying amounts of the debt and equity components of the Convertible Notes are as follows:



(In thousands)	March 31, 2012			December 31, 2011			March 31, 2011
Principal amount of debt component¹	$	200,000		$	200,000		$	200,000
Unamortized discount	(54,313		)	(56,633		)	(63,184		)
Net carrying amount of debt component	$	145,687		$	143,367		$	136,816
Equity component	$	84,904		$	84,904		$	84,904
Issuance costs and income taxes	(3,210		)	(3,210		)	(3,210		)
Equity component, net of issuance costs and income taxes	$	81,694		$	81,694		$	81,694


¹	As of March 31, 2012, December 31, 2011 and March 31, 2011, the Convertible Notes' "if-converted" value did not exceed their principal amount because the company's common stock price was below the conversion price of the Convertible Notes.

The interest expense related to the Convertible Notes was as follows:



	Quarter ended March 31,
(In thousands)	2012		2011
4.25% coupon interest	$	2,125	$	2,125
Amortization of deferred financing fees	117		117
Amortization of discount on the debt component	2,320		2,055
Total interest expense related to the Convertible Notes	$	4,562	$	4,297

CREDIT FACILITY

Chiquita Brands L.L.C. ("CBL"), the company's main operating subsidiary, maintains an amended and restated senior secured credit facility ("Credit Facility") that replaced the remaining portions of CBL's Preceding Credit Facility (defined below). At inception, the Credit Facility consisted of a $330 million senior secured term loan ("Term Loan") and a $150 million senior secured revolving facility ("Revolver") both maturing July 26, 2016 (May 1, 2014, if the company does not repay, refinance or otherwise extend the maturity of the 7½% Senior Notes by such date). The Credit Facility can be increased by $50 million under certain circumstances.

The interest rate for the Term Loan is based on LIBOR plus a spread based on CBII's leverage ratio and was 3.50% and 3.56% at March 31, 2012 and December 31, 2011, respectively. The Term Loan requires quarterly principal repayments of $4 million beginning September 30, 2011 through June 30, 2013 and quarterly principal repayments of $8 million beginning September 30, 2013 through March 31, 2016, with any remaining principal balance due at June 30, 2016 subject to the early maturity clause described above. The Term Loan may be repaid without penalty, but amounts repaid under the Term Loan may not be reborrowed.

The Revolver has a $100 million sublimit for letters of credit, subject to a $50 million sublimit for non-U.S. currency letters of credit. The company is required to pay a commitment fee on the daily unused portion of the Revolver of 0.375% to 0.50% depending on CBII's leverage ratio. In January 2012, the company borrowed $30 million under the revolving credit facility at a 3.31% interest rate based on CBII's leverage ratio of LIBOR plus a spread to fund seasonal working capital needs and repaid the balance in February 2012. At March 31, 2012 there were no borrowings under the Revolver other than having used $21 million to support letters of credit, leaving an available balance of $129 million. At December 31, 2011 there were no borrowings under the Revolver other than having used $26 million to support letters of credit, leaving an available balance of $124 million. In April 2012, the company borrowed $20 million under the revolving credit facility to fund seasonal working capital needs.

The Credit Facility contains two financial maintenance covenants each measured for the most recent four fiscal quarter period, a CBL (operating company) leverage ratio (debt divided by EBITDA, as defined in the Credit Facility) that is no higher than 3.50x and a fixed charge ratio (the sum of CBL's EBITDA plus Net Rent divided by Fixed Charges, as defined in the Credit Facility) that is at least 1.15x. The Credit Facility's financial covenants exclude changes in generally accepted accounting principles effective after December 31, 2010. EBITDA, as defined in the Credit Facility, excludes certain non-cash items including stock compensation and impairments. Fixed Charges, as defined in the Credit Facility, includes interest payments and distributions by CBL to CBII other than for normal overhead expenses, net rent and net lease expense. Net rent and net lease expense, as defined in the Credit Facility, exclude the estimated portion of ship charter costs that represents normal vessel operating expenses. Debt for purposes of the leverage covenant includes subsidiary debt plus letters of credit outstanding and synthetic leases ($59 million at March 31, 2012), which are operating leases under generally accepted accounting principles, but are capital leases for tax purposes. In order to achieve long-term strategic goals, the company will need an appropriate level of flexibility in its capital structure, and continues to proactively monitor and manage this flexibility in light of current and anticipated market and other conditions impacting the business and results of operations. While the company is currently in full compliance with all financial covenants in our debt agreements at March 31, 2012, the company recently began working with the agent bank of its Senior Credit Facility in an effort to amend the Credit Facility to provide the appropriate level of flexibility to execute company strategy, absorb the current volatility inherent in its business and pursue value enhancing transactions that may accelerate the achievement of the company's goals. There can be no assurance if or when the company will enter into such an amendment or the final terms of any such amendment.

PRECEDING CREDIT FACILITY

The preceding senior secured credit facility ("Preceding Credit Facility") consisted of a senior secured term loan (the "Preceding Term Loan") and a $150 million senior secured revolving credit facility (the "Preceding Revolver"). The interest rate for the Preceding Term Loan was based on LIBOR plus a spread based on CBII's leverage ratio and was 4.00% at March 31, 2011. The Preceding Term Loan required quarterly principal repayments of $5.0 million after March 31, 2010 until it was amended and restated by the Credit Facility. There were no borrowings under the Preceding Revolver other than having used $22 million to support letters of credit leaving an available balance of $128 million at March 31, 2011. The company was required to pay a fee of 0.50% per annum on the daily unused portion of the Preceding Revolver.