Debt

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



	September 30, 2012					December 31, 2011					September 30, 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		$	105,000	$	106,438		$	107,000	$	156,438		$	158,000
4.25% Convertible Senior Notes due 2016	150,542			175,000		143,367			172,000		141,117			176,000
Subsidiary²:
Credit Facility Revolving Loan	20,000			19,000		—			—		—			—
Credit Facility Term Loan	309,375			300,000		321,750			321,000		325,875			324,000
Other	761			700		924			900		979			900
Less current portion	(40,903		)			(16,774		)			(16,774		)
Total long-term debt	$	546,213				$	555,705				$	607,635


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 8 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 8 for discussion of fair value.

CREDIT FACILITY

On June 26, 2012, Chiquita Brands L.L.C. ("CBL"), the company's main operating subsidiary, amended its Credit Facility to provide the appropriate level of flexibility to execute the company's strategy and absorb the volatility inherent in its business. The amended Credit Facility maintains the $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 Credit Facility contains two financial maintenance covenants, each measured for the most recent four fiscal quarter period: 1) a CBL (operating company) leverage ratio (debt divided by EBITDA, each as defined in the Credit Facility) and 2) a fixed charge coverage ratio (the sum of CBL's EBITDA plus Net Rent divided by Fixed Charges, each as defined in the Credit Facility). 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, impairments and other non-cash charges. 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 ($56 million at September 30, 2012). Synthetic leases are operating leases under generally accepted accounting principles, but are capital leases for tax purposes.

The June 2012 amendment created a Covenant Amendment Period, which ends after the third quarter of 2013 unless elected earlier by CBL. CBL may elect to terminate the Covenant Amendment Period at any time after demonstrating its ability to be in compliance with the financial covenants prior to the amendment. During the Covenant Amendment Period, the financial maintenance covenants are as follows:



Period(s) Ending	CBL Leverage Ratio no higher than:
Fiscal quarters ending 6/30/2012 - 12/31/2012	6.50x
Fiscal quarter ending 3/31/2013	5.75x
Fiscal quarter ending 6/30/2013	4.50x
Fiscal quarter ending 9/30/2013	4.00x
Fiscal quarter ending 12/31/2013 and the end of any fiscal quarter ended thereafter	3.50x

Period(s) Ending	Fixed Charge Coverage Ratio at least:
Fiscal quarters ending 6/30/2012 - 6/30/2013	1.00x
Fiscal quarter ending 9/30/2013 and the end of any fiscal quarter ended thereafter	1.15x

When the Covenant Amendment Period ends, the covenants revert to the prior leverage ratio (no higher than 3.5x) and a fixed charge coverage ratio (at least 1.15x). At September 30, 2012, the company was in compliance with the financial covenants of the Credit Facility and expects to remain in compliance for at least twelve months from the balance sheet date. The covenants during the Covenant Amendment Period, as well as its duration, were based upon the company's forecasts; if actual results do not meet its forecasts, there could be no assurance that the company would not need to seek further amendments to the Credit Facility or that it would be able to obtain such amendments or alternative financing.

During the Covenant Amendment Period, the limits on capital expenditures are $125 million for fiscal year 2012, $85 million for fiscal year 2013, and return in 2014 to $150 million per year thereafter plus carryovers from the prior year. In addition, during the Covenant Amendment Period, CBL must have Available Liquidity (the sum of (i) the available balance under the Revolver, and (ii) unrestricted cash and cash equivalents) of $50 million and is subject to further limits on prepaying debt, making acquisitions, investments and distributions; after the Covenant Amendment Period, these additional restrictions will not apply.

During the Covenant Amendment Period: (a) the Term Loan and Revolver bear interest, at CBL's election, at a rate of LIBOR plus 4.75% or the Base Rate plus 3.75%; (b) the letter of credit fee is 4.75%; and (c) the commitment fee on the daily unused portions of the Revolver is 0.75%. When the Covenant Amendment Period ends, these terms revert to those prior to the amendment as follows, the spread in each case based on CBII's leverage ratio: (a) the Term Loan bears interest, at CBL's election, at a rate of LIBOR plus 3.00% to 3.75% or the Base Rate plus 2.00% to 2.75%; (b) the Revolver bears interest, at CBL's election, at a rate of LIBOR plus 2.75% to 3.50% or the Base Rate plus 1.75% to 2.50%; (c) the letter of credit fee is 2.75% to 3.50%; and (c) the commitment fee on the daily unused portions of the Revolver is 0.375% to 0.50%.

The interest rate for the Term Loan was 5.00%, 3.56%, and 3.25% at September 30, 2012, December 31, 2011, and September 30, 2011 respectively. The Term Loan requires quarterly principal repayments of $4 million 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 early without penalty, but amounts repaid under the Term Loan may not be reborrowed.

At September 30, 2012, there were $20 million of borrowings under the Revolver used to fund working capital. In addition, $21 million of the Revolver was used to support letters of credit, leaving an available balance of $109 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. At September 30, 2011, there were no borrowings under the Revolver other than having used $23 million to support letters of credit leaving an available balance of $127 million. 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.

7½% 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 preceding senior secured credit facility discussed further below.

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 effective interest rate remains unchanged through the third quarter of 2012. 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 8) and will be reconsidered in the event that any of the Convertible Notes are converted before their maturity.

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



(In thousands)	September 30, 2012			December 31, 2011			September 30, 2011
Principal amount of debt component¹	$	200,000		$	200,000		$	200,000
Unamortized discount	(49,458		)	(56,633		)	(58,883		)
Net carrying amount of debt component	$	150,542		$	143,367		$	141,117
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 September 30, 2012, December 31, 2011 and September 30, 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 September 30,				Nine months ended September 30,
(In thousands)	2012		2011		2012		2011
4.25% coupon interest	$	2,125	$	2,125	$	6,375	$	6,375
Amortization of deferred financing fees	117		117		352		352
Amortization of discount on the debt component	2,465		2,184		7,175		6,356
Total interest expense related to the Convertible Notes	$	4,707	$	4,426	$	13,902	$	13,083

PRECEDING CREDIT FACILITY AND 8⁷/₈% SENIOR NOTES

In July 2011, CBL entered into the Credit Facility using the proceeds to retire the preceding senior secured credit facility ("Preceding Credit Facility") and purchase $133 million of CBII's 8⁷/₈% Senior Notes due in 2015 in a tender offer at 103.333% of their par value. The company called the remaining $44 million of the 8⁷/₈% Senior Notes for redemption in August 2011 at 102.958% of their par value, using the remainder of the proceeds from the Credit Facility together with available cash to redeem them. Expenses of $11 million in the third quarter of 2011 are included in "Other expense" on the Condensed Consolidated Statements of Income and "Loss on debt extinguishment, net" on the Condensed Consolidated Statements of Cash Flow and are related to the refinancing activity. The expenses included the write-off remaining deferred financing fees from the Preceding Credit Facility and the 8⁷/₈% Senior Notes and total premiums paid to retire the 8⁷/₈% Senior Notes.

BUILD-TO-SUIT LEASE FOR MIDWEST SALAD PLANT CONSOLIDATION

In June 2012, the company entered into a 20-year lease agreement for a salad production and warehousing facility in the Midwest that will replace three existing facilities in the region. The lease agreement contains two 5-year extension periods. Though the construction costs are being financed by the lessor, the company is acting as the construction agent and will be responsible for all construction activity during the construction period because of the specialized nature of the facility. This results in the company owning the facility for accounting purposes and as such, the company has recognized as of September 30, 2012 an asset of $16 million included in "Property, plant and equipment, net" and a corresponding $16 million non-cash obligation for the construction in progress of the leased facility included in "Other liabilities," which represents the cumulative cost of the facility through the balance sheet date. Total construction costs are expected to be approximately $40 million through completion in the first half of 2013.