Debt including Capital Lease Obligations

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



	September 30, 2013					December 31, 2012					September 30, 2012
	Carrying Value			Estimated Fair Value¹		Carrying Value			Estimated Fair Value¹		Carrying Value			Estimated Fair Value¹
(In thousands)	Carrying Value			Estimated Fair Value¹		Carrying Value			Estimated Fair Value¹		Carrying Value			Estimated Fair Value¹
7.875% Senior Secured Notes due 2021	$	422,100		$	453,000	$	—		$	—	$	—		$	—
7½% Senior Notes due 2014	—			—		106,438			106,000		106,438			105,000
4.25% Convertible Senior Notes due 2016	161,182			196,000		153,082			174,000		150,542			175,000
ABL Term Loan	6,750			6,000		—			—		—			—
Credit Facility Revolver	—			—		40,000			38,000		20,000			19,000
Credit Facility Term Loan	—			—		305,250			296,000		309,375			300,000
Capital lease obligations²	32,171			32,000		755			700		761			700
Less current portion	(2,191		)			(65,008		)			(40,903		)
Total long-term debt and capital lease obligations	$	620,012				$	540,517				$	546,213

The fair value of the senior notes is based on observable inputs, which include quoted prices for similar assets or liabilities in an active market and market-corroborated inputs (Level 2). All other debt may be traded on the secondary loan market, and the fair value 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.

Capital lease obligations at September 30, 2013 include the portion of the borrowings for the salad production and warehousing facility in the Midwest that has been placed into service. The facility is being constructed under a build-to-suit lease with the construction in progress liability included in "Accrued liabilities" and "Other liabilities" on the Condensed Consolidated Balance Sheets and then reclassified to capital lease obligation as the related leased assets are placed into service. See further description of the build-to-suit lease below.

RETIRING OF CREDIT FACILITY AND 7.5% SENIOR NOTES

In February 2013, the company received $457 million of net proceeds from issuance of the 7.875% Notes and the initial borrowings of the ABL Facility (defined below). The proceeds were used to retire the preceding senior secured credit facility ("Credit Facility") on February 5, 2013 and to deposit in escrow funds sufficient to retire the 7.5% Senior Notes due 2014 ("7.5% Senior Notes") at par plus accrued interest through the March 7, 2013 settlement date. Related expenses of $6 million were included in "Loss on debt extinguishment" on the Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Cash Flow. The loss included the write-off of deferred financing fees relating to the Credit Facility and the 7.5% Senior Notes, which were $5 million and $1 million, respectively.

7.875% SENIOR SECURED NOTES

In February 2013, CBII and its main operating subsidiary, Chiquita Brands L.L.C. ("CBL"), completed the offering of $425 million of 7.875% senior secured notes due February 1, 2021 ("7.875% Notes"). The notes were issued at 99.274% of par, resulting in a recorded discount that will be amortized over the life of the 7.875% Notes to reflect the effective interest rate of 8.0%.

The 7.875% Notes are guaranteed on a senior secured basis by all of CBII's and CBL's existing direct and indirect domestic subsidiaries, other than de minimis subsidiaries and by certain future direct and indirect domestic subsidiaries. The 7.875% Notes and the guarantees are secured, subject to certain exceptions and permitted liens, on a first-priority basis by liens on CBII's, CBL's and the guarantors' existing and after acquired material domestic real estate, certain intellectual property and 100% of the stock of substantially all of CBII's and CBL's domestic subsidiaries and up to 65% of the stock of certain foreign subsidiaries with the lien on subsidiary stock limited to less than 20% of the principal amount of the 7.875% Notes. The 7.875% Notes and the guarantees are secured, on a second-priority basis, by liens on the assets that secure CBII's and CBL's obligations under the new ABL Facility described below on a first-priority basis, including present and future receivables, inventory, equipment and substantially all of CBII's, CBL's and the guarantors' other domestic assets that do not secure the 7.875% Notes on a first-priority basis.

The 7.875% Notes bear interest of 7.875% per year (payable semi-annually in arrears on February 1 and August 1 of each year, beginning on August 1, 2013). On or before February 1, 2016, CBII and CBL may redeem on one or more occasions up to 35% of the aggregate principal amounts with cash proceeds from certain equity sales at a redemption price of 107.875% of the principal amount plus accrued interest, provided that at least 65% of the original aggregate principal amount of the 7.875% Notes remains outstanding after each such redemption. Also, on or before February 5, 2016, CBII and CBL may redeem a portion of the 7.875% Notes at a redemption price of 103% of the principal amount plus accrued interest, provided that no more than $42.5 million aggregate principal amount may be redeemed each year. CBII and CBL may also redeem the 7.875% Notes as follows:



If redeemed during the 12-month period commencing February 1,	Redemption Price
2016	105.906	%
2017	103.938	%
2018	101.969	%
2019 and thereafter	100.000	%

Upon a change of control of CBII, CBII and CBL will be required to make an offer to purchase the notes at 101% of their principal amount plus accrued interest.

The 7.875% Notes contain customary covenants that, among other things and subject to a number of qualifications and exceptions, limit the ability of CBII and its subsidiaries to incur additional indebtedness and issue preferred stock, sell assets, make investments or other restricted payments, pay dividends or make distributions in respect of the capital stock of CBII and its subsidiaries, create certain liens, merge or consolidate, issue or sell preferred stock of subsidiaries, place limits on dividends and other payment restrictions affecting certain subsidiaries, enter into transactions with certain stockholders or affiliates and guarantee debt. If the 7.875% Notes are, in the future, rated investment grade by Standard & Poor's Ratings Group and Moody's Investors Services, Inc., certain of these covenants will be suspended and will not apply to the 7.875% Notes so long as the 7.875% Notes continue to be rated investment grade by both rating agencies.

The 7.875% Notes include customary events of default including: failure to pay principal or interest when due; acceleration of other debt agreements representing more than $30 million of indebtedness of CBII and CBL and certain subsidiaries; failure to pay non-appealable judgments in excess of $30 million against CBII or CBL and certain subsidiaries; and certain bankruptcy events.

The 7.875% Notes have not yet been registered under federal securities laws. The company expects to consummate an exchange offer on or before February 5, 2014, but if for any reason it is unable to complete the exchange offer by that date, the 7.875% Notes' annual interest rate could increase until the notes are exchanged or registered by up to 1.0%.

4.25% CONVERTIBLE SENIOR NOTES

The company's $200 million of 4.25% Convertible Senior Notes due 2016 ("Convertible 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 and capital lease obligations, 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 2013. 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, 2013			December 31, 2012			September 30, 2012
Principal amount of debt component¹	$	200,000		$	200,000		$	200,000
Unamortized discount	(38,818		)	(46,918		)	(49,458		)
Net carrying amount of debt component	$	161,182		$	153,082		$	150,542
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, 2013, December 31, 2012 and September 30, 2012, 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)	2013		2012		2013		2012
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	2,782		2,465		8,100		7,175
Total interest expense related to the Convertible Notes	$	5,024	$	4,707	$	14,827	$	13,902

ASSET-BASED LENDING FACILITY

CBII and CBL also entered into a 5-year secured asset-based lending facility ("ABL Facility") concurrently with the closing of the 7.875% Notes offering on February 5, 2013. The ABL Facility consists of a revolver (the "ABL Revolver") and a $7.5 million term loan (the "ABL Term Loan"). The ABL Facility matures at the earlier of February 5, 2018 or 60 days prior to the maturity of the 4.25% Convertible Senior Notes due August 15, 2016, unless such notes have been satisfactorily refinanced. The ABL Term Loan requires annual repayments of approximately $2 million.

The ABL Facility has a maximum borrowing capacity of $200 million, with the ABL Revolver subject to a borrowing base calculation based on specified percentages of domestic receivables, certain inventory and certain domestic machinery and equipment with the potential for additional advances against foreign receivables.

At September 30, 2013, the borrowing capacity of the ABL Revolver was $112 million, including $20 million in the Fixed Asset Sub-Line. At September 30, 2013, the ABL Revolver was primarily used to support $24 million letters of credit, leaving an available balance of $88 million.

Loans under the ABL Facility bear interest at:


•	A rate equal to LIBOR plus a margin of from 1.75% to 2.25%, or Base Rate plus a margin of from 0.25% to 0.75%, determined based on levels of borrowing availability reset each fiscal quarter;


•	In the case of the Fixed Asset Sub-Line, a rate equal to LIBOR plus a margin from 2.25% to 2.75%, or Base Rate plus a margin of from 0.75% to 1.25%, determined based on levels of borrowing availability reset each fiscal quarter; and


•	In the case of the ABL Term Loan, a rate equal to LIBOR plus a margin from 2.75% to 3.25%, or Base Rate plus a margin of from 1.25% to 1.75%, determined based on levels of borrowing availability reset each fiscal quarter.

At September 30, 2013, the weighted average interest rate for the ABL Facility was LIBOR plus 3.00%, or 3.18%.

Obligations under the new ABL Facility are secured by a first-priority security interest in present and future domestic receivables, inventory, equipment and substantially all other domestic assets that are not under the first-priority security interest of the 7.875% Notes, all subject to certain exceptions and permitted liens and by a second-priority interest in the existing and after acquired material domestic real estate, certain intellectual property and a pledge of 100% of the stock of substantially all of the CBII, CBL and guarantors' domestic subsidiaries and up to 65% of the stock of certain foreign subsidiaries held by CBII, CBL and the guarantors, and proceeds relating thereto. Under the ABL Facility, CBL and non-de minimis domestic subsidiaries are borrowers. The ABL Facility is guaranteed on a full and unconditional basis by CBII and limited domestic subsidiaries of CBII, with the potential for additional guarantees from foreign subsidiaries of CBII. In addition, certain foreign subsidiaries of CBII may become borrowers under the ABL Facility, and certain foreign subsidiaries may guarantee those foreign borrowings.

The ABL Facility contains a fixed charge coverage ratio covenant that only becomes applicable when excess availability (as defined under such facility) is less than 10% of the maximum stated revolver amount thereunder. The ABL Facility also contains a covenant requiring CBII and its subsidiaries to maintain substantially all its cash in accounts that are subject to the control of the collateral agent under the ABL Facility which only becomes applicable when (a) an event of default under the facility occurs and is continuing or (b) excess availability (as defined under such facility) is less than 12.5% of the maximum stated revolver amount thereunder.

The ABL Facility also contains other customary affirmative and negative covenants, including limitations on CBII and its subsidiaries' ability to incur indebtedness, create or permit the existence of liens over their assets, engage in certain mergers, asset sales and liquidations, prepay certain indebtedness, pay dividends and other "restricted payments" and engage in transactions with their affiliates, in each case subject to customary exceptions.

At September 30, 2013, the company was in compliance with the ABL and its other debt agreements and expects to remain in compliance for at least the next twelve months.

CREDIT FACILITY

The Credit Facility, which was retired in February 2013 as discussed above, consisted of a $330 million senior secured term loan (the "Credit Facility Term Loan") and a $150 million senior secured revolving credit facility (the "Credit Facility Revolver"), both maturing July 26, 2016 (May 1, 2014, if the company did not repay, refinance or otherwise extend the maturity of the 7.5% Senior Notes by such date). The interest rate for both the Credit Facility Term Loan and Credit Facility Revolver was 5.00% at both December 31, 2012 and September 30, 2012, respectively. The Credit Facility Term Loan required 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. At December 31, 2012, there were $40 million of borrowings under the Credit Facility Revolver, in addition to $22 million used to support letters of credit, leaving an available balance of $88 million. At September 30, 2012 there were $20 million of borrowings under the Credit Facility Revolver, in addition to $21 million used to support letters of credit, leaving an available balance of $109 million.

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, 2013 an asset of $38 million included in "Property, plant and equipment, net," a $31 million capital lease obligation corresponding to the portion of the lease facility placed into service and a $7 million obligation corresponding to the construction in progress of the leased facility included in "Accrued liabilities" and "Other liabilities." Total construction costs are expected to be approximately $40 million through completion of the project, which is expected to be in the fourth quarter of 2013.