Debt

6 Months Ended

Jun. 30, 2011

Debt

Debt

Note 4 – Debt

Debt consists of the following:

	June 30,			December 31,			June 30,
(In thousands)	2011			2010			2010
Parent company:
7 1/2% Senior Notes due 2014	$	156,438		$	156,438		$	156,438
8 7/8% Senior Notes due 2015		177,015			177,015			177,015
4.25% Convertible Senior Notes due 2016		138,933			134,761			130,834
Long-term debt of parent company		472,386			468,214			464,287
Subsidiaries:
Credit Facility Term Loan with 2014 maturity		155,000			165,000			175,000
Other loans		1,045			928			93
Less current portion		(20,226	)		(20,169	)		(20,061	)
Long-term debt of subsidiaries		135,819			145,759			155,032
Total long-term debt	$	608,205		$	613,973		$	619,319

REFINANCING – SUBSEQUENT EVENT

In July 2011, Chiquita Brands L.L.C. ("CBL"), the company's main operating subsidiary, entered into a new senior secured credit facility ("New Credit Facility") using the proceeds to retire CBL's Preceding Credit Facility (defined below) and purchase $133 million of the company's 8 ⁷/8% Senior Notes due in 2015 in a tender offer at 103.333% of their par value in July 2011; the company has called the remaining $44 million of the 8 ⁷/8% Senior Notes for redemption in August 2011 at 102.958% of their par value and will use the remainder of the proceeds from the New Credit Facility together with available cash to redeem them.

The New Credit Facility includes a $330 million senior secured term loan ("New Term Loan") and a $150 million senior secured revolving facility ("New Revolver") both maturing July 26, 2016. However, the New Credit Facility will mature six months prior to the maturity of the company's 7 ¹/2% Senior Notes (May 1, 2014), unless the company refinances, or otherwise extends, the maturity of the 7 ¹/2% Senior Notes by such date. The New Term Loan and the New Revolver can be increased by up to an aggregate of $50 million at the company's request, under certain circumstances.

The New Term Loan bears interest, at the company's election, at a rate of LIBOR plus 3.00% to 3.75% or a "Base Rate" plus 2.00% to 2.75%, the spread in each case depending on CBII's leverage ratio. The "Base Rate" is the higher of the administrative agent's prime rate or the federal funds rate plus 0.50%. The initial interest rate as defined in the New Credit Facility is LIBOR plus 3.00% through December 2, 2011 (3.19% based on June 30, 2011 LIBOR). Subject to the early maturity provision described above, the New 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. The New Term Loan may be repaid without penalty, but amounts repaid under the New Term Loan may not be reborrowed.

The New Revolver bears interest, at the company's election, at a rate of LIBOR plus 2.75% to 3.50% or a "Base Rate" plus 1.75% to 2.50%, the spread in each case depending on CBII's leverage ratio. Although the company did not initially draw upon the New Revolver, the applicable interest rate as defined in the New Credit Facility would be LIBOR plus 2.75% or "Base Rate" plus 1.75% through December 2, 2011. The company is required to pay a commitment fee on the daily unused portion of the New Revolver of 0.375% to 0.50% based on CBII's leverage ratio, initially 0.375% based on CBII's leverage ratio at June 30, 2011. The company had initially used $22 million of the New Revolver for letters of credit, leaving $128 million available. The New Revolver also has a $100 million sublimit for letters of credit.

The New Credit Facility contains two financial maintenance covenants, a CBL (operating company) leverage ratio (debt divided by EBITDA, each as defined in the New 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, each as defined in the New Credit Facility) that is least 1.15x, which are substantially the same as the Preceding Credit Facility. The New Credit Facility's financial covenants exclude changes in generally accepted accounting principles effective after December 31, 2010. EBITDA, as defined in the New Credit Facility, excludes certain non-cash items including stock compensation and impairments. Fixed Charges, as defined in the New 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 New 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 $64 million of synthetic leases at June 30, 2011, which are operating leases under generally accepted accounting principles, but are capital leases for tax purposes.

CBL's obligations under the New Credit Facility are guaranteed on a senior secured basis by CBII and all of CBL's material domestic subsidiaries. The obligations under the New Credit Facility are secured by substantially all of the assets of CBL and its domestic subsidiaries, including trademarks, 100% of the stock of substantially all of CBL's domestic subsidiaries and no more than 65% of the stock of CBL's direct material foreign subsidiaries. CBII's obligations under its guarantee are secured by a pledge of the stock of CBL. The New Credit Facility also places substantially the same customary limitations as the Preceding Credit Facility on the ability of CBL and its subsidiaries to incur additional debt, create liens, dispose of assets, carry out mergers and acquisitions and make investments and capital expenditures, as well as limitations on CBL's ability to make loans, distributions or other transfers to CBII. However, payments to CBII are permitted: (i) whether or not any event of default exists or is continuing under the New Credit Facility, for all routine operating expenses in connection with the company's normal operations and to fund certain liabilities of CBII, including interest payments on the Senior Notes (defined below), Convertible Notes and any notes used to refinance existing Senior Notes and Convertible Notes, and (ii), subject to no continuing event of default and compliance with the financial covenants, for other financial needs, including (A) payment of dividends and distributions to the company's shareholders and (B) repurchases of the company's common stock. Based on the company's June 30, 2011 covenant ratios, distributions to CBII, other than for normal overhead expenses and interest on the company's Senior Notes and Convertible Notes, were limited to approximately $80 million. The New Credit Facility also requires that the net proceeds of significant asset sales be used within 180 days to prepay outstanding amounts, unless those proceeds are reinvested in the company's business.

7 ¹/2% AND 8 ⁷/8% SENIOR NOTES

As described above, $133 million of the 8 ⁷/8% Senior Notes were purchased in a tender offer in July 2011 as part of the refinancing, and the remainder of the 8 ⁷/8% Senior Notes have been called for redemption, which will be completed in August 2011. For the six months ended June 30, 2010, the company repurchased in the open market at a small discount $13 million principal amount of its Senior Notes, consisting of $11 million of the 7 ¹/2% Senior Notes and $2 million of the 8 ⁷/8% Senior Notes. These repurchases resulted in a small extinguishment loss, including the write off of deferred financing fees and transaction costs. The 7 ¹/2% Senior Notes are callable, in whole or from time to time in part at 102.50% of par value, at 101.25% of par value beginning November 1, 2011 and at par value after November 1, 2012.

4.25% CONVERTIBLE SENIOR NOTES

The $200 million of Convertible Notes:

• are unsecured, unsubordinated obligations of the parent company and rank equally with the company's 7 ¹/2% Senior Notes and 8 ⁷/8% Senior Notes (the "Senior Notes").

• are convertible at an initial conversion rate of 44.5524 shares of common stock per $1,000 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, 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 of parent company" 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, the company discounted the principal balance to result in an effective interest rate of 12.50% for each of the quarters ended June 30, 2011 and 2010. 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 6) 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:

	June 30,			December 31,			June 30,
(In thousands)	2011			2010			2010
Principal amount of debt component1	$	200,000		$	200,000		$	200,000
Unamortized discount		(61,067	)		(65,239	)		(69,166	)
Net carrying amount of debt component	$	138,933		$	134,761		$	130,834
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 June 30, 2011, December 31, 2010 and June 30, 2010, 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 June 30,				Six Months Ended June 30,
(In thousands)	2011		2010		2011		2010
4.25% coupon interest	$	2,125	$	2,125	$	4,250	$	4,250
Amortization of deferred financing fees		117		117		235		235
Amortization of discount on the debt component		2,117		1,876		4,172		3,696
Total interest expense related to the Convertible Notes	$	4,359	$	4,118	$	8,657	$	8,181

PRECEDING CREDIT FACILITY

CBL maintained a senior secured credit facility ("Preceding Credit Facility") that matured on March 31, 2014 and consisted of a senior secured term loan (the "Preceding Term Loan") and a $150 million senior secured revolving credit facility (the "Preceding Revolver"). As described above, the Preceding Credit Facility was retired in July 2011 using a portion of the proceeds from the New Credit Facility.

At the company's election, 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%, 4.06% and 4.125% at June 30, 2011, December 31, 2010 and June 30, 2010, respectively. The Preceding Term Loan required quarterly principal repayments of $2.5 million through March 31, 2010 and required $5 million thereafter for the life of the loan, with any remaining balance to be paid upon maturity at March 31, 2014.

There were no borrowings under the Preceding Revolver at June 30, 2011, December 31, 2010 or June 30, 2010. The company was required to pay a fee of 0.50% per annum on the daily unused portion of the Preceding Revolver. The Preceding Revolver contained a $100 million sub-limit for letters of credit, subject to a $50 million sub-limit for non-U.S. currency letters of credit. At June 30, 2011, there was $128 million of available Preceding Revolver credit after $22 million was used to support issued letters of credit.

The Preceding Credit Facility contained two financial maintenance covenants, which were substantially the same as those in the New Credit Facility and which are described above. At June 30, 2011, the company was in compliance with the financial covenants of the Preceding Credit Facility.