Debt

9 Months Ended

Sep. 30, 2011

Debt [Abstract]

Debt

Note 4 – Debt

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

	September 30, 2011					December 31, 2010					September 30, 2010
	Carrying			Estimated		Carrying			Estimated		Carrying			Estimated
(In thousands)	Value			Fair Value		Value			Fair Value		Value			Fair Value
Debt, which is not carried at fair value,consists of the following:
Parent company1 :
7 1/2% Senior Notes due 2014	$	156,438		$	158,000	$	156,438		$	161,000	$	156,438		$	158,000
8 7/8% Senior Notes due 2016		0			0		177,015			179,000		177,015			178,000
4.25% Convertible Senior Notes due 2016		141,117			176,000		134,761			193,000		132,768			191,000
Subsidiary:
Credit Facility Term Loan with 2014 maturity2		325,875			324,000		N/A			N/A		N/A			N/A
Preceding Credit Facility		N/A			N/A		165,000			165,000		170,000			170,000
Other		979			900		928			900		88			80
Less current portion		(16,774	)				(20,169	)				(20,057	)
Total long-term debt	$	607,635				$	613,973				$	616,252

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 6 for discussion of fair value.

²  The Term Loan 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). Level 3 fair value measurements are used in the impairment reviews of goodwill and intangible assets, which take place annually during the fourth quarter, or as circumstances indicate the possibility of impairment.See also Note 6 for discussion of fair value.

CREDIT FACILITY

In July 2011, Chiquita Brands L.L.C. ("CBL"), the company's main operating subsidiary, entered into an amended and restated senior secured credit facility ("Credit Facility") using the proceeds to retire CBL's Preceding Credit Facility (defined below) and purchase $133 million of the CBII's 8 ⁷/8% 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 8 ⁷/8% 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 income (expense), net" 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 of $4 million of remaining deferred financing fees from the Preceding Credit Facility and the 8 ⁷/8% Senior Notes and $6 million total premiums paid to retire the 8 ⁷/8% Senior Notes. The amounts in "Other income (expense), net" for the third quarter of 2010 relate to the company's repurchase of a portion of the Senior Notes more fully described below.

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

The 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 Credit Facility is LIBOR plus 3.00% through December 2, 2011 (3.25% based on September 30, 2011 LIBOR). Subject to the early maturity provision described above, 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 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. The applicable interest rate as defined in the Credit Facility is 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 Revolver of 0.375% to 0.50% depending on CBII's leverage ratio, initially 0.375% as defined in the Credit Facility through December 2, 2011. 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. 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 Credit Facility contains two financial maintenance covenants, a CBL (operating company) leverage ratio (debt divided by EBITDA, each 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, each as defined in the Credit Facility) that is at least 1.15x, which are substantially the same as the Preceding 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 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 ($62 million at September 30, 2011), which are operating leases under generally accepted accounting principles, but are capital leases for tax purposes. At September 30, 2011, the company was in compliance with the financial covenants of the Credit Facility.

CBL's obligations under the Credit Facility are guaranteed on a senior secured basis by CBII and all of CBL's material domestic subsidiaries. The obligations under the 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 Credit Facility also places similar customary limitations as the Preceding Credit Facility on the ability of CBL and its subsidiaries to incur additional debt, create liens, dispose of assets 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 Credit Facility, for all routine operating expenses in connection with the company's normal operations and to fund certain liabilities of CBII, including interest and principal 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. The Credit Facility also eased certain restrictions that were contained in the Preceding Credit Facility over the company's ability to carry out mergers and acquisitions. Based on the company's September 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 $60 million. The 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, the 8 ⁷/8% Senior Notes were retired in the third quarter of 2011. For the nine months ended September 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 2010 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 company's $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 (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 September 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:

	September 30,			December 31,			September 30,
(In thousands)	2011			2010			2010
Principal amount of debt component1	$	200,000		$	200,000		$	200,000
Unamortized discount		(58,883	)		(65,239	)		(67,232	)
Net carrying amount of debt component	$	141,117		$	134,761		$	132,768
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, 2011, December 31, 2010 and September 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 Sept. 30,				Nine Months Ended Sept. 30,
(In thousands)	2011		2010		2011		2010
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		2,184		1,934		6,356		5,630
Total interest expense related to the Convertible Notes	$	4,426	$	4,176	$	13,083	$	12,357

PRECEDING CREDIT FACILITY

The Credit Facility replaced the remaining portion of the previous $350 million senior secured credit facility ("Preceding Credit Facility") that consisted of a senior secured term loan (the "Preceding Term Loan") and a $150 million senior secured revolving credit facility (the "Preceding Revolver").

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 4.06% and 4.06% at December 31, 2010 and September 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 other than using $22 million to support letters of credit leaving an available balance of $128 million at each of December 31, 2010 and September 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.