Long-Term Debt

9 Months Ended

Aug. 27, 2011

Long-Term Debt

Long-Term Debt

8. Long-Term Debt

Long-term debt includes:

	August 27, 2011			November 27, 2010
Nonrecourse mortgages:
6.08%, due January 1, 2013	$	7,009		$	7,190
6.30%, due May 1, 2014	510			635
5.73%, due July 1, 2015	19,490			19,758
8.13%, due April 1, 2016	4,332			4,547
7.0%, due October 1, 2017	6,290			6,444
Variable rate mortgage, due February 1, 2019*	11,684			11,845
Variable rate mortgage, due July 1, 2019*	8,226			8,333
5.25%, due January 28, 2020	4,181			4,247
Total nonrecourse mortgages	61,722			62,999
Revolving line of credit	—			—
Capital leases	52			38
Total	61,774			63,037
Less: current portion	(8,576		)	(1,742		)
Total long-term debt	$	53,198		$	61,295

* Griffin entered into interest rate swap agreements effectively to fix the interest rates on these loans (see below).

On April 28, 2011, Griffin closed on a new $12.5 million revolving line of credit (the “2011 Credit Line”) with Doral Bank.  This 2011 Credit Line replaced the $10 million revolving line of credit with Doral Bank that was originally scheduled to expire on March 1, 2011, but was extended until the 2011 Credit Line was completed.  The 2011 Credit Line has a two year term with a company option for a third year and interest at the higher of prime plus 1.5% or 5.875%.  The 2011 Credit Line is collateralized by the same properties that collateralized the expired revolving line of credit plus a 40,000 square foot office building in Griffin Center South that was unencumbered.  In the 2011 nine month period, there were no outstanding borrowings under the $10 million revolving line of credit that expired during the period or under the new 2011 Credit Line.

On January 29, 2010, Griffin closed on a $4.3 million nonrecourse mortgage with First Niagara Bank (formerly NewAlliance Bank), collateralized by the 120,000 square foot industrial building in Breinigsville, Pennsylvania that was acquired earlier that month.  This mortgage has a ten-year term and originally had a fixed interest rate of 6.5% with monthly principal and interest payments based on a twenty-five year amortization schedule.  Effective November 1, 2010, based on a request by Griffin to reduce the interest rate on the loan in a more favorable interest rate environment, Griffin and First Niagara Bank entered into a loan modification agreement, whereby the interest rate was reduced from 6.5% to 5.25% for the remainder of the loan in exchange for a payment of $0.2 million by Griffin.  The loan modification did not change the loan’s maturity date.

Through January 31, 2010, the variable rate mortgage due February 1, 2019 with Berkshire Bank (the “Berkshire Bank Loan”) functioned as a construction loan, with Griffin Land drawing funds as construction progressed on a new warehouse in New England Tradeport (“Tradeport”), Griffin Land’s industrial park in Windsor and East Granby, Connecticut.  The interest rate during the construction period of the loan was the greater of 2.75% above the thirty day LIBOR rate or 4%.  Payments during that period were for interest only.  On February 1, 2010, the Berkshire Bank Loan converted to a nine-year nonrecourse mortgage collateralized by the new warehouse facility, with monthly payments of principal and interest starting on March 1, 2010, based on a twenty-five year amortization schedule.  At the time Griffin closed the Berkshire Bank Loan, Griffin also entered into an interest rate swap agreement with the bank for a notional principal amount of $12 million at inception to fix the interest rate at 6.35% for the final nine years of the loan.  Payments under the swap agreement commenced on March 1, 2010 and will continue monthly until February 1, 2019, which is also the termination date of the Berkshire Bank Loan.

Griffin is also party to an interest rate swap agreement related to its nonrecourse mortgage, due on July 1, 2019, on four industrial buildings in Tradeport.   Griffin accounts for both of its interest rate swap agreements as effective cash flow hedges (see Note 3).  No ineffectiveness on the cash flow hedges was recognized as of August 27, 2011 and none is anticipated over the term of the agreements.  Amounts in other comprehensive income will be reclassified into interest expense over the term of the swap agreements to achieve fixed rates on each mortgage.  Neither of the interest rate swap agreements contains any credit risk related contingent features.  In the 2011 and 2010 nine month periods, Griffin recognized losses on its interest rate swap agreements of $878 and $1,073, respectively, (included in other comprehensive income), before taxes.  In the 2011 third quarter and 2011 nine month period, the amounts of loss recognized on the effective portion of the interest rate swap agreements were $170 and $505, respectively.  In the 2010 third quarter and 2010 nine month period, the amounts of loss recognized on the effective portion of the interest rate swap agreements were $166 and $406, respectively.  As of August 27, 2011, $636 is expected to be reclassified over the next twelve months from other comprehensive income to interest expense.  As of August 27, 2011 and November 27, 2010, the fair value of Griffin’s interest rate swap liabilities was $2,359 and $1,481, respectively, and are included in other noncurrent liabilities on Griffin’s consolidated balance sheets.

As of August 27, 2011, the entire balance (approximately $7.0 million) of Griffin’s 6.08% nonrecourse mortgage due January 1, 2013 is included in the current portion of long-term debt.  Griffin has classified this mortgage as current because, for the twelve month period ending December 31, 2011, Griffin expects that the ratio of the net operating income, as defined in the mortgage agreement, of the buildings that collateralize the mortgage, to the debt service of the mortgage (the “debt service coverage covenant”) will be less than the 1.25 required under the mortgage.  The debt service coverage covenant for the twelve months ended December 31, 2010 was waived by the bank as Griffin would not have been in compliance at that measurement date.  Griffin currently expects to obtain a waiver from the bank for the debt service coverage covenant for the twelve months ending December 31, 2011, prior to that date, although there can be no such assurance that the bank will grant such a waiver.