Lines of Credit and Long-Term Debt

12 Months Ended

Dec. 31, 2011

Lines of Credit and Long-Term Debt [Abstract]

LINES OF CREDIT AND LONG-TERM DEBT

4. LINES OF CREDIT AND LONG-TERM DEBT

The amounts outstanding under the Company’s lines of credit and long-term debt consisted of the following as of the dates indicated:

		September 30,			September 30,
	Total Debt Outstanding December 31,
	2011			2010
	(In thousands)
Corporate:
Senior secured notes	$	150,000		$	—
Convertible notes		—			18,495
Debt discount		(6,831	)		(4,823	)
Westmoreland Mining, LLC:
Revolving line of credit		—			1,500
Term debt		117,500			125,000
Capital lease obligations		13,967			18,407
Other term debt		2,071			2,556
Westmoreland Resources, Inc.:
Revolving line of credit		—			16,900
Term debt		—			9,600
Capital lease obligations		5,562			7,821
ROVA:
Term debt		—			46,220
Debt premiums		—			428
Total debt outstanding		282,269			242,104
Less current portion		(20,795	)		(14,973	)
Total debt outstanding, less current portion	$	261,474		$	227,131

The following table presents aggregate contractual debt maturities of all long-term debt and the lines of credit:

		September 30,			September 30,
	As of December 31, 2011			Subsequent to Add-On  Notes Offering
	(In thousands)
2012	$	21,639		$	21,639
2013		24,862			24,862
2014		23,316			23,316
2015		21,248			21,248
2016		20,535			20,535
Thereafter		177,500			302,500
Total		289,100			414,100
Less: debt discount		(6,831	)		(12,467	)
Total debt	$	282,269		$	401,633

Corporate Debt

Senior secured notes

On February 4, 2011 through a private placement offering, the Company issued $150.0 million of Parent Notes, which are senior secured notes. The Company’s subsidiary, Westmoreland Partners, was a co-issuer of the notes. The Parent Notes were issued at a 5% discount, mature February 18, 2018, and bear a fixed interest rate of 10.750%, payable semi-annually, in arrears, on February 1 and August 1 of each year, which began August 1, 2011. Substantially all of the assets of the Parent, ROVA and WRI constitute collateral for the Parent Notes as to which the holders of these notes have a first priority lien. Under the indenture governing the Parent Notes, the Company is required to offer a portion of its Excess Cash Flow (as defined by the indenture) for each fiscal year to purchase some of these notes at 100% of the principal amount. The Company does not have Excess Cash Flow for 2011.

As a result of this offering, the Company recorded a $17.0 million loss on extinguishment of debt in the year ended December 31, 2011. The loss included a $9.1 million make-whole payment for ROVA’s debt and $7.9 million of non-cash write-offs of unamortized discount on debt and related capitalized debt costs and convertible debt conversion expense.

The indenture governing the Parent Notes contains, among other provisions, events of default and various affirmative and negative covenants. As of December 31, 2011, the Company was in compliance with all covenants.

In January 2012, the Company completed the private placement of $125.0 million of senior secured notes due in 2018, which notes were additional notes issued off the existing Parent Notes indenture. The Company funded the Kemmerer Mine acquisition through the net proceeds from the offering. The Company is required to register the debt issued under the Add-On Notes offering with the SEC within 120 days after the completion of the offering, which was January 31, 2012. The Company will pay interest on the Add-On Notes semi-annually, in arrears, on February 1st and August 1st of each year, beginning on August 1, 2012. In 2011, the Company capitalized $0.2 million of debt issuance costs related to the Add-On Notes Offering and expects to capitalize debt issuance costs of $4.5 million in 2012.

Convertible debt

In February 2011, the outstanding balance of the Company’s convertible notes was eliminated, with $2.5 million paid to retire a portion of the convertible notes and the remainder of the notes being converted into 1,877,946 shares of Company common stock at a conversion price of $8.50 per share.

Westmoreland Mining LLC

WML has $117.50 million of fixed rate term debt outstanding at December 31, 2011. The term debt bears interest at 8.02% per annum, payable quarterly. The principal payments required for the term debt are as follows:

		September 30,
	(In millions)
2012	$	14.0
2013		18.0
2014		18.0
2015		20.0
2016		20.0
Thereafter		27.5

The term debt is payable in full on March 31, 2018.

At December 31, 2011, WML has the 2001 Revolving Credit Agreement, or the Revolver, with a borrowing limit of $25.0 million and a maturity date of June 26, 2013. WML has two interest rate options to choose from on the Revolver. The Base Rate option bears interest at a base rate plus 0.50% and is payable monthly (3.75% per annum at December 31, 2011). The LIBOR Rate option bears interest at the London Interbank Offering Rate, or LIBOR, rate plus 3.0% (3.53% per annum at December 31, 2011). In addition, a commitment fee of 0.50% of the average unused portion of the available Revolver is payable quarterly. At December 31, 2011, the Revolver had no outstanding balance and supported a $1.9 million letter of credit. The Company had $23.1 million of borrowing availability under the Revolver.

The term debt and Revolver are secured by substantially all assets of WML, Westmoreland Savage Corporation, or WSC, Western Energy Company, or WECO, and Dakota Westmoreland Corporation, or DWC; the Company’s membership interest in WML; and the stock of WSC, WECO and DWC. WECO, DWC, and WSC have guaranteed WML’s obligations with respect to the term debt and the Revolver. The credit agreement requires a debt service account and imposes timing and other restrictions on the ability of WML to distribute funds to the Parent.

WML’s credit agreement contains various affirmative and negative covenants. Operational covenants in the agreements prohibit, among other things, WML from incurring or guaranteeing additional indebtedness, creating liens on its assets, making investments or engaging in asset sales or transactions with affiliates, in each case subject to specified exceptions. Financial covenants in the agreements impose requirements relating to specified debt service coverage and leverage ratios. The debt service coverage ratio must meet or exceed a specified minimum. The leverage ratio covenant requires that WML not permit the ratio of total debt at the end of each quarter to EBITDA (both as defined) for the four quarters then ended to be greater than a specified amount. WML met all of its covenant requirements as of December 31, 2011.

WML engages in leasing transactions for equipment utilized in its mining operations. At December 31, 2011 and 2010, the capital leases outstanding had a weighted average interest rate of 8.02% and 7.96%, respectively. WML also had other term debt outstanding at December 31, 2011 and 2010, with weighted average interest rate of 6.18% and 6.14%, respectively.

Westmoreland Resources, Inc.

In December 2010, WRI’s Business Loan Agreement was amended and the $20.0 million revolving line of credit was extended through December 18, 2011. The interest rate for the term debt and the revolver were payable at the prime rate. The term debt and the revolver were both subject to a per annum 8.0% and 7.0% floor, respectively. The outstanding balance of the term debt and the revolving line of credit were repaid and the revolving line of credit was terminated in February 2011.

At December 31, 2010, the Company had $3.1 million of unused borrowings under the revolver. The revolver did not have commitment fees for the unused portion of the available revolving loan.

In February 2011, proceeds from the Parent Note offering were used to pay off the outstanding balance of WRI’s term debt and revolving line of credit. In addition, WRI’s revolving line of credit was terminated in February 2011.

WRI leases equipment utilized in its operations. The weighted average interest rate for WRI’s capital leases was 6.74% and 6.65% at December 31, 2011 and 2010.

ROVA

At December 31, 2010, ROVA’s outstanding fixed rate term debt had interest rates varying from 6.0% to 11.42%. The weighted average interest rate on the fixed rate term debt at December 31, 2010 was 9.93%. In February 2011, proceeds from the Parent Note offering were used to repay all of ROVA’s outstanding fixed rate term debt.

ROVA had a $6.0 million revolving loan with interest payable quarterly at the three-month LIBOR rate plus 1.375% (1.68% per annum at December 31, 2010). In addition, a commitment fee of 1.375% of the unused portion of the available revolving loan was payable quarterly. At December 31, 2010, the Company had $6.0 million of unused borrowings under the revolver. ROVA’s revolving line of credit was terminated as part of the Parent Notes offering.

In February 2011, proceeds from the Parent Note offering were used to repay all of ROVA’s outstanding fixed rate term debt. In addition, ROVA’s revolving line of credit was terminated in February 2011.