Debt

12 Months Ended

Dec. 31, 2012

The Company’s total indebtedness as of December 31, 2012 and 2011 consisted of the following:



	December 31,
	2012		2011
	(Dollars in millions)
Term Loan	$	418.8	$	468.8
2011 Term Loan Facility	912.5		1,000.0
7.375% Senior Notes due November 2016	650.0		650.0
6.00% Senior Notes due November 2018	1,518.8		1,600.0
6.50% Senior Notes due September 2020	650.0		650.0
6.25% Senior Notes due November 2021	1,339.6		1,500.0
7.875% Senior Notes due November 2026	247.4		247.3
Convertible Junior Subordinated Debentures due December 2066	377.4		375.2
Capital lease obligations	104.6		122.8
Other	33.8		43.4
Total	$	6,252.9	$	6,657.5

Credit Facility

On June 18, 2010, the Company entered into an unsecured credit agreement (the Credit Agreement) which established a $2.0 billion credit facility (the Credit Facility) and replaced the Company’s third amended and restated credit agreement dated as of September 15, 2006. The Credit Agreement provides for a $1.5 billion revolving credit facility (the Revolver) and a $500.0 million term loan facility (the Term Loan). The Company has the option to request an increase in the capacity of the Credit Facility, provided the aggregate increase for the Revolver and Term Loan does not exceed $250.0 million, the minimum amount of the increase is $25.0 million and certain other conditions are met under the Credit Agreement. The Revolver also includes a swingline sub-facility under which up to $50.0 million is available for same-day borrowings. The Revolver commitments and the Term Loan under the Credit Facility will mature on June 18, 2015. On November, 16, 2012, the Company amended the Credit Facility to temporarily increase its maximum consolidated leverage coverage ratio covenant through December 31, 2014. In addition, an extra level was added to the interest rate pricing grid for the Credit Facility, which is included in the information presented below. In conjunction with the amendment, the Company capitalized $4.7 million in deferred financing costs, which will be amortized to interest expense over the remaining term of the Credit Facility.

The Revolver replaced the Company’s previous $1.8 billion revolving credit facility and the Term Loan replaced the Company’s previous term loan facility (the previous term loan had a balance of $490.3 million at the time of replacement). The Company recorded $21.9 million in deferred financing costs related to the Credit Agreement, which are being amortized to interest expense over the five-year term of the Credit Facility. The Company also recorded refinancing charges of $9.3 million in connection with the replacement, which were recorded in “Interest expense” in the 2010 consolidated statement of operations. The $500.0 million of proceeds from the Term Loan was used to repay the balance due on the Company’s previous term loan facility.

All borrowings under the Credit Agreement (other than swingline borrowings and borrowings denominated in currencies other than U.S. dollars) bear interest, at the Company’s option, at either a “base rate” or a “eurocurrency rate”, as defined in the Credit Agreement, plus in each case, a rate adjustment based on the Company’s leverage ratio, as defined in the Credit Agreement, ranging from 3.00% to 1.25% per year for borrowings bearing interest at the “base rate” and from 4.00% to 2.25% per year for borrowings bearing interest at the “eurocurrency rate” (such rate added to the “eurocurrency rate,” the “Eurocurrency Margin”). Swingline borrowings bear interest at a “BBA LIBOR” rate equal to the rate at which deposits in U.S. dollars for a one month term are offered in the interbank eurodollar market, as determined by the administrative agent, plus the Eurocurrency Margin. Borrowings denominated in currencies other than U.S. dollars will bear interest at the “eurocurrency rate” plus the Eurocurrency Margin.

The Company pays a usage-dependent commitment fee under the Revolver, which is dependent upon the Company’s leverage ratio, as defined in the Credit Agreement, and ranges from 0.500% to 0.375% of the available unused commitment. Swingline loans are not considered usage of the revolving credit facility for purposes of calculating the commitment fee. The fee accrues quarterly in arrears.

In addition, the Company pays a letter of credit fee calculated at a rate dependent on the Company’s leverage ratio, as defined in the Credit Agreement, ranging from 4.00% to 2.25% per year of the undrawn amount of each letter of credit and a fronting fee equal to 0.125% per year of the face amount of each letter of credit. These fees are payable quarterly in arrears.

The Term Loan is voluntarily prepayable from time to time without any premium or penalty, subject to certain customary reimbursements of the lenders' costs. The Term Loan is subject to quarterly repayment of 1.25% per quarter, which commenced on December 31, 2010, with the final payment of all amounts outstanding (including accrued interest) being due on June 18, 2015. During the fourth quarter of 2012, the Company voluntarily prepaid $25.0 million in aggregate principal amount of the Term Loan, which represented all of the contractual 2013 quarterly repayments.

Under the Credit Agreement, the Company must comply with certain financial covenants on a quarterly basis including a minimum interest coverage ratio and a maximum leverage ratio. The Credit Agreement also includes various affirmative and negative covenants that place limitations on the Company’s ability to, among other things, incur debt; make loans, investments, advances and acquisitions; sell assets; make redemptions and repurchases of capital stock; engage in mergers or consolidations; engage in affiliate transactions and restrict distributions from subsidiaries. When in compliance with the financial covenants and customary default provisions, the Company is not restricted in its ability to pay dividends, sell assets and make redemptions or repurchase capital stock provided that the Company may only redeem and repurchase capital stock with the proceeds received from the concurrent issue of capital stock or indebtedness permitted under the Credit Agreement.

Nearly all of the Company’s direct and indirect domestic subsidiaries guarantee all loans under the Credit Agreement. Certain of the Company’s foreign subsidiaries also, to the extent permitted by applicable law and existing contractual obligations, would be guarantors of loans made to one of the Company’s Dutch subsidiaries.

As of December 31, 2012, the Company had no borrowings on the Revolver, but had $105.4 million of letters of credit outstanding. The remaining capacity on the Revolver at December 31, 2012 was $1.4 billion.

The interest rate payable on the Revolver and the Term Loan was LIBOR plus 3.00%, or 3.21% at December 31, 2012.

2011 Term Loan Facility

On October 28, 2011, the Company entered into the 2011 Term Loan Facility under which it borrowed $1.0 billion to finance, in part, the acquisition of PEA-PCI. On November, 16, 2012, the Company amended the 2011 Term Loan Facility to temporarily increase its maximum consolidated leverage ratio covenant through December 31, 2014. In addition, an extra level was added to the interest rate pricing grid for the 2011 Term Loan Facility, which is included in the information presented below. In conjunction with the amendment, the Company capitalized $2.2 million in deferred financing costs, which are being amortized to interest expense over the remaining term of the 2011 Term Loan Facility.

Borrowings under the 2011 Term Loan Facility bear interest, at the Company's option, at a rate equal to (i) LIBOR plus an applicable margin or (ii) a base rate (defined as the highest of (a) the Bank of America prime rate, (b) the Federal Funds rate plus 0.50% and (c) one month LIBOR plus 1.00%) plus an applicable margin. The applicable margin depends on the ratio of the Company's consolidated debt to its adjusted consolidated EBITDA, and may range from 1.75% to 3.50% per year for borrowings bearing interest at LIBOR and from 0.75% to 2.50% per year for borrowings bearing interest at the base rate, as defined in the 2011 Term Loan Facility.

The obligations under the 2011 Term Loan Facility are unsecured and are guaranteed by the Company's direct and indirect domestic subsidiaries that guarantee the Credit Facility. The 2011 Term Loan Facility contains covenants, including financial covenants, and events of default substantially the same as those of the Credit Facility.

The 2011 Term Loan Facility is voluntarily prepayable from time to time without premium or penalty, subject to certain customary reimbursements of the lenders’ costs. The 2011 Term Loan Facility is subject to quarterly repayment of 1.25%, which commenced on April 28, 2012, with the final payment of all amounts outstanding due October 28, 2016. During the fourth quarter of 2012, the Company voluntarily prepaid $50.0 million in aggregate principal amount of the 2011 Term Loan Facility, which represented all of the contractual 2013 quarterly repayments.

As of December 31, 2012, the Company had $912.5 million outstanding under the 2011 Term Loan Facility with an interest rate payable of LIBOR plus 2.5%, or 2.71%.

6.00%, 6.25%, 6.50%, 7.375% and 7.875% Senior Notes (collectively the Senior Notes)

The Senior Notes are senior unsecured obligations and rank senior in right of payment to any subordinated indebtedness; equally in right of payment with any senior indebtedness; are effectively junior in right of payment to the Company’s future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and effectively junior to all the indebtedness and other liabilities of its subsidiaries that do not guarantee the notes.

The Senior Notes are jointly and severally guaranteed by nearly all of the Company’s domestic subsidiaries, as defined in the note indentures. The note indentures contain covenants that, among other things, limit the Company’s ability to create liens and enter into sale and lease-back transactions. The Senior Notes are redeemable at a redemption price equal to 100% of the principal amount of the notes being redeemed plus a make-whole premium and any accrued unpaid interest to the redemption date. If the Company experiences specific kinds of changes in control and the credit rating assigned to the Senior Notes declines below specified levels within 90 days of that time, holders of such notes have the right to require the Company to repurchase their notes at a repurchase price equal to 101% of their principal amount, plus accrued and unpaid interest, if any, to the date of repurchase.

Interest payments on the Senior Notes are scheduled to occur each year as follows:



Senior Notes		Interest Payment Dates
6.00% Senior Notes		May 15 and November 15
6.25% Senior Notes		May 15 and November 15
6.50% Senior Notes		March 15 and September 15
7.375% Senior Notes		May 1 and November 1
7.875% Senior Notes		May 1 and November 1

On November 15, 2011, the Company completed a $1.6 billion offering of 6.00% Senior Notes due November 2018 (the 6.00% Senior Notes) and a $1.5 billion offering of 6.25% Senior Notes due November 2021 (the 6.25% Senior Notes), with the proceeds of the offering used, in part, to finance the acquisition of Macarthur. On the same date, the Company, the Guarantors and the initial purchasers of the 6.00% Senior Notes and the 6.25% Senior Notes entered into a registration rights agreement (the Registration Rights Agreement). During the second quarter of 2012, the Company repurchased $81.2 million and $160.4 million in aggregate principal amount of its 6.00% and 6.25% Senior Notes due 2018 and 2021, respectively, with existing cash on hand. The Company recognized a loss on debt extinguishment of $2.8 million associated with these repurchases, which was comprised of $3.4 million of expense related to the write-off of deferred financing costs and a gain of $0.6 million as the repurchases were made below par value. The loss is classified in "Interest expense" in the consolidated statement of operations for the year ended December 31, 2012. In the third quarter of 2012, the Company commenced an offer to exchange any and all of its 6.00% and 6.25% Senior Notes outstanding for substantially identical freely tradable debt securities registered under the Securities Act of 1933. The exchange offer was completed in October 2012 and did not affect the Company's indebtedness outstanding.

On August 25, 2010, the Company completed a $650.0 million offering of 6.50% Senior Notes due September 2020 (the 6.50% Senior Notes). The Company used the net proceeds of $641.9 million from the issuance of the 6.50% Senior Notes, after deducting underwriting discounts and expenses, and cash on hand to extinguish its previously outstanding $650.0 million aggregate principal 6.875% Senior Notes formerly due in March 2013 (the 2013 Notes). All of the 2013 Notes were either tendered or redeemed during 2011. The Company recognized debt extinguishment costs of $8.4 million, which was recorded in “Interest expense” in the consolidated statements of operations. The issuance of the 6.50% Senior Notes and the extinguishment of the 2013 Notes allowed the Company to extend the maturity of its senior indebtedness and lower the coupon rate.

5.875% Senior Notes

On April 15, 2011, the Company used cash on hand to redeem its 5.875% Senior Notes due in April 2016 (the 5.875% Senior Notes) in the aggregate principal amount of $218.1 million. In compliance with the terms of the indenture governing the 5.875% Senior Notes, the redemption price was equal to 100.979% of the aggregate principal amount of the 5.875% Senior Notes plus accrued and unpaid interest to April 15, 2011. The Company recognized costs of $1.7 million associated with the redemption.

Convertible Junior Subordinated Debentures

As of December 31, 2012, the Company had $732.5 million aggregate principal outstanding of Debentures that generally require interest to be paid semiannually at a rate of 4.75% per year. The Company may elect to, and to the extent that a mandatory trigger event (as defined in the indenture governing the Debentures) has occurred and is continuing will be required to, defer interest payments on the Debentures. After five years of deferral at the Company’s option, or upon the occurrence of a mandatory trigger event, the Company generally must sell warrants or preferred stock with specified characteristics and use the funds from that sale to pay deferred interest, subject to certain limitations. In no event may the Company defer payments of interest on the Debentures for more than 10 years.

The Debentures are convertible at any time on or prior to December 15, 2036 if any of the following conditions occur: (i) the Company’s closing common stock price exceeds 140% of the then applicable conversion price for the Debentures (currently $81.13 per share) for at least 20 of the final 30 trading days in any quarter; (ii) a notice of redemption is issued with respect to the Debentures; (iii) a change of control, as defined in the indenture governing the Debentures; (iv) satisfaction of certain trading price conditions; and (v) other specified corporate transactions described in the indenture governing the Debentures. In addition, the Debentures are convertible at any time after December 15, 2036 to December 15, 2041, the scheduled maturity date. In the case of conversion following a notice of redemption or upon a non-stock change of control, as defined in the indenture governing the Debentures, holders may convert their Debentures into cash in the amount of the principal amount of their Debentures and shares of the Company’s common stock for any conversion value in excess of the principal amount. In all other conversion circumstances, holders will receive perpetual preferred stock (see Note 17. "Stockholders' Equity") with a liquidation preference equal to the principal amount of their Debentures, and any conversion value in excess of the principal amount will be settled with the Company’s common stock. As a result of the Patriot Coal Corporation (Patriot) spin-off, the conversion rate was adjusted. The conversion rate has also been adjusted when there has been a change in the Company’s dividend distribution rate. The current conversion rate is 17.2563 shares of common stock per $1,000 principal amount of Debentures effective February 6, 2013. This adjusted conversion rate represents a conversion price of $57.95.

Between December 20, 2011 and December 19, 2036, the Company may redeem the Debentures, in whole or in part, if for at least 20 out of the 30 consecutive trading days immediately prior to the date on which notice of redemption is given, the Company’s closing common stock price has exceeded 130% of the then applicable conversion price for the Debentures (currently $75.34 per share). On or after December 20, 2036, whether or not the redemption condition is satisfied, the Company may redeem the Debentures, in whole or in part. The Company may not redeem any Debentures unless (i) all accrued and unpaid interest on the Debentures has been paid in full on or prior to the redemption date and (ii) if any perpetual preferred stock is outstanding, the Company has first given notice to redeem the perpetual preferred stock in the same proportion as the redemption of the Debentures. Any redemption of the Debentures will be at a cash redemption price of 100% of the principal amount of the Debentures to be redeemed, plus accrued and unpaid interest to the date of redemption.

On December 15, 2041, the scheduled maturity date, the Company is required to use commercially reasonable efforts, subject to the occurrence of a market disruption event, as defined in the indenture governing the Debentures, to issue securities of equivalent equity content in an amount sufficient to pay the principal amount of the Debentures, together with accrued and unpaid interest. At the final maturity date of the Debentures on December 15, 2066, the entire principal amount will become due and payable, together with accrued and unpaid interest.

In connection with the issuance of the Debentures, the Company entered into a Capital Replacement Covenant (the CRC). Pursuant to the CRC, the Company covenanted for the benefit of holders of covered debt, as defined in the CRC (currently the Company’s 7.875% Senior Notes, issued in the aggregate principal amount of $250.0 million), that neither the Company nor any of its subsidiaries shall repay, redeem or repurchase all or any part of the Debentures on or after December 15, 2041 and prior to December 15, 2046, except to the extent that the total repayment, redemption or repurchase price does not exceed the sum of: (i) 400% of the Company’s net cash proceeds from the sale of its common stock and rights to acquire its common stock (including common stock issued pursuant to the Company’s dividend reinvestment plan or employee benefit plans); (ii) the Company’s net cash proceeds from the sale of its mandatorily convertible preferred stock, as defined in the CRC, or debt exchangeable for equity, as defined in the CRC; and (iii) the Company’s net cash proceeds from the sale of other replacement capital securities, as defined in the CRC, in each case, during the six months prior to the notice date for the relevant payment, redemption or repurchase.

The Debentures are unsecured obligations of the Company, ranking junior to all existing and future senior and subordinated debt (excluding trade accounts payable or accrued liabilities arising in the ordinary course of business) except for any future debt that ranks equal to or junior to the Debentures. The Debentures will rank equal in right of payment with the Company’s obligations to trade creditors. In addition, the Debentures will be effectively subordinated to all indebtedness of the Company’s subsidiaries. The indenture governing the Debentures places no limitation on the amount of additional indebtedness that the Company or any of the Company’s subsidiaries may incur.

The Company accounts for the liability and equity components of the Debentures in a manner that reflects the nonconvertible debt borrowing rate when recognizing interest cost in subsequent periods. The following table illustrates the carrying amount of the equity and debt components of the Debentures:



	December 31,
	2012			2011
	(Dollars in millions)
Carrying amount of the equity component	$	215.4		$	215.4
Principal amount of the liability component	$	732.5		$	732.5
Unamortized discount	(355.1		)	(357.3		)
Net carrying amount	$	377.4		$	375.2

The following table illustrates the effective interest rate and the interest expense related to the Debentures:



	Year Ended December 31,
	2012			2011			2010
	(Dollars in millions)
Effective interest rate	4.9		%	4.9		%	4.9		%
Interest expense — contractual interest coupon	$	34.8		$	34.8		$	34.8
Interest expense — amortization of debt discount	2.1			1.8			1.6

The remaining period over which the discount will be amortized is 29 years as of December 31, 2012.

Capital Lease Obligations

The Company's capital lease obligations pertain to the financing of mining equipment used in operations. Refer to Note 13. "Leases" for additional information associated with the Company's capital leases.

Debt Maturities, Interest Paid and Financing Costs

The aggregate amounts of long-term debt maturities (including unamortized debt discounts) subsequent to December 31, 2012, including capital lease obligations, were as follows:




Year of Maturity	(Dollars in millions)
2013	$	47.8
2014	111.2
2015	461.6
2016	1,477.9
2017	9.3
2018 and thereafter	4,145.1
Total	$	6,252.9

Interest paid on long-term debt was $396.1 million, $205.3 million and $197.9 million for the years ended December 31, 2012, 2011 and 2010, respectively.

Financing costs incurred with the issuance of the Company’s debt are being amortized to interest expense over the remaining term of the associated debt. The remaining balance at December 31, 2012 was $78.6 million, of which $62.7 million will be amortized to interest expense over the next five years.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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