Debt

9 Months Ended

Sep. 30, 2012

Debt [Abstract]

Debt

9. Debt

On January 31, 2012 in conjunction with closing the Company’s acquisition of the TaxACT business, 2^nd Story entered into an agreement with a syndicate of lenders for a $105 million credit facility. 2^nd Story’s obligations under the credit agreement are guaranteed by TaxACT Holdings, a direct subsidiary of the Company and the direct parent of 2^nd Story, and are secured by the assets of the TaxACT business and the 2^nd Story equity owned by TaxACT Holdings. Under this credit agreement, 2^nd Story borrowed $95 million of term debt and has access to various forms of revolving debt. Subject to certain limitations, the amount of revolving debt available to 2 ^nd Story through this credit agreement is $10 million, of which $5 million was borrowed under the agreement.

The $95 million term loan requires quarterly principal payments and matures on January 31, 2017. The interest rate on amounts borrowed under the term loan and the revolving loan is variable and payable as of the end of each interest period or, if more frequent, quarterly, based upon, at the election of 2^nd Story, the Alternate Base Rate or the LIBOR Rate, plus the Applicable Margin (as such terms are defined in the credit agreement). The Applicable Margin is dependent on the consolidated Total Leverage Ratio (as defined in the credit agreement) of TaxACT Holdings and ranges from 2.0% to 3.5% for borrowings tied to the Alternative Base Rate and 3.0% to 4.5% for borrowings tied to the LIBOR Rate.

A portion of any excess cash flows, as the term is defined in the credit agreement, must be used to make a mandatory prepayment on the term loan within ninety days of June 30, 2013 and thereafter within 90 days of June 30 ^th in succeeding years in the event that the leverage ratio is more than two-to-one on June 30^th of that year. 2 ^nd Story made a mandatory principal prepayment of $504,000 in the three months ended September 30, 2012 based upon excess cash flows. Amounts outstanding under the term loan may be prepaid without penalty. On February 10, 2012, 2 ^nd Story repaid the $5 million outstanding under the revolving credit facility. On March 13, 2012 and May 1, 2012, 2^nd Story prepaid $20 million, in two equal payments, of the balance outstanding under the term loan. The remaining amount of debt outstanding under the term loan as of September 30, 2012 was $74.5 million. The credit agreement covenants limit 2 ^nd Story and its parent, TaxACT Holdings, from, in certain circumstances, incurring additional indebtedness, incurring liens, paying dividends to the Company, making capital expenditures over stipulated maximums, allowing the consolidated Total Leverage Ratio (as defined in the credit agreement) to exceed stipulated levels over the debt term, and allowing the Fixed Charge Coverage Ratio to be less than stipulated levels.

Additionally, the Company was required to hedge a portion of the interest rate risk associated with the term debt 90 days after its inception, and that requirement was met on May 1, 2012 by the purchase of an interest rate swap with a financial institution which fixed the LIBOR Rate portion at 0.85% for $37.5 million of the amount outstanding under the term loan. The swap’s terms are scheduled to fix the interest rate on a declining amount outstanding under the term loan, approximating half of the debt balance, until the credit agreement’s termination on January 31, 2017.