NOTE Q – LONG-TERM DEBT

During the quarter ended September 30, 2014, we entered into a new loan agreement for the purchase of our 2007 PCTC that we had previously been operating under a sale-leaseback arrangement. Under this new loan agreement, we borrowed $38.5 million at a fixed rate of 4.35% with 24 quarterly payments with a final quarterly balloon payment of $20.7 million due on August 28, 2020. We incurred deferred loan costs in the amount of approximately $519,000 on the new loan. The new loan agreement requires us to pre-fund a one third portion of the upcoming quarterly scheduled debt payment currently constituting $387,000, which is classified as restricted cash on the balance sheet. See Note O – Leases for more information on this transaction. During the quarter ended September 30, 2014, we also refinanced one of our 1999 PCTCs by paying off all $11.4 million of our bank debt owed to DnB ASA and borrowing $23.0 million under a new loan agreement with RBS Asset Finance. Under this new RBS loan agreement, we are obligated to pay variable interest at a 30 day Libor rate plus 2.75% and principal amortized over 84 monthly payments plus a final payment in August 2021. The new loan costs and the old unamortized loan costs of approximately $230,000 and $225,000, respectively, were expensed as losses on the debt extinguishment.

On September 24, 2013, we refinanced and retired our previously-existing revolving credit facility scheduled to expire in September 2014 and five-year variable rate financing agreement that we entered into on November 30, 2012. Concurrently with these terminations, we and all of our domestic subsidiaries entered into a new senior secured credit facility (“Credit Facility”) that (i) increased our borrowing capacity up to $95.0 million, with a potential increase up to $145.0 million on the terms described below, (ii) modified our covenant restrictions, (iii) extended the maturity date of our facility to September 24, 2018, and (iv) further monetized the value of our U.S. assets. The total amount paid off on September 24, 2013 was approximately $46.6 million, of which $21.0 million was drawn from the new revolving credit facility under the Credit Facility.

The Credit Facility includes a term loan facility in the principal amount of $45.0 million and a revolving credit facility (“LOC”) in the principal amount of $50.0 million. The LOC includes a $20.0 million sublimit for the issuance of standby letters of credit and a $5.0 million sublimit for swingline loans. The Credit Facility carries an accordion feature, whereby an additional term loan up to $50.0 million may be advanced subject to certain financial requirements. As of September 24, 2013, the Credit Facility had four lenders, each with commitments ranging from $15.0 million to $30.0 million. As of December 31, 2014, we had $38.5 million of borrowings and $7.8 million of letters of credit outstanding under our LOC, leaving an available balance of approximately $3.7 million.

The Credit Facility, as amended, includes usual and customary covenants and events of default for credit facilities of its type. Our ability to borrow under the Credit Facility is conditioned upon continued compliance with such covenants, including, among others, (i) covenants that restrict our ability to engage in certain asset sales, mergers or other fundamental changes, to incur liens or to engage in various other transactions or activities and (ii) various financial covenants, including those currently stipulating that we maintain a consolidated leverage ratio of 5.0 to 1.0, an EBITDAR to fixed charges ratio of at least 1.1 to 1.0, liquidity of not less than $20.0 million, and a consolidated net worth of not less than the sum of $228.0 million, minus impairment losses, plus 50% of our consolidated net income earned after December 31, 2011, excluding the $38.2 million impairment loss, plus 100% of the proceeds of all issuances of equity interests received after December 31, 2011 (with all such terms or amounts as defined in or determined under the Credit Facility).

We categorized this refinancing as a debt extinguishment. The total fees associated with the Credit Facility included $1.4 million of bank fees and $148,000 of third party fees. Approximately $800,000 of the bank fees associated with the old term loan facility were expensed during the third quarter of 2013, while all the fees associated with new LOC facility will be deferred and amortized over the term of the Credit Facility.

We guarantee two separate loan facilities that one of our wholly-owned subsidiaries has investments in. Under one facility, we guarantee 20% of our 25% equity position in the facility which owns numerous vessels. As of December 31, 2014 and 2013, this guarantee equated to approximately $3.6 million and $3.9 million, respectively. This guarantee reduces semi-annually by approximately $165,000 through December 2018. Under a second facility, we guarantee $1.0 million which is non-amortizing and represents 25% of the overall bank guarantee covering an approximately $11.0 million facility. This guarantee was filed in February 2014 and will expire in December 2018. In December 2017, our guarantee will be reduced from $1.0 million to $510,000 as a result of paying off a portion of the facility.


		Interest Rate					Total Principal Due
(All Amount in Thousands)		December 31,		December 31,		Maturity	December 31,		December 31,
Description of Secured Debt		2014		2013		Date	2014		2013
Notes Payable – Variable Rate	(1)	2.7471	%	2.7451	%	2018	$	12,025	$	15,460
Notes Payable – Variable Rate		2.7312-2.7324	%	2.7400	%	2018		41,400		45,081
Notes Payable – Variable Rate		2.5050	%	2.5188	%	2017		9,144		11,383
Notes Payable – Variable Rate	(5)	2.9195	%	2.9181	%	2021		21,943		12,780
Notes Payable – Variable Rate	(1)	2.7350	%	2.7384	%	2018		15,394		16,651
Notes Payable – Variable Rate	(2)	3.6100	%	2.8964	%	2020		24,812		31,437
Notes Payable – Variable Rate	(3)	3.9900	%	3.7500	%	2018		41,906		44,437
Notes Payable – Fixed Rate	(4)	4.3500	%			2020		37,759		-
Note Payable - Mortgage	(6)							5		-
Line of Credit	(3)	3.9100	%	3.6700	%	2018		38,500		21,000
								242,888		198,229
		Less Current Maturities						(23,367)		(19,213)
							$	219,521	$	179,016

We entered into a variable rate financing agreement with ING Bank N.V., London branch on June 20, 2011 for a seven year facility to finance the acquisition of a Capesize vessel and a Supramax Bulk Carrier newbuilding, both of which we acquired a 100% interest in as a result of our acquisition of Dry Bulk. Pursuant to the terms of the facility, the lender agreed to provide a secured term loan facility divided into two tranches: Tranche A, fully drawn on June 20, 2011 in the amount of $24.1 million, and Tranche B, providing up to $23.3 million of additional credit. Under Tranche B, we drew $6.1 million in November 2011 and $12.7 million in January 2012.

We have an interest rate swap agreement in place to fix the interest rate on our variable rate note payable expiring in 2020 at 2.065%. After applicable margin adjustments, the effective interest rate on this note payable is fixed at 5.565%. The swap agreement is for the same term as the associated note payable.

As described in greater detail above, our senior secured Credit Facility matures on September 24, 2018 and includes a term loan facility in the principal amount of $45 million and a LOC in the principal amount up to $50 million. The LOC facility includes a $20 million sublimit for the issuance of standby letters of credit and a $5 million sublimit for swingline loans.

We entered into a fixed rate financing agreement with DVB Bank SE, on August 26, 2014 in the amount of $38.5 million, collateralized by our 2007 PCTC at a rate of 4.35% with 24 quarterly payments with a final balloon payment of $20.7 million in August 2020.

During August 2014, we paid off our $11.4 million loan with DnB ASA and obtained a new loan with RBS Asset Finance in the amount of $23.0 million collateralized by one of our 1999 PCTCs at a variable rate of 30 day Libor rate plus 2.75% payable in 84 monthly installments with the final payment due August 2021.

Represents consideration given in connection with the proposed construction financing relating to the building we plan to renovate as our new New Orleans headquarters building.

All of our principal credit agreements and operating leases require us to comply with various loan covenants, including financial covenants that require minimum levels of net worth, working capital, liquidity, and interest expense or fixed charges coverage and a maximum amount of debt leverage. During first quarter of 2014, there was concern that we would be unable to meet all of our required debt covenants for the quarter. During the period ending March 31, 2014, our principal senior secured lenders and two of our lessors agreed to, among other things, defer the date upon which we were required to attain a more stringent leverage ratio and increased liquidity from December 31, 2013 to June 30, 2014. Under these terms, we are required to maintain a consolidated leverage ratio of 4.50 to 1.0 through the fiscal quarter ending June 30, 2014, and 4.25 to 1.0 thereafter, and liquidity of not less than $15 million through June 30, 2014 and $20 million thereafter.

Effective September 30, 2014, certain of our lenders and lessors agreed at our request to adjust our covenants to less stringent levels to provide relief from the accounting impact of our above-described September 2014 vessel purchase and refinancing transactions. Two of our lenders elected to adjust our definition of EBITDA to disregard the impact of these transactions, while the remainder of our lenders and lessors agreed to amend the consolidated leverage and fixed charge coverage ratios as follows: we are required to maintain a consolidated leverage ratio of 5.00 to 1.0 through the fiscal quarter ending December 31, 2015, then 4.75 to 1.0 through the fiscal quarter ending March 31, 2016, then 4.50 to 1.0 beginning the quarter ending June 30, 2016 through the quarter ending September 30, 2016, and 4.25 to 1.0 thereafter and the minimum fixed charge coverage ratio we are required to maintain is 1.10 to 1.0 beginning with the quarter ending September 30, 2014 through the quarter ending December 31, 2014, 1.15 to 1.0 beginning with the quarter ending March 31, 2015 through the quarter ending December 31, 2015, 1.2 to 1.0 beginning with the quarter ending March 31, 2016 through the quarter ending June 30, 2016, and 1.25 to 1.0 thereafter (in each case as calculated under our amended debt agreements).

Effective December 31, 2014, each of our lenders and lessors agreed to our request to restate our tangible net worth covenant to exclude the non-cash estimated losses to be incurred as “Impairment Losses” relating to certain vessels classified as held for sale when calculating the minimum tangible net worth to be maintained for the covenants. The impairment losses are deducted in full from the base and excluded for the future adjustments to the base resulting from the addition of 50% of the consolidated net income of the Company from future periods.

Our failure to produce improved results or obtain the necessary financing described on the previous page could jeopardize our ability to attain one or more of our financial covenants in the future. Based on current conditions and our expectations that our performance will stabilize or improve marginally in the near term, we currently believe that we will be able to attain all of our financial covenants through December 31, 2015, but cannot assure you of this.

All of the debt listed in the chart above was either (i) issued directly by International Shipholding Corporation or (ii) issued by one or more subsidiaries of International Shipholding Corporation and guaranteed by International Shipholding Corporation. Our variable rate notes payable and our line of credit are secured by assets with an aggregate book value of approximately $244.5 million as of December 31, 2014, and by a security interest in certain operating contracts and receivables.

The aggregate principal payments required as of December 31, 2014, for each of the next five years are approximately $23.4 million in 2015, $24.2 million in 2016, $26.9 million in 2017, $120.3 million in 2018, $9.1 million in 2019, and $39.0 million thereafter.

Our debt agreements, among other things, impose defined minimum working capital, minimum liquidity, and net worth requirements, impose leverage requirements, and prohibit us from incurring, without prior written consent, additional debt or lease obligations, except as defined. As of December 31, 2014, we met all of the financial covenants under our various debt agreements among other things, the most restrictive of which include the working capital, leverage ratio, minimum net worth and interest coverage ratios.

In addition to the restrictions under our new Credit Facility, certain of our loan agreements restrict the ability of our subsidiaries to dispose of collateralized assets or any other asset which is substantial in relation to our assets taken as a whole without the approval from the lender. We have remained in compliance with this provision of these loan agreements for all periods presented.

Liquidity and Covenant Compliance

Beginning in the fourth quarter of fiscal year 2014, we commenced a plan to evaluate our liquidity and capital resource needs for fiscal year 2015. Our plan included the reduction of our quarterly cash dividend on common stock and the identification of five non-performing assets that were approved for sale by our Board of Directors during the fourth quarter and classified as held for sale on our December 31, 2014 balance sheet. Additionally, in the fourth quarter, we completed the renewal of our contract with TEC. As a result of this contract renewal and the impairment recorded on one of our assets held for sale, we evaluated the recoverability of our deferred tax assets and concluded that it is more likely than not that we will not recognize the benefits of our federal tax attributes and therefore, recorded a valuation allowance of on our deferred tax assets during the fourth quarter.

One of our held for sale assets was sold prior to December 31, 2014 and on March 5, 2015, we finalized the sale of one of the four remaining held for sale assets. We are actively marketing the remaining three assets and expect to complete the sale of these assets prior to December 31, 2015. The estimated proceeds from the remaining three assets held for sale are an integral part to our compliance with our minimum liquidity requirements. Additionally, to generate additional liquidity, we could sell unencumbered vessels in our fleet and defer capital expenditures and dry docking costs that are not required until 2016.

We are also currently in discussions with our creditors to further monetize collateralized assets under our existing line of credit by increasing our availability by an additional $15 million. We believe the amendment to the credit facility will be executed by the end of the first quarter or early second quarter of 2015. In addition to this amendment, we are also in the process of obtaining bank financing for approximately $6.9 million which will go towards the construction and renovation of our future corporate office in New Orleans. We anticipate closing the financing by the end of the first quarter of 2015. In addition to the $6.9 million in bank financing, we have received approximately $4.6 million in incentives from the State of Louisiana and expect to receive another $0.6 million of incentives during 2015 which will offset the cost of constructing the new corporate office. The remaining cost of approximately$6.9 million to complete the construction of the building will be funded by cash on hand. If we are unsuccessful in increasing our availability under our line of credit and are unsuccessful in obtaining the additional financing with our current lenders, we could re-market our requests with other interested parties, seek loan refinancing to further monetize asset values on other vessels, or attempt to access the equity markets under our current open shelf registration. The timing and success of our financing activities cannot be assured.

Failure to execute our plan could impact our ability to be in compliance with our quarterly debt covenants in 2015 and could cause us to suffer an event of default, which could, among other things, accelerate our obligations under any such agreement or preclude us from making future borrowings. Moreover, because our debt obligations are represented by separate agreements with different lenders, in some cases any breach of these covenants or any other default under one agreement may create an event of default under other agreements, resulting in the acceleration of our obligation to pay principal, interest and potential penalties under such other agreements (even though we may otherwise be in compliance with all of our obligations under those agreements). An event of default under a single agreement , including one that is technical in nature or otherwise not material, could result in the acceleration of our debt obligations under multiple lending agreements. The acceleration of any or all amounts due under our debt agreements or the loss of the ability to borrow under our revolving credit facility or other debt agreements could have a material adverse effect on our business, financial condition, results of operations and cash flows. In the event of non-compliance with our debt covenants, we would seek to amend the covenants, obtain waivers from each of our lenders in order to cure any instances of non-compliance, or sell vessels that are currently unencumbered by debt or that serve as collateral against our outstanding debt obligations. The disposition of one or more of these vessels would provide us with additional liquidity and capital resources that could be used to pay down the balances owed under our current debt obligations.