NOTE 12 – LONG TERM DEBT

Debt Obligations

We currently maintain a senior secured credit facility (“Credit Facility”) that matures on September 24, 2018. At June 30, 2015, the Credit Facility was comprised of a term loan facility in the principal amount of $45.0 million and a revolving credit facility (“LOC”) permitting draws in the principal amount of up to $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. As of June 30, 2015, we had $31.0 million of borrowings and $7.4 million of letters of credit outstanding under our LOC. Effective July 2, 2015, our Credit Facility was amended to $85.0 million with a LOC permitting draws in the principal amount of up to $40.0 million leaving approximately $1.6 million of additional borrowing capacity.

Under the Credit Facility, each of our domestic subsidiaries is a joint and several co-borrower. The obligations of all the borrowers under the Credit Facility are secured by all personal property of the borrowers, including the U.S. flagged vessels owned by ISH’s domestic subsidiaries and collateral related to such vessels. Several of our International flagged vessels are pledged as collateral securing several of our other secured debt facilities.

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 stipulating as of June 30, 2015 that we maintain a consolidated leverage ratio not to exceed 5.0 to 1.0, an EBITDAR to fixed charges ratio of at least 1.05 to 1.0, liquidity of not less than $20.0 million, positive working capital, 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 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). For information on the prior and future terms of these covenants, amendments to our covenants, and our compliance with these covenants, see “– Debt Covenants” below.

On April 24, 2015, we entered into a new loan agreement with DVB Bank SE in the amount of $32.0 million by refinancing our 2010 built PCTC. We received the loan proceeds on April 24, 2015 and applied them as follows: (i) $24.0 million to pay off an outstanding Yen facility in the amount of 2.9 billion Yen, (ii) $4.1 million to settle the related Yen forward contract, and (iii) $2.9 million to settle a Yen denominated interest rate swap. Under the new DVB loan agreement, interest will be payable at a fixed rate of 4.16% with the principal being paid quarterly over a five-year term based on a ten-year amortization schedule with a final quarterly balloon payment of $16.8 million due on April 22, 2020. Our 2010-built foreign flag PCTC along with customary assignment of earnings and insurances are pledged as security for the facility. In the second quarter of 2015, we recorded a loss on extinguishment of debt of approximately $0.3 million as a result of the early debt payoff. During the six months ended June 30, 2015, we capitalized approximately $0.6 million in loan costs associated with the DVB Bank loan, which will be amortized over the life of the loan.

In June of 2015, we merged the two ING loan facilities financing the Capesize bulk carrier, Supramax bulk carrier and two Handysize vessels. None of the debt maturities or terms were amended.

During the second quarter 2015, we early adopted ASU 2015-3 and as a result reclassified approximately $3.2 million and approximately $2.9 million of deferred debt issuance costs from Deferred Charges, Net of Accumulated Amortization to offset against Long-Term Debt on our condensed consolidated balance sheets as of June 30, 2015 and December 31, 2014, respectively.

During the first quarter of 2015, we paid off approximately $13.5 million in debt in connection with the sale of one of our Handysize vessels. Additionally, we wrote off approximately $95,000 of unamortized loan costs associated with the debt instrument which is reflected in loss on extinguishment of debt on our condensed consolidated statement of operations.

As of the dates indicated below, long-term debt consisted of the following:



(All Amount in Thousands)	Interest Rate					Total Principal Due
	June 30,		December 31,		Maturity	June 30,		December 31,
Description of Secured Debt	2015		2014		Date	2015		2014
Notes Payable – Variable Rate 1	2.7803	%	2.7471	%	2018	$	10,307	$	12,025
Notes Payable – Variable Rate 1	2.7708-2.7770	%	2.7312-2.7324	%	2018		26,373		41,400
Notes Payable – Variable Rate	2.5340	%	2.5050	%	2017		8,024		9,144
Notes Payable – Variable Rate 1	2.7775	%	2.7350	%	2018		14,766		15,394
Notes Payable – Variable Rate 2	3.9900	%	3.9900	%	2018		40,219		41,906
Notes Payable – Fixed Rate 3	4.3500	%	4.3500	%	2020		36,279		37,759
Notes Payable – Variable Rate 4	2.9354	%	2.9195	%	2021		20,297		21,943
Notes Payable – Variable Rate 5			3.6100	%	2020		-		24,812
Notes Payable – Fixed Rate 5	4.1600	%			2020		32,000		-
Note Payable - Mortgage 6							5		5
Line of Credit 2	3.9400	%	3.9100	%	2018		31,000		38,500
							219,270		242,888
			Less: Current Maturities				(23,062)		(23,367)
			Less: Debt Issuance Costs				(3,227)		(2,870)
						$	192,981	$	216,651

1.We entered into a variable rate financing agreement with ING Bank N.V, London branch in August 2010 for a seven year facility to finance the construction and acquisition of three Handysize vessels. Pursuant to the terms of the facility, the lender agreed to provide a secured term loan facility divided into two tranches which corresponded to the vessel delivery schedule. Tranche I covered the first two vessels delivered with Tranche II covering the last vessel. Tranche I was fully drawn in the amount of $36.8 million, and Tranche II fully drawn at $18.4 million We entered into a variable rate financing agreement with ING Bank N.V., London branch in June 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 in June 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. In order to aid in the collateral value coverage covenant, both of the above facilities were merged into one under an Assignment, Assumption, Amendment and Restatement Facility dated June 10, 2015. None of the debt maturities or terms were amended.

2.As described in greater detail above, our senior secured Credit Facility matures on September 24, 2018 and, at June 30, 2015, included 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.

3.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. This loan requires us to pre-fund a one-third portion of the upcoming quarterly scheduled debt payment, which, at June 30, 2015, constituted $0.4 million and is included as restricted cash on our balance sheet.

4.In August 2014, we paid off our $11.4 million loan with DNB Bank 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 equal to the 30-day Libor rate plus 2.75% payable in 84 monthly installments with the final payment due August 2021.

5.In April 2015, we paid off our loan of $28.1 million loan with DNB Bank and settled the related Yen forward contract and interest rate swap. We obtained a new loan with DVB Bank SE in the amount of $32.0 million. Interest under the new loan is payable at a fixed rate of 4.16% with the principal being paid quarterly over a five-year term based on an amortization of ten years with a final quarterly balloon payment of $16.8 million due in April 2020. This loan requires us to pre-fund a portion of the upcoming quarterly scheduled debt payment, which, at June 30, 2015, constituted $0.8 million and is included as restricted cash on our balance sheet. This facility was amended on June 30, 2015 to change the borrower from LCI Shipholdings, Inc. to East Gulf Shipholding, Inc.

6.Represents borrowings associated with the proposed construction financing related to the building we plan to renovate as our New Orleans headquarters.

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. Throughout 2014 and 2015, there has been concern that we would be unable to meet all of our required debt covenants. Consequently, we solicited and received from our lenders and lessors amendments to or waivers from various of these covenants to assure our compliance therewith as of the end of the first, third and fourth quarters of 2014 and the end of the first and second quarters of 2015. Summarized below are key amendments and waivers received since September 30, 2014. For more complete information, see the discussion of our debt covenant compliance set forth in our periodic reports filed since January 1, 2014 with the SEC.

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 approximately $11.2 million in deferred gains resulting from the 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 at such time to amend the consolidated leverage and fixed charge coverage ratios to require us to maintain (i) 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 (ii) a minimum fixed charge coverage ratio of 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, 1.20 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).

At the end of the first and second quarters of 2015, we received from our lenders and lessors additional amendments to or waivers from certain covenants contained in our financing and lease agreements. We received permission from certain lenders and lessors to incur up to $15 million in additional indebtedness for general corporate purposes. We also received from certain lenders and lessors permission to incur additional indebtedness in connection with our above-described refinancing of a foreign currency loan facility and our payoff of a related foreign currency interest rate swap. We received from certain lenders and lessors a restatement of the fixed charge coverage ratio to a minimum 1.05 to 1.0 for the fiscal year 2015, 1.15 to 1.0 beginning with the quarter ending March 31, 2016, 1.20 to 1.0 beginning with the quarter ending June 30, 2016, and 1.25 to 1.0 for all periods thereafter. The manner in which this fixed charge coverage ratio is determined and calculated differs under our various loan or lease agreements. Two other lenders provided short-term relief by agreeing to amend, for 2015 only, the manner in which the leverage ratio will be calculated under the relevant agreement. Additionally, in 2015 we received from one of our lenders relief under our loan to value ratio test. As a result of the above-described waivers and concessions, we were in compliance with all of our debt covenants as of June 30, 2015.

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 and beyond. Our plan included the reduction of our quarterly cash dividend on common stock commencing in the second quarter of 2015 and the identification of five non-performing assets that were approved for sale by our Board of Directors during the fourth quarter of 2014 and classified as Assets Held for Sale on our December 31, 2014 balance sheet. Additionally, in the fourth quarter of 2014, we completed the renewal of our contract as the primary marine transporter of coal for The Tampa Electric Company (‘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. Therefore, we recorded a valuation allowance on our deferred tax assets during the fourth quarter of 2014. During the first half of 2015, we recorded an increase in this valuation allowance of $1.8 million.

Prior to December 31, 2014, we sold one of our held for sale assets, and on March 5, 2015, we finalized the sale of one of the four remaining held for sale assets. By the end of the second quarter of 2015, we replaced our plan to sell two of our Handysize vessels with a new plan to resume operating the vessels in a revenue sharing agreement, albeit with different operators. The decision was primarily driven by offers to purchase the vessels that we concluded were inadequate.

We are also in the process of obtaining bank financing for approximately $6.9 million to fund the construction and renovation of our future headquarters office in New Orleans. We anticipate closing this financing by the end of the third quarter of 2015. In addition to the $6.9 million in bank financing, we have received approximately $5.2 million in incentives from the State of Louisiana which offset part of the cost of constructing the new office. We are evaluating options available to us to fund the remaining cost of approximately $6.9 million to complete the construction of the building.

In addition to these activities, we have explored to varying degrees other alternatives designed to increase our cash or strengthen our liquidity. These other alternatives include (i) borrowing money secured by certain of our unencumbered assets, which currently constitute a small portion of our consolidated assets, (ii) seeking loan refinancings to further monetize the value of our assets collateralizing current loans, (iii) selling assets, (iv) reducing costs or (v) pursuing private or public offerings of debt or equity securities. As of June 30, 2015, we estimate that the fair value of our unencumbered assets was approximately $65.3 million. We cannot assure you that we will pursue or continue to pursue any of the alternatives, or that any such efforts will be successful.

Failure to execute our plan would impact our ability to be in compliance with our 2015 and 2016 quarterly debt covenants, in particular our working capital, minimum liquidity and fixed charge ratios, 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 likely 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.

We currently believe that we will be able to continue to attain our financial covenants over the next twelve months based upon (i) current conditions, (ii) the assumption that we will generate cash through asset sales, cost savings initiatives or alternative transactions and (iii) our expectations that our underperforming segments will stabilize or improve marginally in the near term. Because we cannot necessarily control future conditions or transactions, however, we cannot assure you that we are able to attain all of our financial covenants in future periods. Our future ability to attain our financial covenants will be dependent upon a wide range of factors, several of which are outside of our control.

In addition to the restrictions under our 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 believe that we have consistently remained in compliance with this provision of these loan agreements and we do not believe this provision will hinder our ability to sell assets as needed to meet our financial covenants.

Guarantees

We guarantee two separate loan facilities of two separate shipping companies in which one of our wholly-owned subsidiaries has indirect ownership interests. With respect to one of the two loan facilities of these shipping companies, in which our wholly-owned subsidiary indirectly owns a 25% interest, we guarantee 5% of the amount owed under the loan facility. As of June 30, 2015 and December 31, 2014, this guarantee obligation equated to approximately $3.6 million and $3.8 million, respectively. The amount of this guarantee reduces semi-annually by approximately $165,000 through December 2018. Under the second facility, in which our wholly-owned subsidiary indirectly owns approximately 23.7% of the borrower, we guarantee only $1.0 million of the approximately $11.0 million loan facility. This second guarantee is non-amortizing and is scheduled to expire in December 2018. In December 2017, we anticipate that this guarantee will be reduced from $1.0 million to $510,000 as a result of a scheduled payment of a portion of the facility.