LONG-TERM DEBT, LETTERS OF CREDIT AND DERIVATIVES

In July 2015, we renewed our banking credit facility (the “Credit Facility”). In accordance with the second amendment to the Credit Facility, which was signed in February 2016, the Credit Facility has a borrowing capacity of up to $600 million and consists of a $400 million, five-year revolving loan facility and a $200 million five-year term loan facility. The swing line facility is $35.0 million. The Credit Facility matures in July 2020, bears interest based on a variable Eurodollar rate option (LIBOR plus 2.25% margin at March 31, 2017) and has commitment fees on unused borrowing capacity (0.40% at March 31, 2017). The Credit Facility limits our ability to pay cash dividends without the consent of our bank syndicate. The Credit Facility also contains financial covenants, which were amended in May 2017 pursuant to the fifth amendment to the Credit Facility. The covenants, as amended, require the Company to maintain as of the end of each fiscal quarter (i) a maximum ratio of consolidated funded debt to consolidated EBITDA (the “Total Leverage Ratio”, as defined in the Credit Facility agreement) of not more than 5.00 to 1.00 as of March 31, 2017 and June 30, 2017 and thereafter the maximum ratio decreases by 0.50 to 1.00 each subsequent quarter until it reaches 3.00 to 1.00, (ii) a maximum ratio of senior secured debt to consolidated EBITDA of not more than 4.00 to 1.00 as of March 31, 2017, 4.25 to 1.00 as of June 30, 2017 and decreasing by 0.25 to 1.00 each subsequent quarter until it reaches 3.00 to 1.00 and (iii) an interest coverage ratio of less than 3.00 to 1.00. As of March 31, 2017, we are in compliance with these covenants. Notwithstanding the foregoing, from and after the Permitted Debt Incurrence Date, which is a future date that will have occurred when and if the Company incurs at least $125.0 million of certain unsecured debt, the maximum Total Leverage Ratios would be 5.00 to 1.00 at March 31, 2017, 5.25 to 1.00 at June 30, 2017 and decreasing by 0.25 to 1.00 each subsequent quarter until reaching 4.00 to 1.00. Our Total Leverage Ratio stood at 4.77 to 1.00 as of March 31, 2017. At March 31, 2017, we had $23.7 million of cash on hand and approximately $18 million of available borrowing capacity through our Credit Facility. In connection with the renewal of our Credit Facility, as of March 31, 2017, we are amortizing $3.0 million of associated debt issuance costs over the life of the Credit Facility.

In order to secure our casualty insurance programs we are required to post letters of credit generally issued by a bank as collateral. A letter of credit commits the issuer to remit specified amounts to the holder, if the holder demonstrates that we failed to meet our obligations under the letter of credit. If this were to occur, we would be obligated to reimburse the issuer for any payments the issuer was required to remit to the holder of the letter of credit. We were contingently liable for outstanding stand-by letters of credit totaling $20.7 million at March 31, 2017 and $21.6 million at December 31, 2016. Outstanding letters of credit reduce amounts available under our Credit Facility and are considered as having been funded for purposes of calculating our financial covenants under the Credit Facility.

ASC 815, Derivatives and Hedging (“ASC 815”), requires that derivative instruments be recorded at fair value and included in the balance sheet as assets or liabilities. The accounting for changes in the fair value of a derivative instrument depends on the intended use of the derivative and the resulting designation, which is established at the inception date of a derivative. Special accounting for derivatives qualifying as fair value hedges allows derivatives’ gains and losses to offset related results on the hedged item in the statement of operations. For derivative instruments designated as cash flow hedges, changes in fair value, to the extent the hedge is effective, are recognized in other comprehensive income (loss) until the hedged item is recognized in earnings. Hedge effectiveness is measured at least quarterly based on the relative cumulative changes in fair value between the derivative contract and the hedged item over time. Credit risks related to derivatives include the possibility that the counter-party will not fulfill the terms of the contract. We consider counterparty credit risk to our derivative contracts when valuing our derivative instruments.

Our borrowing of €12.3 million under the Credit Facility serves as an economic hedge of our net investment in our European operations as fluctuations in the fair value of the borrowing attributable to the U.S. Dollar/Euro spot rate will offset translation gains or losses attributable to our investment in our European operations. At March 31, 2017, the €12.3 million borrowing had a U.S. Dollar value of $13.1 million.

The amounts recognized in other comprehensive income, and reclassified into earnings, for the three months ended March 31, 2017 and 2016, are as follows (in thousands):



	Loss Recognized in Other Comprehensive Income						Gain (Loss) Reclassified from Other Comprehensive Income to Earnings
	Three Months Ended March 31,						Three Months Ended March 31,
	(unaudited)						(unaudited)
	2017			2016			2017		2016
Net investment hedge	$	(166	)	$	(553	)	$	—	$	—

The following table presents the fair value totals and balance sheet classification for derivatives designated as hedges under ASC 815 (in thousands):

March 31, 2017

December 31, 2016

(unaudited)

Classification

Balance Sheet

Location

Fair

Value

Classification

Balance Sheet

Location

Fair

Value

Net investment hedge

Liability

Long-term debt

(4,882

)

Liability

Long-term debt

(5,048

)