Note 7 - Debt, Credit Facility and Leases

12 Months Ended

Dec. 31, 2020

Notes to Financial Statements

Debt Disclosure [Text Block]

Note 7: Debt, Credit Facility and Leases

Debt Summary

Our debt as of December 31, 2020 consisted of our 7.25% Senior Notes due February 15, 2028 ("Senior Notes") and our Series 2020-A Senior Notes due July 9, 2025 (the “IQ Notes”). Our debt as of December 31, 2019 consisted of our previously-outstanding 6.875% Senior Notes that were due in 2021 and had a principal balance of $506.5 million ("2021 Notes"). These debt arrangements are discussed further below. The following tables summarize our long-term debt balances as of December 31, 2020 and 2019 (in thousands):

	December 31, 2020
	Senior Notes			IQ Notes		Total
Principal	$	475,000		$	37,886	$	512,886
Unamortized discount/premium and issuance costs		(6,462	)		818		(5,644	)
Long-term debt balance	$	468,538		$	38,704	$	507,242

	December 31, 2019
	2021 Notes
Principal	$	506,500
Unamortized discount and issuance costs		(1,771	)
Long-term debt balance	$	504,729

The following table summarizes the scheduled annual future payments, including interest, for the Senior Notes and IQ Notes as of December 31, 2020 (in thousands). The amounts for the IQ Notes are stated in USD based on the USD/CAD exchange rate as of December 31, 2020.

	Senior Notes		IQ Notes
2021	$	34,438	$	2,468
2022		34,438		2,468
2023		34,438		2,468
2024		34,438		2,468
2025		34,438		39,173
2026		34,438		—
2027		34,438		—
2028		479,301		—
Total	$	720,367	$	49,045

Senior Notes

On February 19, 2020, we completed an offering of $475 million in aggregate principal amount of our Senior Notes under our shelf registration statement previously filed with the SEC. The Senior Notes are governed by the Indenture, dated as of February 19, 2020, as amended, among Hecla Mining Company ("Hecla") and certain of our subsidiaries and The Bank of New York Mellon Trust Company, N.A., as trustee. On March 19, 2020, the net proceeds from the offering of the Senior Notes ($469.5 million) were used, together with cash on hand, to redeem all of our previously-outstanding 2021 Notes.

The Senior Notes are recorded net of a 1.16% initial purchaser discount totaling $5.5 million. The Senior Notes bear interest at a rate of 7.25% per year from the date of issuance or from the most recent payment date on which interest has been paid or provided for.  Interest on the Senior Notes is payable on February 15 and August 15 of each year, commencing August 15, 2020. During 2020, 2019 and 2018, interest expense on the statement of operations and comprehensive income (loss) related to the Senior Notes and 2021 Notes and amortization of the initial purchaser discount and fees related to the issuance of the Senior Notes and 2021 Notes totaled $40.2 million, $36.3 million and $36.3 million, respectively. Interest expense for 2020 included amounts recorded for (i) interest recognized on both the Senior Notes and 2021 Notes for an overlapping period of approximately one month, as the Senior Notes were issued on February 19, 2020 and the 2021 Notes were redeemed on March 19, 2020, and (ii) $1.7 million in unamortized initial purchaser discount on the 2021 Notes upon redemption.

The Senior Notes are guaranteed on a senior unsecured basis by certain of our subsidiaries (the "Guarantors"). The Senior Notes and the guarantees are, respectively, Hecla's and the Guarantors' general senior unsecured obligations and are subordinated to all of Hecla's and the Guarantors' existing and future secured debt to the extent of the assets securing that secured debt.  In addition, the Senior Notes are effectively subordinated to all of the liabilities of Hecla's subsidiaries that are not guaranteeing the Senior Notes, to the extent of the assets of those subsidiaries.

The Senior Notes will be redeemable in whole or in part, at any time and from time to time on or after February 15, 2023, on the redemption dates and at the redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, to the date of redemption.  After February 15, 2023, we may redeem some or all of the Senior Notes at a redemption price of 100% of the principal amount, plus accrued interest, if any, to the redemption date, at the following redemption prices (expressed as a percentage of the principal amount): (i) 105.438% for the twelve-month period beginning after February 15, 2023, (ii) 103.625% for the twelve-month period beginning after February 15, 2024, (iii) 101.813% for the twelve-month period beginning after February 15, 2025, and (iv) 100.000% after February 15, 2026. We may redeem up to 35% of the Senior Notes before February 15, 2023 with the net cash proceeds of certain equity offerings.

Upon the occurrence of a change of control (as defined in the Indenture), each holder of Senior Notes will have the right to require us to purchase all or a portion of such holder's Senior Notes pursuant to a change of control offer (as defined in the Indenture), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, subject to the rights of holders of the Senior Notes on the relevant record date to receive interest due on the relevant interest payment date.

Investissement Québec Notes

On July 9, 2020, we entered into a note purchase agreement pursuant to which we issued CAD$50 million (approximately USD$36.8 million at the time of the transaction) in aggregate principal amount of our IQ Notes to Investissement Québec, a financing arm of the Québec government. Because the IQ notes are denominated in CAD, the reported USD-equivalent principal balance will change with movements in the exchange rate. The IQ Notes were issued at a premium of 103.65%, or CAD$1.8 million, implying an effective annual yield of 5.74% and an aggregate principal amount to be repaid of CAD$48.2 million. The IQ Notes were issued in four equal installments of CAD$12.5 million on July 9, August 9, September 9 and October 9, 2020, with the first installment issued net of CAD$0.6 million in fees. The IQ Notes bear interest on amounts outstanding at a rate of 6.515% per year, payable on January 9 and July 9 of each year, commencing January 9, 2021. The IQ Notes are senior and unsecured and are pari passu in all material respects with the Senior Notes, including with respect to guarantees of the IQ Notes by certain of our subsidiaries. The net proceeds from the IQ Notes are available for general corporate purposes, including open market purchases of a portion of the Senior Notes and to pay for capital expenditures at our Casa Berardi unit. Under the note purchase agreement for the IQ Notes and subject to a force majeure event, we are required to invest in the aggregate CAD$100 million at the Casa Berardi unit and other exploration and development projects in Quebec over the four-year period commencing on July 9, 2020. During 2020, interest expense related to the IQ Notes, including premium and origination fees, totaled $0.9 million.

Ressources Québec Notes

On March 5, 2018, we entered into a note purchase agreement pursuant to which we issued CAD$40 million (approximately USD$30.8 million at the time of the transaction) in aggregate principal amount of our Series 2018-A Senior Notes due May 1, 2021 (the “RQ Notes”) to Ressources Québec, a subsidiary of Investissement Québec. The RQ Notes bore interest at a rate of 4.68% per year, payable on May 1 and November 1 of each year, commencing May 1, 2018. The net proceeds from the RQ Notes were required to be used for development and expansion of our Casa Berardi mine. In December 2019, we prepaid the obligation related to the RQ Notes through issuance of approximately 10.7 million shares of our common stock having a total value of approximately CAD$43.8 million (approximately USD$33.5 million). During 2019 and 2018, interest expense related to the RQ Notes, including discount and origination fees, totaled $4.2 million and $1.1 million, respectively. Interest expense for 2019 includes $2.9 million related to the prepayment of the RQ Notes.

Credit Facility

In July 2018, we entered into a $250 million senior secured revolving credit facility which replaced our previous $100 million credit facility. The facility has a term ending on February 7, 2023. The credit facility is collateralized by all of our personal property, including our cash and investment accounts and the equity interests in our domestic subsidiaries and the Canadian subsidiaries that own the Casa Berardi mine. The credit facility is also secured by substantially all of the real and personal property of our subsidiaries holding the rights to our Greens Creek mine, the Casa Berardi mine and our Nevada operations, including mortgages on such mines and pledges of our joint venture interests holding 100% ownership of the Greens Creek mine, all of our rights and interests in the joint venture agreement relating to the Greens Creek mine, and all of our rights and interests in the assets of the Greens Creek joint venture. Below is information on the interest rates, standby fee, and financial covenant terms under our current credit facility in place as of December 31, 2020:

Interest rates:
Spread over the London Interbank Offered Rate	2.25	-	4.00%
Spread over alternative base rate	1.25	-	3.00%
Standby fee per annum on undrawn amounts	0.5625	-	1.00%
Covenant financial ratios:
Senior leverage ratio (debt secured by liens/EBITDA)	not more than 2.50:1
Leverage ratio (total debt less unencumbered cash/EBITDA)	not more than 4.00:1
Interest coverage ratio (EBITDA/interest expense)	not less than 3.00:1

We are also able to obtain letters of credit under the facility, and for any such letters we are required to pay a participation fee of between 2.25% and 4.00% of the amount of the letters of credit based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit. There were $20.3 million in letters of credit outstanding as of December 31, 2020.

We believe we were in compliance with all covenants under the credit facility agreement as of December 31, 2020.  We drew and repaid $210.0 million on the facility during 2020, with no amount outstanding as of December 31, 2020.

Finance and Capital Leases

We have entered into various lease agreements, primarily for equipment at our operating units, which we have determined to be finance leases under accounting guidance that became effective on January 1, 2019, and capital leases prior to that date.  At December 31, 2020, the total liability associated with the finance leases, including certain purchase option amounts, was $15.8 million, with $6.5 million of the liability classified as current and $9.3 million classified as non-current. At December 31, 2019, the total liability balance associated with capital leases was $12.6 million, with $5.4 million of the liability classified as current and $7.2 million classified as non-current. The assets related to these leases are recorded in properties, plants, equipment and mineral interests, net, on our consolidated balance sheets and totaled $22.3 million as of December 31, 2020 and $20.6 million as of December 31, 2019, net of accumulated depreciation. Expense during 2020, 2019 and 2018 related to finance and capital leases included $7.4 million, $5.9 million and $5.3 million, respectively, for amortization of the related assets, and $0.6 million, $0.7 million and $0.7 million, respectively, for interest expense. The total obligation for future minimum finance lease payments was $16.8 million at December 31, 2020, with $1.1 million attributed to interest. Our finance leases as of December 31, 2020 had a weighted average remaining term of approximately 2 years and a weighted average discount rate of approximately 6.7%.

At December 31, 2020, the annual maturities of finance lease commitments, including interest, were (in thousands):

Twelve-month period ending December 31,
2021	$	7,053
2022		4,801
2023		3,116
2024		1,849
Total		16,819
Less: imputed interest		(1,054	)
Net finance lease obligation	$	15,765

Operating Leases

We have entered into various lease agreements, primarily for equipment, buildings and other facilities, and land at our operating units and corporate offices, which we have determined to be operating leases.  Some of the operating leases allow for extension of the lease beyond the current term at our option. We have considered the likelihood and estimated duration of the extension options in determining the lease term for measurement of the liability and right-of-use asset. For our operating leases as of December 31, 2020, we have assumed a discount rate of 6.5%. At December 31, 2020, the total liability balance associated with the operating leases was $10.6 million, with $3.0 million of the liability classified as current and the remaining $7.6 million classified as non-current. The right-of-use assets for our operating leases are recorded as a non-current asset on our consolidated balance sheets and totaled $10.6 million as of December 31, 2020. During 2020 and 2019, operating lease expense, and cash paid for operating leases included in net cash provided by operating activities, totaled $7.2 million and $7.5 million, respectively. The total obligation for future minimum operating lease payments, including assumed extensions beyond the current lease terms, was $12.6 million at December 31, 2020. The weighted-average remaining lease term for our operating leases as of December 31, 2020 was approximately 5.4 years.

At December 31, 2020, the annual maturities of undiscounted operating lease payments, including assumed extensions beyond the current lease terms, were (in thousands):

Twelve-month period ending December 31,
2020	$	3,811
2021		2,870
2022		2,521
2023		555
2024		526
More than 5 years		2,339
Total		12,622
Effect of discounting		(1,980	)
Operating lease liability	$	10,642