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Note 6 - Long-term Debt

12 Months Ended

Dec. 31, 2014

NOTE 6 – LONG-TERM DEBT

At December 31, 2014 and 2013, the carrying amount of the Company’s outstanding debt is summarized as follows (dollars in thousands):

	December 31,
	2014			2013

Senior secured debt due March 5, 2016
Interest accrues at 8% per annum	$	34,735		$	32,055
Senior secured debt due June 30, 2017
Interest accrues at 8% per annum		10,986			10,138
Convertible note instrument due March 5, 2018
Interest accrues at 7% per annum		60,455			56,638
Other loans		28			39
Debt discount, net of accumulated accretion		(1,809	)		(2,442	)
		104,395			96,428

Less current portion		11			11

	$	104,384		$	96,417

The carrying value of the Company’s debt, before discount, approximates fair value. The fair value of the Company’s debt (Level 2) is determined based on an estimation of discounted future cash flows of the debt at rates currently quoted or offered to the Company for similar debt instruments of comparable maturities by its lenders.

Pursuant to the Company’s loan agreements, annual maturities of long-term debt outstanding on December 31, 2014, are as follows:

Year Ending December 31	($ in thousands)

2015	$	11
2016		34,746
2017		10,992
2018		60,455
2019		-
	$	106,204

In March 2013, the Company completed arrangements with its senior lenders to refinance the Company’s existing $66 million corporate term debt. The new arrangements established two separate debt instruments, a $30 million senior secured mortgage loan due in three years, and a $53.5 million in convertible notes due in five years, with no principal or interest payments due on either instrument until maturity. The new debt instruments replaced all existing term debt as of March 5, 2013, and provided $17.5 million in working capital to fund the Company’s current operations, including pre-construction activities related to the Project.

The major components of the refinancing included:

●

A $30 million senior term loan secured by the underlying assets of the Company, including landholdings and infrastructure (the “Senior Secured Debt”). The instrument accrues interest at 8% per annum and requires no principal or interest payments before maturity on March 5, 2016. Prepayment would be mandatory following any asset sale or voluntarily at the Company’s option, subject to a premium. The Senior Secured Debt has a senior position to any other Company debt instrument.

●

A $53.5 million in convertible notes (the “Convertible Notes”). The Convertible Notes provide for convertibility into the Company’s common stock at a price of $8.05 per share. Interest accrues at 7% per annum, with no principal or interest payments required before maturity on March 5, 2018. This instrument has a junior position to the Senior Secured Debt.

The March 2013 credit facility does not constitute a troubled debt restructuring and was accounted for as a debt extinguishment under ASC 470-50. The fair value of the new credit facility was recorded at face value. The Company recorded a loss on extinguishment of debt in the amount of $1.06 million which consisted of the write-off of unamortized debt discount, unamortized debt issuance costs and fees paid to the lenders.

The Company incurred $1.2 million of legal expenses and placement agent fees related to the negotiation and documentation of the refinancing which was capitalized and is being amortized over the life of the Convertible Notes.

On October 30, 2013, the Company entered into an agreement (“Credit Agreement”) with its majority senior lender, MSD Credit Opportunity Master Fund, L.P. (“MSD Credit”), to increase its existing $30 million senior secured mortgage loan by $10 million to fund additional working capital. MSD Credit previously acquired the majority interest of the $30 million portion of the debt in a private transaction. The $10 million tranche accrues interest at 8% and requires no principal or interest payments prior to maturity on June 30, 2017. The $10 million and the original $30 million are both secured by the underlying assets of the Company, including all landholdings and infrastructure. The Credit Agreement also now provides that in the case of certain asset sales unrelated to the Water Project, the Company would retain for working capital purposes up to 50% of the first $10 million of sales, with the remainder requiring mandatory prepayment of the Senior Secured Debt. In addition, as part of this transaction, the Company issued 700,000 shares of Cadiz Inc. common stock to MSD Credit subject to certain restrictions on resale. The fair value of the shares of common stock issued totaled approximately $2.4 million, which was recorded as additional debt discount with a corresponding amount recorded as additional paid-in capital. Such debt discount is accreted to the redemption value of the instrument over the remaining term of the loan as additional interest expense. In addition, the Company incurred $110,000 of lender fees which was recorded as additional debt discount and is being amortized over the remaining term of the loan.

In November and December 2014, approximately $314 thousand in Convertible Notes were converted by certain of the Company’s lenders. As a result, 39,037 shares of common stock were issued to the lenders.

Both the Senior Secured Debt and the Convertible Notes contain representations, warranties and covenants that are typical for agreements of this type, including restrictions that would limit the Company’s ability to incur additional indebtedness, incur liens, pay dividends or make restricted payments, dispose of assets, make investments and merge or consolidate with another person. However, while there are affirmative covenants, there are no financial maintenance covenants and no restrictions on the Company’s ability to issue additional common stock to fund future working capital needs. The debt covenants were negotiated by the parties with a view towards the Company’s operating and financial condition as it existed at the time the agreements were executed. At December 31, 2014, the Company was in compliance with its debt covenants.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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