Note 8 - Derivative Financial Instruments

6 Months Ended

Nov. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Text Block]

8.     DERIVATIVE FINANCIAL INSTRUMENTS

Interest Rate Swaps

In August 2011 during the Successor Period, the Company entered into floating-to-fixed interest rate swap agreements for an aggregate notional amount of $320 million related to a portion of the Company’s floating rate indebtedness. The purpose of entering into this swap is to eliminate all but small movements (due to possible differences in reset timing between the swap and the debt) in future debt interest payments. The objective of this swap is to protect the Company from variability in cash flows attributable to changes in LIBOR interest rates. The Company’s strategy is to use a pay fixed receive floating swap to convert the current or any replacement floating rate credit facility where LIBOR is consistently applied into a USD fixed rate obligation.  The only variable piece remaining is the difference in actual reset date when the swap and debt are not lined up. Consistent with the terms of the Company’s credit facility, these swaps include a LIBOR floor of 1.5%. These swap agreements, effective in August 2011, hedge a portion of contractual floating rate interest commitments through the expiration of the agreements in September of each year 2013 through 2016. As a result of entering into the swap agreements, the LIBOR rate associated with the hedged amount of the Company’s indebtedness has been fixed at a weighted average rate of 1.8%.

Fair Value

As of the effective date, the Company designated the interest rate swap agreements as cash flow hedges. As cash flow hedges, unrealized gains are recognized as assets while unrealized losses are recognized as liabilities. The interest rate swap agreements are highly correlated to the changes in interest rates to which the Company is exposed. Unrealized gains and losses on these swaps are designated as effective or ineffective. The effective portion of such gains or losses is recorded as a component of accumulated other comprehensive income or loss, while the ineffective portion of such gains or losses will be recorded as a component of interest expense. Future realized gains and losses in connection with each required interest payment will be reclassified from accumulated other comprehensive income or loss to interest expense.

The fair values of the interest rate swap agreements are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves (level 2). A summary of the recorded assets (liabilities) included in the condensed consolidated balance sheet is as follows:

	Successor			Predecessor
	November 30, 2011			May 31, 2011
	(in thousands)			(in thousands)
Interest rate swaps (included in other assets)	$	74		$	-
Interst rate swaps (included in other liabilities)		(845	)		-
Accumulated other comprehensive loss, net of tax		(475	)		-