Note 10 - Derivative Financial Instruments

9 Months Ended

Feb. 28, 2013

Derivative Instruments and Hedging Activities Disclosure [Text Block]

10. 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 these swaps was to eliminate all but small movements (due to possible differences in reset timing between the swap and the debt) in future debt interest payments and 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 Original Term Loan Facility, these swaps included a LIBOR floor of 1.50%. These swap agreements, effective in August 2011, hedged 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 was fixed at a weighted average rate of 1.80% through September 28, 2012.

In August 2012, the Company amended the interest rate swap agreements noted above effective on September 28, 2012.  The purpose of entering into these swap agreements is to match the LIBOR floor in the swaps with the terms of the Term Loan Facility, as amended.  Consistent with the terms of the Company’s Term Loan Facility, these amended swaps include a LIBOR floor of 1.25%.  These swap agreements 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 the amended swap agreements, the LIBOR rate associated with the hedged amount of the Company’s indebtedness has been fixed at 1.59% after September 28, 2012.

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.

A summary of the recorded liabilities included in the consolidated balance sheet and statement of operations is as follows (in thousands):

	February 28, 2013			May 31, 2012
Interest rate swaps (included in other liabilities)	$	(2,323	)	$	(2,198	)

				Successor			Predecessor
Location of Loss Reclassified From Accumulated OCI into Income	Nine Months Ended February 28, 2013			August 20, 2011 Through February 29, 2012			June 1, 2011 Through August 19, 2011
Interest expense (effective)	$	(763	)	$	(498	)	$	-
Interest expense (ineffective)	$	(9	)	$	-		$	-