Debt

Voluntary Reorganization Under Chapter 11

The filing of the Petitions on September 9, 2015 created defaults and cross defaults pursuant to the terms of the Company’s Indentures to its 10.000% Senior Notes due 2020 (the "2020 Notes"), 7.875% Senior Secured Notes due 2018 (the "2018 Notes"), 8.875% Notes due 2017 (the "2017 Notes"), and the ABL Credit Facility, which accelerated the due dates for the obligations. The filing of a petition under the Bankruptcy Code results in the automatic stay of virtually all actions of creditors to collect pre-petition debts, until such time the stay is modified or removed. With respect to the 2017 Notes, the Company has received waivers for the defaults and cross defaults and the rescission of the acceleration for a period of up to 210 days from September 9, 2015. The Company has presented its outstanding debt under the 2017 Notes in current liabilities not subject to compromise on its consolidated balance sheet as of October 31, 2015. The Company has presented its outstanding debt under the 2018 Notes and 2020 Notes in liabilities subject to compromise on its consolidated balance sheet as of October 31, 2015. Lastly, as discussed below under the DIP Facilities section, the ABL Credit Facility was paid-off in September 2015.

Pursuant to the PSA, the Company’s existing debt and accrued interest will be reduced by $510 million, including the extinguishment of all of its 2018 Notes and 2020 Notes. Additionally, new debtor-in-possession financing of up to $175 million was provided, as more fully described below. The Company’s 2017 Notes would be reinstated upon the consummation of the transactions set forth in the PSA. For further information on the contemplated restructuring of the Company's capital and debt structure in conjunction with the Petitions, see Note 22 — Voluntary Reorganization under Chapter 11.

A summary of borrowings under lines of credit and long-term debt as of the dates indicated is as follows:



		October 31,
In thousands	Maturity	2015			2014
Debtor-in-Possession Term Loan Facility - 12% Fixed	February 5, 2016	$	70,000		$	—
Debtor-in-Possession ABL Loan Facility - 4.5% Floating	February 5, 2016	17,734			—
Eurofactor line of credit - 0.6% Floating	October 31, 2016	22,835			32,929
Lines of credit - 0.8% - 1.9% Floating	December 10, 2015	2,308			—
2017 Notes - 8.875% Fixed ⁽¹⁾	December 15, 2017	218,905			252,188
2018 Notes - 7.875% Fixed ⁽²⁾	August 1, 2018	280,000			278,834
2020 Notes - 10.000% Fixed ⁽²⁾	August 1, 2020	225,000			222,582
ABL Credit Facility - 2.1% to 4.1% Floating	May 24, 2018	—			35,933
Capital lease obligations and other borrowings - Various % ⁽¹⁾	Various	4,265			6,124
Total debt		841,047			828,590
Less: Reclassification to liabilities subject to compromise		(506,749		)	—
Less: Current portion		(333,395		)	(35,361		)
Long-term debt, net of current portion		$	903		$	793,229

___________


(1)	The 2017 Notes have been classified as current liabilities not subject to compromise on the Company's consolidated balance sheet at October 31, 2015.


(2)	The 2018 Notes and 2020 Notes and other minor debt obligations have been reclassified to liabilities subject to compromise on the Company's consolidated balance sheet at October 31, 2015, as they are subject to resolution during the Bankruptcy Proceedings.

Borrowing Availability and Capacity

As of October 31, 2015, the Company's credit facilities, which includes the DIP Facilities described below, allowed for total cash borrowings and letters of credit of $125 million. The actual availability and maximum borrowings possible under certain credit facilities fluctuates with the amount of eligible assets comprising the "borrowing base." At October 31, 2015, we had a total of $43 million of direct borrowings and $39 million in letters of credit outstanding. The amount of availability for borrowings remaining as of October 31, 2015 was $44 million; $20 million of which could be used in the United States and APAC, $6 million in availability for letters of credit in EMEA and $18 million in availability for borrowings in EMEA.

DIP Facilities

On September 10, 2015, the Bankruptcy Court approved, on an interim basis, the Company's debtor-in-possession financing in an aggregate amount of up to $175 million, consisting of (i) a $60 million asset-based loan (“ABL”) revolving credit facility (the “DIP ABL Facility”) provided by Bank of America, N.A., and (ii) a $115 million delayed draw term loan facility (the “DIP Term Loan Facility” and, together with the DIP ABL Facility, the "DIP Facilities") provided by affiliates of Oaktree Capital. Subject to the satisfaction of certain customary conditions to borrowing, the entire DIP ABL Facility and $70 million of the DIP Term Loan Facility became available upon entry of the interim order, and the balance of the DIP Term Loan Facility became available upon entry of the final order on October 28, 2015. The proceeds of the DIP Facilities were used in part to repay amounts outstanding under the pre-petition ABL Credit Facility in September 2015.

The DIP Facilities will mature 150 days after the Petition Date, and contain representations, conditions, covenants and events of default customary for similar facilities. The DIP Facilities are collectively secured by all assets of the Debtors, and such liens are senior to the lien of the 2018 Notes. The DIP ABL Facility is secured by a first-priority lien on inventory, receivables, cash and other customary ABL collateral owned by the Debtors (“ABL Collateral”), and a second-priority lien on all other assets of the Debtors (“Term Loan Collateral”). The DIP Term Loan Facility has a first-priority lien on Term Loan Collateral, and a second-priority lien on all ABL Collateral. A portion of the DIP ABL Facility will be funded to certain Australian, Canadian and Japanese subsidiaries of the Company, which loans will be secured by assets of such foreign subsidiaries. The DIP Term Loan Facility bears interest at 12%. The DIP ABL Facility bears interest at LIBOR plus 3.5%.

The DIP Facilities include standard covenants which are customary for financing transactions of this type; amongst others, they include the retention of an outside restructuring consultant, restrictions on cash management, and compliance with the bankruptcy proceeding requirements. As of October 31, 2015, the Company was in compliance with these covenants.

For fiscal 2015, fees paid to the lenders for the DIP ABL Facility and DIP Term Loan Facility amounted to $1 million and $3 million, respectively, and have been recorded in reorganization items. All professional fees incurred for the DIP ABL Facility and DIP Term Loan Facility have been recorded in reorganization items.

Eurofactor and other EMEA lines of credit

On October 31, 2013, certain European subsidiaries of the Company entered into a line of credit facility (the "Eurofactor") with a commercial bank. The facility has an initial term of three years and borrowings are limited to €60 million. Borrowing availability under this facility is based on eligible EMEA trade accounts receivable; the facility does not contain any financial covenants.

The Company also maintains various credit facilities with several banks in Europe. These facilities are all unsecured, short-term facilities used to support day-to-day working capital needs of the EMEA segment.

2017 Notes

In December 2010, Boardriders S.A., the Company’s wholly-owned subsidiary, issued €200 million aggregate principal amount of its senior notes, which bear a coupon interest rate of 8.875% and are due December 15, 2017. For the year following December 15, 2014, the 2017 Notes were redeemable at 104.4%. The 2017 Notes were issued at par value in a private offering that was exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The 2017 Notes were offered within the United States only to qualified institutional buyers in accordance with Rule 144A under the Securities Act and outside the United States only to non-U.S. investors in accordance with Regulation S under the Securities Act. The 2017 Notes were not registered under the Securities Act or the securities laws of any other jurisdiction.

The 2017 Notes are general senior obligations and are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by Quiksilver, Inc. and certain of its current and future U.S. and non-U.S. subsidiaries, subject to certain exceptions. These subsidiary guarantors include entities with ownership of the Company's Quiksilver, Roxy, and DC trademarks worldwide.

The Company may redeem some or all of the 2017 Notes at fixed redemption prices as set forth in the indenture related to such 2017 Notes; however, the Company does not plan to exercise this redemption. The 2017 Notes indenture includes covenants that limit the Company’s ability to impose limitations on the ability of its restricted subsidiaries to pay dividends or make other payments to Quiksilver, Inc. In addition, this indenture includes covenants that limit the Company's ability to incur additional debt; pay dividends on its capital stock or repurchase its capital stock; make certain investments; enter into certain types of transactions with affiliates; use assets as security in other transactions; and sell certain assets or merge with or into other companies. As a result of the Petitions, the Company has received waivers for the defaults and cross defaults and the rescission of the acceleration for a period of up to 210 days from September 9, 2015, which is February 5, 2016.

Pursuant to the PSA, upon emergence from bankruptcy, the 2017 Notes will be subject to a €50 million principal reduction and a three year extension of the maturity date.

2018 Notes and 2020 Notes

On July 16, 2013, Quiksilver, Inc. and its wholly-owned subsidiary, QS Wholesale, Inc. issued (i) $280 million aggregate principal amount in 7.875% Senior Secured Notes due 2018, and (ii) $225 million aggregate principal amount in 10.000% Senior Notes due 2020 (the “Original 2020 Notes”). These notes were issued in a private offering that was exempt from the registration requirements of the Securities Act. They were offered within the United States only to qualified institutional buyers in accordance with Rule 144A under the Securities Act, and outside of the United States only to non-U.S. investors in accordance with Regulation S under the Securities Act. In November, 2013, the Original 2020 Notes were exchanged for publicly registered notes with identical terms, known as the 2020 Notes.

The issuers received net proceeds from the offering of the 2018 Notes and the Original 2020 Notes of approximately $493 million after deducting initial purchaser discounts, but before offering expenses. The Company used a portion of the net proceeds to redeem their former 2015 Notes on August 15, 2013. The Company also used portions of the net proceeds to repay in full and terminate its former Americas term loan, to pay down a portion of the then outstanding amounts under the ABL Credit Facility and to pay related fees and expenses. As a result of the repayments of the former 2015 Notes and the Americas term loan, the Company recorded non-cash expense to reorganization items of approximately $3 million to write-off the deferred debt issuance cost related to such debt during the fiscal year ended October 31, 2015. As a result of the Petitions, the Company recorded non-cash expense to reorganization items of approximately $4 million and $4 million to write-off the deferred debt issuance cost related to the 2018 Notes and 2020 Notes, respectively, during the fiscal year ended October 31, 2015.

The 2018 Notes will mature on August 1, 2018 and bear interest at the rate of 7.875% per annum. The offering price of the 2018 Notes was 99.483% of the principal amount. The 2018 Notes are general senior obligations of the issuers and are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis by certain of the Company’s current and future U.S. subsidiaries. The 2018 Notes are secured by (1) a second-priority security interest in the current assets of the issuers and the subsidiary guarantors, together with all related general intangibles (excluding intellectual property rights) and other property related to such assets, including the proceeds thereof, which assets secure the Company’s ABL Credit Facility on a first-priority basis; and (2) a first-priority security interest in substantially all other property (including intellectual property rights, which primarily consist of the Company's Quiksilver and Roxy trademarks in the United States and Mexico, and the Company's DC trademarks worldwide) of the issuers and the guarantors and a first-priority pledge of 100% of the equity interests of certain subsidiaries directly owned by the issuers and the guarantors (but excluding equity interests of applicable foreign subsidiaries of the issuers and the guarantors possessing more than 65% of the total combined voting power of all classes of equity interests of such applicable foreign subsidiaries entitled to vote) and the proceeds of the foregoing.

The 2020 Notes will mature on August 1, 2020 and bear interest at the rate of 10.000% per annum. The offering price of the 2020 Notes was 98.757% of the principal amount. The 2020 Notes are general senior obligations of the issuers and are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by certain of the Company’s current and future U.S. subsidiaries. The issuers and subsidiary guarantors include entities with ownership of the Company's Quiksilver and Roxy trademarks in the United States and Mexico, and the Company's DC trademarks worldwide.

The 2018 Notes and 2020 Notes indentures include covenants that limit the Company’s ability to impose limitations on the ability of its restricted subsidiaries to pay dividends or make certain other payments to the Company. In addition, these indentures include covenants that limit the Company’s ability to, among other things: use assets as security in other transactions; sell certain assets; merge with or into other companies; incur additional debt; issue certain preferred shares; pay dividends on its capital stock or repurchase capital stock; make certain investments; or enter into certain types of transactions with affiliates. As of October 31, 2015, the Company was in compliance with these covenants.

Pursuant to the PSA, upon emergence from bankruptcy, the 2018 Notes and 2020 Notes will be extinguished. New common shares will be issued to the holders of the 2018 Notes and $12.5 million in cash will be allocated between holders of the 2020 Notes and the general unsecured creditors.

For fiscal 2015, the contractual interest expense under the 2018 Notes and 2020 Notes was $22 million and $23 million, respectively, however, due to the Petitions, the Company ceased recording interest expense on the Petition Date. As a result, the Company recorded interest expense of $19 million for each of the 2018 Notes and 2020 Notes in the consolidated statement of operations for fiscal 2015.

ABL Credit Facility

On May 24, 2013, Quiksilver, Inc., as a guarantor, QS Wholesale, Inc., as lead borrower, and certain other U.S., Canadian, Australian and Japanese subsidiaries of Quiksilver, Inc., as borrowers (collectively, the “Borrower”) and/or as guarantors, entered into an amended and restated asset-based credit facility with Bank of America, N.A. and a syndicate of lenders, which amended and restated the existing asset-based credit facility for Quiksilver, Inc.’s Americas operations (the “ABL Credit Facility”). The ABL Credit Facility had a term of 5 years. On July 16, 2013, the Company entered into an amendment to the ABL Credit Facility to provide for certain mechanical changes required in connection with the issuance of the 2018 Notes and 2020 Notes. On September 10, 2015, proceeds of the DIP Facilities were used in part to fully repay amounts outstanding under the ABL Credit Facility. In conjunction with the termination of the ABL Credit Facility, the Company wrote-off unamortized deferred financing costs of $4 million to reorganization items in the statement of operations.

Capital lease obligations and other borrowings

During the second quarter of fiscal 2014, the Company paid approximately $15 million of other borrowings to the former minority interest owners of the Company's Brazil subsidiary, related to the Company's acquisition of the remaining minority interest in this subsidiary in November 2013.

Payment of Obligations

Principal payments on all long-term debt obligations as of the date indicated, including capital leases, are due by fiscal year according to the table below.



In thousands	October 31, 2015
2016	$	115,090
2017	220,031
2018	280,926
2019	—
2020	225,000
Total	$	841,047

Fair Value

The estimated fair value of the Company’s debt as of October 31, 2015 was $432 million, compared to a carrying value of $841 million. The fair value of the Company’s debt is calculated based on the market price of the Company’s publicly traded 2020 Notes, the trading price of the Company’s 2017 Notes and 2018 Notes, (all Level 1 fair value inputs), and the carrying values of the Company’s other debt obligations due to the variable rate nature of those debt obligations.