Long-Term Debt

6 Months Ended

Jun. 30, 2011

NOTE 3. Long-Term Debt

Long-term debt consists of the following (dollars in thousands):

	June 30,			December 31,
	2011			2010

Senior Credit Facility – due 2016	$	536,250		$	-
Senior Credit Facility – due 2013		-			527,333
Senior Revolving Credit Facility – due 2016		-			-
Senior Revolving Credit Facility – due 2013		-			-
3.25% Convertible Senior Notes due 2015		690,000			690,000
Less: Convertible Notes Discount, net of accretion		(101,264	)		(112,543	)

		1,124,986			1,104,790
Less: Current installments		(27,500	)		(169,500	)

	$	1,097,486		$	935,290

The fair value of the senior credit facility and the convertible senior notes was $536.3 million and $884.2 million, respectively, at June 30, 2011. At December 31, 2010, the fair value of the senior credit facility and the convertible senior notes was $527.3 million and $727.9 million, respectively. The fair values of our senior credit facilities and the convertible senior notes were estimated based upon open-market trades and related market quotations at or near quarter or year-end.

Senior Credit Facility

In January 2011, we entered into a new credit agreement which was used to refinance existing debt under the prior senior credit facility and may be used for general corporate purposes. The new credit agreement provides for (i) a $550.0 million term A facility that matures in January 2016, and (ii) a $650.0 million revolving credit facility that matures in January 2016 (the “2016 Senior Credit Facility”). Up to $75.0 million of the revolving credit facility is available for letters of credit and up to $25.0 million of the revolving credit facility is available for swing-line loans. Amounts available under the revolving credit facility are available for borrowing and reborrowing until maturity. At June 30, 2011, no revolving credit loans were outstanding and we had outstanding letters of credit in the aggregate amount of $12.0 million. The resulting availability under the revolving credit facility was $638.0 million. The Company also has the right at any time to increase the total amount of its commitments under the 2016 Senior Credit Facility by an aggregate additional amount up to $500.0 million. As of June 30, 2011, we were in compliance with all covenants under the senior credit agreement.

For further information on our senior credit facility, see Note 17 of the notes to the consolidated financial statements included in KCI's Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and Note 3 of the notes to the condensed consolidated financial statement included in KCI’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011.

3.25% Convertible Senior Notes and Related Note Hedge and Warrants

In 2008, we issued $690.0 million aggregate principal amount of 3.25% convertible senior notes due April 2015 (the “Convertible Notes”). The notes are governed by the terms of an indenture dated as of April 21, 2008 (the “Indenture”). Concurrently with the issuance of the Convertible Notes, we entered into a convertible note hedge (the “Note Hedge”) and warrant transactions (the “Warrants”) with affiliates of the initial purchasers of the notes. These consist of purchased and written call options on KCI common stock. The Note Hedge and Warrants are structured to reduce the potential future economic dilution associated with conversion of the notes and to effectively increase the initial conversion price to $60.41 per share, which was approximately 50% higher than the closing price of KCI’s common stock on April 15, 2008. As of June 30, 2011, we were in compliance with all covenants under the Indenture for the Convertible Notes.

Conversion. Holders of the Convertible Notes may convert their notes at their option on any business day prior to October 15, 2014 only if one or more of the following conditions are satisfied:

(1)

during any fiscal quarter commencing after June 30, 2008, if the last reported sale price of our common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the preceding fiscal quarter is greater than or equal to 130% of the conversion price of the notes in effect on each applicable trading day;

(2)

during the five business day period following any five consecutive trading day period in which the trading price for the notes (per $1,000 principal amount of the notes) for each such trading day was less than 98% of the last reported sale price of our common stock on such date multiplied by the applicable conversion rate; or

(3)

if we make certain significant distributions to holders of our common stock or enter into specified corporate transactions. The notes are convertible, regardless of whether any of the foregoing conditions have been satisfied, on or after October 15, 2014 at any time prior to the close of business on the third scheduled trading day immediately preceding the stated maturity date.

Upon conversion, holders will receive cash up to the aggregate principal amount of the notes being converted and shares of our common stock in respect of the remainder, if any, of our conversion obligation in excess of the aggregate principal amount of the notes being converted. The initial conversion rate for the notes is 19.4764 shares of our common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $51.34 per share of common stock and represents a 27.5% conversion premium over the last reported sale price of our common stock on April 15, 2008, which was $40.27 per share. The conversion rate and the conversion price are subject to adjustment upon the occurrence of certain events, such as distributions of dividends or stock splits. As of June 30, 2011, our Convertible Notes were not convertible by the holders thereof.

For further information on our Convertible Notes and related Note Hedge and Warrants, see Note 5 of the notes to the consolidated financial statements included in KCI's Annual Report on Form 10-K for the fiscal year ended December 31, 2010.