Notes Payable, Long-term Debt, Lease Obligations and Interest Rate Caps
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Jun. 30, 2011
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Notes Payable, Long-term Debt, Lease Obligations and Interest Rate Caps [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable, Long-term Debt, Lease Obligations and Interest Rate Caps |
(7) Notes Payable, Long-term Debt, Lease Obligations and Interest Rate Caps
Revolving Line of Credit and Term Loan Facility
In March 2010, ION, its Luxembourg subsidiary, ION International S.à r.l. (“ION Sàrl”), and
certain of its other U.S. and foreign subsidiaries entered into a new credit facility (the “Credit
Facility”). The terms of the Credit Facility are set forth in a credit agreement dated as of March
25, 2010 (the “Credit Agreement”), by and among ION, ION Sàrl and China Merchants Bank Co., Ltd.,
New York Branch (“CMB”), as administrative agent and lender. The obligations of ION under the
Credit Facility are guaranteed by certain of ION’s material U.S. subsidiaries and the obligations
of ION Sàrl under the Credit Facility are guaranteed by certain of ION’s material U.S. and foreign
subsidiaries, in each case that are parties to the Credit Agreement. In addition, in June 2010,
INOVA Geophysical also entered into an agreement to guarantee the indebtedness under the Credit
Facility.
The Credit Facility provides ION with a revolving line of credit of up to $100.0 million in
borrowings (including borrowings for letters of credit) and refinanced ION’s outstanding term loan
with a new term loan in the original principal amount of $106.3 million. As of June 30, 2011, ION
had no indebtedness outstanding under the revolving line of credit.
The
revolving credit facility and term loan under the Credit Facility are
each scheduled to mature on March 24, 2015. The $106.3 million original principal amount under the
term loan is subject to scheduled quarterly amortization payments that commenced on June 30, 2010,
of $1.0 million per quarter until the maturity date, with the remaining unpaid principal amount of
the term loan due upon the maturity date. The indebtedness under the Credit Facility may sooner
mature on a date that is 18 months after the earlier of (i) any dissolution of INOVA Geophysical,
or (ii) the administrative agent determining in good faith that INOVA Geophysical is unable to
perform its obligations under its guarantee.
The interest rate per annum on borrowings under the Credit Facility will be, at ION’s option:
As of June 30, 2011, the $101.3 million in outstanding term loan indebtedness under the Credit
Facility accrued interest at a rate of 3.8% per annum.
The Credit Facility requires compliance with certain financial covenants. Certain of these
financial covenants became effective on June 30, 2011, and will continue in effect for each fiscal
quarter thereafter over the term of the Credit Facility. These financial covenants require ION and
its U.S. subsidiaries to:
The fixed charge coverage ratio is defined as the ratio of (i) ION’s consolidated EBITDA less
cash income tax expense and non-financed capital expenditures, to (ii) the sum of scheduled
payments of lease payments and payments of principal indebtedness, interest expense actually paid
and cash dividends, in each case for the four consecutive fiscal quarters most recently ended. The
leverage ratio is defined as the ratio of (x) total funded consolidated debt, capital lease
obligations and issued letters of credit (net of cash collateral) to (y) consolidated EBITDA of ION
for the four consecutive fiscal quarters most recently ended. The Company was in compliance with
these financial covenants when they became effective on June 30, 2011, and expects to remain in
compliance with these financial covenants throughout the remainder of 2011.
Interest Rate Caps
In August 2010, the Company entered into an interest rate cap agreement and purchased interest
rate caps (the “August 2010 Caps”) having an initial notional amount of $103.3 million with a
three-month average LIBOR cap of 2.0%. If and when the three-month average LIBOR rate exceeds 2.0%,
the LIBOR portion of interest owed by the Company would be capped at 2.0%. The initial notional
amount was set to equal the projected outstanding balance under the Company’s term loan facility at
December 31, 2010. The notional amount was then set so as not to exceed the Company’s outstanding
balance of its term loan facility over a period extending through March 29, 2013. The Company
purchased these interest rate caps for approximately $0.4 million.
In July 2011, the Company purchased additional interest rate caps (the “July 2011 Caps”)
related to its term loan facility. The notional amounts, together with the notional amounts of the
August 2010 Caps, were set so as not to exceed the outstanding balance of the Company’s term loan
facility over a period that extends through March 31, 2014. The Company purchased these interest
rate caps for an amount equal to approximately $0.3 million.
As of July 2011, the Company held interest rate caps as follows (amounts in thousands):
These interest rate caps have been designated as cash flow hedges according to ASC 815
(“Derivatives and Hedging”) and, accordingly, the effective portion of the change in fair value of
these interest rate caps are recognized in other comprehensive income in the Company’s consolidated
financial statements. As of June 30, 2011, the total fair value of the August 2010 Caps was $0.1
million, which was based on Level 2 inputs such as interest rates and yield curves that are
observable at commonly quoted intervals. For both the three and six months ended June 30, 2011,
there was approximately $0.1 million, net of tax, related to the change in fair value included in
other comprehensive income.
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