Long-term Debt and Interest Rate Caps

6 Months Ended

Jun. 30, 2012

Long-term Debt and Interest Rate Caps [Abstract]

Long-term Debt and Interest Rate Caps

(5) Long-term Debt and Interest Rate Caps

	June 30,			December 31,
Obligations (in thousands)	2012			2011
Revolving line of credit	$	97,250		$	—
Term loan facility		—			99,250
Facility lease obligation		2,707			3,047
Equipment capital leases		5,026			2,815
Total		104,983			105,112
Current portion of long-term debt and lease obligations		(2,817	)		(5,770	)
Non-current portion of long-term debt and lease obligations	$	102,166		$	99,342

Amended Revolving Line of Credit and Term Loan Facility

On May 29, 2012, the Company amended the terms of its senior secured credit facility (the “Credit Facility”) with China Merchants Bank Co., Ltd., New York Branch, as administrative agent and lender (“CMB”). The First Amendment to Credit Agreement and Loan Documents, dated effective as of May 29, 2012 (the “First Amendment”), modified certain provisions of the Company’s senior credit agreement with CMB that it had entered into on March 25, 2010 (the “Credit Agreement”).

The original provisions of the Credit Agreement had governed the terms of (i) a term loan made to the Company in 2010 in the original principal amount of $106.3 million, and (ii) a revolving line of credit permitting borrowings of up to $100.0 million outstanding (including outstanding letter of credit obligations). A Luxembourg subsidiary of the Company, ION International S.à.r.l. (“ION Sàrl”), had also been a co-borrower under the original terms of the revolving line of credit, for purposes of line of credit draws for the Company’s foreign subsidiaries. In addition, under the original provisions of the Credit Agreement, the Company’s obligations under the Credit Facility were guaranteed by certain of its material U.S. subsidiaries, and ION Sàrl’s obligations as co-borrower were guaranteed by certain of the Company’s material U.S. and foreign subsidiaries.

The terms of the First Amendment provided for, among other things, (i) the release of ION Sàrl and the Company’s other foreign subsidiaries from their obligations under the Credit Facility, (ii) an increase in the total maximum amount of outstanding revolving loan indebtedness that may be drawn under the Credit Facility, (iii) the conversion of the outstanding term loan indebtedness under the Credit Facility to revolving loan indebtedness, (iv) a reduction in the applicable interest margins on borrowings under the Credit Facility and (v) amendments to certain negative covenants contained in the Credit Agreement made to conform the terms of those covenants with the structural changes in the Credit Facility resulting from the First Amendment.

As amended by the First Amendment, the Credit Facility now provides that the Company may make revolving credit borrowings in U.S. Dollars, Euros, British Pounds Sterling or Canadian Dollars up to an amount not to exceed the U.S. Dollar equivalent of $175.0 million. The Company has also agreed that no additional borrowings may be made at any time at which the outstanding indebtedness under the revolving line of credit (principal, accrued interest and fees) exceeds the U.S. Dollar equivalent of $175.0 million. In addition, all then-outstanding term loan indebtedness under the Credit Facility ($98.3 million at May 29, 2012) was converted to revolving credit indebtedness, such that as of May 29, 2012, there was $98.3 million in total revolving credit indebtedness outstanding under the Credit Facility. No revolving credit indebtedness was outstanding under the Credit Facility immediately prior to the conversion of the term loan. The First Amendment provided that all references to the term loan sub-facility under the Credit Facility should be disregarded and have no further effect or relevance to the Credit Facility.

The Company’s obligations under the Credit Facility continue to be guaranteed by certain of its material U.S. subsidiaries that remain as parties to the Credit Facility. In addition, INOVA Geophysical continues to provide a bank stand-by letter of credit as credit support for the Company’s obligations under the Credit Agreement.

As amended by the First Amendment, the interest rates per annum on borrowings under the Credit Facility are now, at the Company’s option:

• An alternate base rate equal to the sum of (i) the greatest of (a) the prime rate of CMB, (b) a federal funds effective rate plus 0.50%, or (c) an adjusted LIBOR-based rate plus 1.0%, and (ii) an applicable interest margin of 1.4% (reduced from 2.5%); or

• For eurodollar borrowings and borrowings in Euros, Pounds Sterling or Canadian Dollars, the sum of (i) an adjusted LIBOR-based rate, and (ii) an applicable interest margin of 2.4% (reduced from 3.5%).

The First Amendment replaced the commitment fee (which was previously payable for the account of the lenders under the Credit Facility at a rate of 0.75% of the undrawn amount committed under the Credit Facility) with a facility fee payable for the account of the lenders at a rate of 0.60% per annum of the aggregate drawn and undrawn amounts committed under the Credit Facility. In addition, the Company paid an up-front fee, in an amount equal to 0.75% (or $1.3 million) of the aggregate amount committed under the Credit Facility. This up-front fee is being amortized to interest expense over the remaining term of the Credit Facility.

As of June 30, 2012, the $97.3 million in outstanding revolving loan indebtedness under the Credit Facility accrued interest at a rate of 2.9% per annum.

The Credit Facility requires compliance with certain financial covenants, including the following:

• Maintain a minimum fixed charge coverage ratio, as defined, in an amount equal to at least 1.125 to 1;

• Not exceed a maximum leverage ratio, as defined, of 3.25 to 1; and

• Maintain a minimum tangible net worth of at least 60% of ION’s tangible net worth as of March 31, 2010, as defined.

As of June 30, 2012, ION was in compliance with these financial covenants and the Company expects to remain in compliance with these financial covenants throughout the remainder of 2012.

Interest Rate Caps

In August 2010, the Company 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 under the caps would be capped at 2.0%. The initial notional amount was set to equal the projected outstanding balance under the Company’s then outstanding term loan facility.

In July 2011, the Company purchased additional interest rate caps (the “July 2011 Caps”). The notional amounts of the July 2011 Caps, together with the notional amounts of the August 2010 Caps, were set so as not to exceed the outstanding balance of the Company’s then outstanding term loan facility over a period extending through March 31, 2014. The Company purchased the August 2010 Caps and July 2011 Caps for a combined total of approximately $0.7 million and designated the interest rate caps as cash flow hedges.

As of June 30, 2012, the Company held interest rate caps as follows (amounts in thousands):

				Notional Amounts
Payment Date	Cap Rate			August 2010 Caps		July 2011 Caps		Total
September 28, 2012		2.0	%	$	68,075	$	18,650	$	86,725
December 31, 2012		2.0	%	$	67,375	$	18,450	$	85,825
March 29, 2013		2.0	%	$	66,675	$	18,250	$	84,925
June 28, 2013		2.0	%	$	—	$	63,175	$	63,175
September 30, 2013		2.0	%	$	—	$	62,475	$	62,475
December 31, 2013		2.0	%	$	—	$	61,775	$	61,775
March 31, 2014		2.0	%	$	—	$	61,075	$	61,075

These interest rate caps were originally designated as cash flow hedges, and accordingly, the effective portion of the change in fair value of these interest rate caps was recognized in other comprehensive income in the Company’s consolidated financial statements. Unrealized gains or losses included in other comprehensive income were then reclassified into earnings as each interest rate cap settled on the contractual payment dates.

However, as a result of the First Amendment and the conversion of the outstanding balance of the term loan to revolving line of credit indebtedness, the interest rate caps no longer qualify for hedge accounting treatment. With hedge accounting treatment no longer available for the interest rate caps, the amounts included in accumulated other comprehensive income up through the date of the first amendment ($0.4 million), will instead be amortized ratably over the contractual terms of the interest rate caps. Changes in fair value of the interest rate caps following the date of the First Amendment date, which was less than $0.1 million during the three months ended June 30, 2012, will be recognized in earnings.