Long-Term Debt

9 Months Ended

Sep. 30, 2011

Note 7 – Long-Term Debt

Scheduled maturities of long-term debt outstanding as of September 30, 2011 were as follows (in thousands):


	Term Loan			Revolving Loans		Senior Unsecured Notes		Convertible Senior Notes (1)			MARAD Debt			Total

Less than one year	$	3,000		$	—	$	—	$	—		$	4,877		$	7,877
One to two years		3,000			—		—		—			5,120			8,120
Two to three years		3,000			—		—		—			5,376			8,376
Three to four years		289,500			—		—		—			5,644			295,144
Four to five years		—			—		474,960		—			5,925			480,885
Over five years		—			—		—		300,000			83,224			383,224
Total debt		298,500			—		474,960		300,000			110,166			1,183,626
Current maturities		(3,000	)		—		—		—			(4,877	)		(7,877	)
Long-term debt, less current maturities		295,500			—		474,960		300,000			105,289			1,175,749
Unamortized debt discount (2)		—			—		—		(11,835	)		—			(11,835	)
Long-term debt	$	295,500		$	—	$	474,960	$	288,165		$	105,289		$	1,163,914

(1)	Beginning in December 2012, the holders may require us to repurchase the notes or we may at our own option elect to repurchase the notes. The notes will mature in March 2025.

(2)	The notes will increase to the $300 million face amount through accretion of non-cash interest charges through 2012.

At September 30, 2011, unsecured letters of credit issued totaled approximately $42.6 million (see "Credit Agreement" below). These letters of credit primarily guarantee various contract bidding, contractual performance, including asset retirement obligations, and insurance activities. The following table details our interest expense and capitalized interest for the three- and nine-month periods ended September 30, 2011 and 2010:


		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2011			2010			2011			2010
		(in thousands)
Interest expense	$	25,175		$	25,784		$	75,971		$	74,730
Interest income		(600	)		(263	)		(1,575	)		(660	)
Capitalized interest		(461	)		(42	)		(768	)		(12,433	)
Interest expense, net	$	24,114		$	25,479		$	73,628		$	61,637

Included below is a summary of certain components of our indebtedness. For additional information regarding our debt see Note 9 of our 2010 Form 10-K.

Senior Unsecured Notes

In December 2007, we issued $550 million of 9.5% Senior Unsecured Notes due 2016 ("Senior Unsecured Notes"). Interest on the Senior Unsecured Notes is payable semiannually in arrears on each January 15 and July 15, commencing July 15, 2008. The Senior Unsecured Notes are fully and unconditionally guaranteed by substantially all of our existing restricted domestic subsidiaries, except for Cal Dive I-Title XI, Inc. In addition, any future restricted domestic subsidiaries that guarantee any of our indebtedness and/or our restricted subsidiaries' indebtedness are required to guarantee the Senior Unsecured Notes. Our foreign subsidiaries are not guarantors.

During the three-month period ended September 30, 2011, we purchased a portion of our Senior Unsecured Notes that resulted in the early extinguishment of an aggregate $75.0 million of those notes. In these transactions we paid an aggregate amount of $77.4 million, including the $75.0 million in principal and $2.4 million in premium for the repurchased Senior Unsecured Notes. The premium is reflected as a component of "other income (expense)" in the accompanying condensed consolidated statements of operations. We also paid the accrued interest on these Senior Unsecured Notes totaling $0.8 million and we recorded a $0.9 million charge to interest expense to accelerate a pro rata portion of the deferred financing costs associated with the issuance of the Senior Unsecured Notes in 2007.

Credit Agreement

In July 2006, we entered into a credit agreement (the "Credit Agreement") containing both a term loan (the "Term Loan") and a revolving credit facility (the "Revolving Credit Facility"). The $835 million term loan was used to fund the cash portion of the acquisition of Remington Oil and Gas Corporation in July 2006. The original borrowing capacity under the Revolving Credit Facility was $300 million. In June 2011, we amended our Credit Agreement as further discussed below. For additional information regarding the previous terms of our Credit Agreement see Note 9 of our 2010 Form 10-K.

The fourth amendment to our Credit Agreement, among other things:

·	increases the Revolving Credit Facility to $600.0 million (capacity was $435 million prior to the closing of the fourth amendment);

·	provided for the repayment of $109.4 million of the outstanding principal portion of the Term Loan together with accrued interest thereon and related costs;

·	extends the maturity date of the Term Loan from July 1, 2013 to a maturity date that is the earlier of (A) July 1, 2016, or (B), if our currently outstanding Senior Unsecured Notes due in 2016 are not fully re-financed or repaid by July 1, 2015, July 1, 2015;

·	extends the maturity date of the Revolving Credit Facility from November 30, 2012 to a maturity date that is the earlier of (A) January 1, 2016, or (B), if our currently outstanding Senior Unsecured Notes due in 2016 are not fully re-financed or repaid by July 1, 2015, July 1, 2015;

·	relaxes limitations on our right to dispose of certain Contracting Services assets comprising collateral to the Credit Agreement;

·	increases the amount of restricted payments in the form of stock repurchases or redemptions that we are permitted to repurchase or redeem up to $50 million;

permits us to repurchase or redeem all or part of our Convertible Senior Notes or Senior Unsecured Notes assuming certain conditions are met pro forma for any such transaction, including maintaining minimum levels of liquidity (defined as cash on hand and availability under our Revolving Credit Facility) of (A) $400 million with respect to the Convertible Senior Notes, and (B) $500 million with respect to the Senior Unsecured Notes; and

·	increases the maximum amount of all investments permitted in subsidiaries that are neither loan parties nor whose equity interests are pledged from $150 million to $200 million.

With the closing of the fourth amendment, the Term Loan currently bears interest either at the one-, two-, three- or six-month LIBOR or Base Rates at our election plus a margin of between 3.25% and 3.5% (LIBOR margin) or 2.25% to 2.5% (Base Rate margin) depending on current leverage ratios. Our average interest rate on the Term Loan for the nine-month periods ended September 30, 2011 and 2010 was approximately 3.6% and 2.9%, respectively, including the effects of our interest rate swaps (Note 16).

As the rates for our Term Loan are subject to market influences and will vary over the term of the Credit Agreement, we may enter into various interest rate swaps to stabilize cash flows relating to a portion of our interest payments for our Term Loan (Note 16).

The full amount of the Revolving Credit Facility may be used for issuances of letters of credit. At September 30, 2011, we had no amounts drawn on the Revolving Credit Facility and our availability under the Revolving Credit Facility totaled $557.4 million, net of $42.6 million of letters of credit issued.

Pursuant to the fourth amendment, the borrowings outstanding under the Revolving Credit Facility will bear interest based on one-, two-, three- or six-month LIBOR rates or on Base Rates at our election plus an applicable margin. The LIBOR margin ranges from 2.5% to 3.5% and the Base Rate margin rates from 1.5% to 2.5%, depending on our consolidated leverage ratio. In connection with the closing of the fourth amendment to our Credit Agreement (as noted above), we borrowed $109.4 million under the Revolving Credit Facility and prepaid a portion of the Term Loan. We subsequently repaid all borrowings under our Revolving Credit Facility with our available cash on hand. There were no borrowings outstanding on the Revolving Credit Facility at any time during the third quarter of 2011.

The Credit Agreement contains various covenants regarding, among other things, collateral, capital expenditures, investments, dispositions, indebtedness and financial performance that are customary for this type of financing and for companies in our industry.

Convertible Senior Notes

In March 2005, we issued $300 million of Convertible Senior Notes at 100% of the principal amount to certain qualified institutional buyers. The Convertible Senior Notes are convertible into cash and, if applicable, shares of our common stock based on the specified conversion rate, subject to adjustment.

The Convertible Senior Notes can be converted prior to the stated maturity (March 2025) under certain triggering events specified in the indenture governing the Convertible Senior Notes. To the extent we do not have long-term financing secured to cover the conversion, the Convertible Senior Notes would be classified as a current liability in the accompanying condensed consolidated balance sheet. No conversion triggers were met during either the three- or nine-month periods ended September 30, 2011 and September 30, 2010. The first dates for early redemption of the Convertible Senior Notes are in December 2012, with the holders of the Convertible Senior Notes being able to put them to us on December 15, 2012 and our being able to call the Convertible Senior Notes at any time after December 20, 2012 (see Note 9 of our 2010 Form 10-K). Effective January 1, 2009, we adopted certain accounting standards that required us to discount the principal amount of our Convertible Senior Notes. Following adoption of these accounting standards, the effective interest rate for the Convertible Senior Notes is 6.6%.

Our average share price was below the $32.14 per share conversion price for all the periods presented in this Quarterly Report on Form 10-Q. As a result of our share price being lower than the $32.14 per share conversion price for these periods there are no shares included in our diluted earnings per share calculation associated with the assumed conversion of our Convertible Senior Notes. In the event our average share price exceeds the conversion price, there would be a premium, payable in shares of common stock, in addition to the principal amount, which is payable in cash, and such shares would be issued on conversion. The Convertible Senior Notes are convertible into a maximum of 13,303,770 shares of our common stock.

MARAD Debt

This U.S. government guaranteed financing ("MARAD Debt") pursuant to Title XI of the Merchant Marine Act of 1936, which is administered by the Maritime Administration, was used to finance the construction of the Q4000. The MARAD Debt is payable in equal semi-annual installments beginning in August 2002 and matures in February 2027. The MARAD Debt is collateralized by the Q4000 and 50% of the debt is guaranteed by us. The MARAD Debt initially bore interest at a floating rate which approximated AAA Commercial Paper yields plus 20 basis points. As provided for in the MARAD Debt agreements, in September 2005, we fixed the interest rate on the debt through the issuance of a 4.93% fixed-rate note with the same February 2027 maturity date.

Other

In accordance with our Credit Agreement and our Senior Unsecured Notes, Convertible Senior Notes and MARAD Debt agreements, we are required to comply with certain covenants, including the maintenance of minimum net worth, working capital and debt-to-equity requirements, and restrictions that limit our ability to incur certain types of additional indebtedness. As of September 30, 2011, we were in compliance with these covenants and restrictions.

Deferred financing costs of $28.0 million and $25.7 million are included in other assets, net as of September 30, 2011 and December 31, 2010, respectively, and are being amortized over the life of the applicable loan agreements. We incurred $9.2 million of deferred financing costs related to the fourth amendment to our Credit Agreement and charged $0.8 million of deferred financing costs to interest expense associated with the repayment of $109.4 million of our Term Loan balance in June 2011 (see "Credit Agreement" above). In the third quarter of 2011, we charged $0.9 million of deferred financing costs to interest expense associated with purchases and early extinguishment of a portion of our Senior Unsecured Notes (see "Senior Unsecured Notes" above).