Note 7 — Long-Term Debt

Scheduled maturities of long-term debt outstanding as of March 31, 2013 are as follows (in thousands):


		Term Loan⁽¹⁾		Revolving Credit Facility ⁽¹⁾		Senior Unsecured Notes		MARAD Debt		2032 Notes⁽²⁾		Total

Less than one year	$	5,000	$	-	$	-	$	5,247	$	-	$	10,247
One to two years		5,000		-		-		5,508		-		10,508
Two to three years		62,299		78,100		274,960		5,783		-		421,142
Three to four years		-		-		-		6,072		-		6,072
Four to five years		-		-		-		6,375		-		6,375
Over five years		-		-		-		73,774		200,000		273,774
Total debt		72,299		78,100		274,960		102,759		200,000		728,118
Current maturities		(5,000)		-		-		(5,247)		-		(10,247)
Long-term debt, less current maturities		67,299		78,100		274,960		97,512		200,000		717,871
Unamortized debt discount⁽³⁾		-		-		-		-		(30,410)		(30,410)
Long-term debt	$	67,299	$	78,100	$	274,960	$	97,512	$	169,590	$	687,461

(1) Amounts reflect our remaining Term Loan debt. In February 2013, we repaid $293.9 million of our Term Loan debt and $24.5 million under our Revolving Credit Facility with the after-tax proceeds from the sale of ERT.

(2) Beginning in March 2018, the holders of these Convertible Senior Notes may require us to repurchase these notes or we may at our own option elect to repurchase notes. These notes will mature in March 2032.

(3) The notes will increase to their principal amount through accretion of non-cash interest charges through March 2018 for the Convertible Senior Notes due 2032.

Included below is a summary of certain components of our indebtedness. For additional information regarding our debt, see Note 7 of our 2012 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 semi-annually 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 of the notes. Prior to stated maturity, we may redeem all or a portion of the Senior Unsecured Notes on no less than 30 days’ and no more than 60 days’ prior notice at the redemption prices (expressed as percentages of the principal amount) set forth below, plus accrued and unpaid interest thereon, if any, to the applicable redemption date.


Year		Redemption Price

2013		102.375%
2014 and thereafter		100.000%

In March 2012, we purchased a portion of these Senior Unsecured Notes which resulted in an early extinguishment of $200.0 million of our outstanding balance. In these transactions we paid an aggregate amount of $213.5 million, including $200.0 million in principal, a $9.5 million premium and $4.0 million of accrued interest. We also recorded a $2.0 million charge to accelerate a pro rata portion of the deferred financing costs associated with the original issuance of the Senior Unsecured Notes. The loss on the early extinguishment of these Senior Unsecured Notes totaled $11.5 million and is reflected as a component of “Loss on early extinguishment of long-term debt” in the accompanying condensed consolidated statements of operations. We had $275.0 million of Senior Unsecured Notes outstanding at March 31, 2013 and December 31, 2012.

Credit Agreement

In July 2006, we entered into a credit agreement (the “Credit Agreement”) under which we borrowed $835 million in a term loan (the “Term Loan B”) and were able to borrow up to $300 million (the “Revolving Loans”) under a revolving credit facility (the “Revolving Credit Facility”). The Credit Agreement has been amended eight times, with the most recent amendment occurring in February 2013. These amendments address certain issues with regard to covenants, maturity and the borrowing limits under the Term Loan and the Revolving Loans. The February 2013 amendment was entered into to waive certain year end oil and gas reporting requirements and covenant compliance as a result of the sale of ERT.

In February 2013, we repaid $293.9 million of our Term Loan debt (including the entire outstanding balance of the Term Loan B) and $24.5 million under our Revolving Credit Facility with the after-tax proceeds from the sale of ERT. At March 31, 2013, the remaining balance of our Term Loan debt was $72.3 million. In connection with the repayment of debt in February 2013, we recorded a $2.9 million charge to accelerate a pro rata portion of the deferred financing costs associated with our Term Loan debt. This charge is reflected as a component of “Loss on early extinguishment of long-term debt” in the accompanying condensed consolidated statements of operations.

Our Term Loan debt currently bears interest at the one-, two-, three- or six-month LIBOR or on Base Rates at our current election plus an applicable margin between 2.25% and 3.5% depending on our consolidated leverage ratio. The average interest rates on our Term Loan debt were 3.3% for the three-month period ended March 31, 2013 and 4.0% (including the effects of our interest rate swaps) for the same period last year. The Term Loan is currently scheduled to mature on July 1, 2015 but could be extended to January 1, 2016 if our Senior Unsecured Notes are fully repaid or refinanced by July 1, 2015.

As amended, our Revolving Credit Facility provides for $600 million in borrowing capacity. The full amount of the Revolving Credit Facility may be used for issuances of letters of credit. These letters of credit guarantee items such as various contract bidding, contractual performance, insurance activities and shipyard commitments. The Revolving Loans bear interest based on one-, two-, three- or six-month LIBOR rates or on Base Rates at our current election, plus an applicable margin. The margin ranges from 1.5% to 3.5%, depending on our consolidated leverage ratio. Fees associated with outstanding letters of credit range from 2.0% to 3.0%, depending on our consolidated leverage ratio. We also pay a fixed commitment fee of 0.5% on the unused portion of our Revolving Credit Facility. We had $78.1 million and $100.0 million drawn on the Revolving Credit Facility at March 31, 2013 and December 31, 2012, respectively. At March 31, 2013, our availability under the Revolving Credit Facility totaled $513.9 million, net of $8.0 million of letters of credit issued. The average interest rate for the outstanding balance under the Revolving Credit Facility totaled 3.0% during the three-month period ended March 31, 2013.

We may elect to prepay amounts outstanding under the Term Loan without penalty, but may not reborrow any amounts paid. We may repay amounts outstanding under the Revolving Loans without penalty, and may reborrow amounts paid prior to maturity. In addition, upon the occurrence of certain dispositions or the issuance or incurrence of certain types of indebtedness, we may be required to repay a portion of the Term Loan debt and borrowings under the Revolving Credit Facility equal to the amount of proceeds received from such occurrences (in the event of a disposition of assets comprising collateral, 60% of the after-tax proceeds). Such payments would be applied to the Term Loan and the Revolving Credit Facility on a pro rata basis.

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 Due 2025

In March 2005, we issued $300 million of 3.25% Convertible Senior Notes due 2025 at 100% of the principal amount to certain qualified institutional buyers (“2025 Notes”).

In March 2012, we repurchased $142.2 million in aggregate principal of the 2025 Notes. In these repurchase transactions we paid an aggregate amount of $145.1 million, representing principal plus $1.8 million of premium and $1.1 million of accrued interest. The loss on the early extinguishment of the 2025 Notes totaled $5.6 million and is reflected as a component of “Loss on early extinguishment of long-term debt” in the accompanying condensed consolidated statements of operations. The loss on early extinguishment includes the acceleration of $3.5 million of unamortized discount associated with the 2025 Notes, the $1.8 million premium paid in connection with the repurchase of a portion of the 2025 Notes and a $0.3 million charge to accelerate a pro rata portion of the deferred financing costs associated with the original issuance of the 2025 Notes. The remainder of the 2025 Notes was extinguished when the holders exercised their option for us to repurchase their notes in December 2012 ($154.3 million) and in February 2013 when we repurchased the remaining $3.5 million of the 2025 Notes that were not put to us by the holders in December 2012.

Convertible Senior Notes Due 2032

In March 2012, we completed the public offering and sale of $200.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2032 (“2032 Notes”). The net proceeds from the issuance of the 2032 Notes were $195.0 million, after deducting the underwriter’s discounts and commissions and offering expenses. We used the net proceeds to repurchase and retire $142.2 million of aggregate principal amount of the 2025 Notes (see above) in separate, privately negotiated transactions. The remaining net proceeds were used for general corporate purposes, including the repayment of other indebtedness.

The registered 2032 Notes bear interest at a rate of 3.25% per annum, and are payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2012. The 2032 Notes will mature on March 15, 2032, unless earlier converted, redeemed or repurchased by us. The 2032 Notes are convertible in certain circumstances and during certain periods at an initial conversion rate of 39.9752 shares of common stock per $1,000 principal amount of the 2032 Notes (which represents an initial conversion price of approximately $25.02 per share of common stock), subject to adjustment in certain circumstances as set forth in the indenture governing the 2032 Notes. The initial conversion price represents a conversion premium of 35.0% over the closing price of our common stock on March 6, 2012, which was $18.53 per share.

Prior to March 20, 2018, the 2032 Notes will not be redeemable. On or after March 20, 2018, we may, at our option, redeem some or all of the 2032 Notes in cash, at any time, upon at least 30 days’ notice at a price equal to 100% of the principal amount plus accrued and unpaid interest (including contingent interest, if any) up to but excluding the redemption date. Holders may require us to purchase in cash some or all of their 2032 Notes at a repurchase price equal to 100% of the principal amount of the 2032 Notes, plus accrued and unpaid interest (including contingent interest, if any) up to but excluding the applicable repurchase date, on March 15, 2018, March 15, 2022 and March 15, 2027, or, subject to specified exceptions, at any time prior to the 2032 Notes’ maturity following a fundamental change (as defined in the governing indenture).

In connection with the issuance of the 2032 Notes, we recorded a discount of $35.4 million as required under existing accounting rules. To arrive at this discount amount, we estimated the fair value of the liability component of the 2032 Notes as of the date of their issuance (March 12, 2012) using an income approach. To determine this estimated fair value, we used borrowing rates of similar market transactions involving comparable liabilities at the time of issuance and an expected life of 6.0 years. In selecting the expected life, we selected the earliest date that the holders could require us to repurchase all or a portion of the 2032 Notes (March 15, 2018). The effective interest rate for the 2032 Notes is 6.9% after considering the effect of the accretion of the related debt discount that represented the equity component of the 2032 Notes at their inception.

MARAD Debt

This U.S. government guaranteed financing ("MARAD Debt") is pursuant to Title XI of the Merchant Marine Act of 1936 administered by the Maritime Administration, and 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 25 years from such date. The MARAD Debt is collateralized by the Q4000, is guaranteed 50% by us, and 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 maturity date (February 2027).

Other

In accordance with our Credit Agreement, Senior Unsecured Notes, 2032 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 March 31, 2013, we were in compliance with these covenants and restrictions.

Unamortized deferred financing costs are included in “Other assets, net” in the accompanying condensed consolidated balance sheets and are being amortized over the life of the respective debt agreements. The following table reflects the components of our deferred financing costs (in thousands):


		March 31, 2013						December 31, 2012
		Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net

Term Loans (mature July 2015)	$	15,325	$	(14,669)	$	656	$	15,318	$	(11,595)	$	3,723
Revolving Credit Facility (matures July 2015)		20,046		(13,225)		6,821		20,021		(12,466)		7,555
2025 Notes (mature December 2025)		-		-		-		8,189		(8,189)		-
2032 Notes (mature March 2032)		3,759		(687)		3,072		4,251		(534)		3,717
Senior Unsecured Notes (mature January 2016)		10,643		(8,402)		2,241		10,643		(8,252)		2,391
MARAD Debt (matures February 2027)		12,200		(5,370)		6,830		12,200		(5,248)		6,952
Total deferred financing costs	$	61,973	$	(42,353)	$	19,620	$	70,622	$	(46,284)	$	24,338

The following table details our interest expense and capitalized interest (in thousands):


		Three Months Ended
		March 31,
		2013		2012

Interest expense	$	12,578	$	15,244
Interest income		(316)		(288)
Capitalized interest		(1,939)		(479)
Interest expense, net	$	10,323	$	14,477