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Long-Term Debt
9 Months Ended
Sep. 30, 2013
Long-Term Debt [Abstract]  
Long-Term Debt

Note 7 — Long-Term Debt 

 

Scheduled maturities of long-term debt outstanding as of September 30, 2013 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term
Loan (1)

 

MARAD
Debt

 

2032
Notes (2)

 

Total

 

 

 

 

 

 

 

 

 

 

 

Less than one year

$

15,000 

$

5,376 

$

 -

$

20,376 

 

One to two years

 

18,750 

 

5,644 

 

 -

 

24,394 

 

Two to three years

 

30,000 

 

5,926 

 

 -

 

35,926 

 

Three to four years

 

30,000 

 

6,222 

 

 -

 

36,222 

 

Four to five years

 

202,500 

 

6,532 

 

 -

 

209,032 

 

Over five years

 

 -

 

70,468 

 

200,000 

 

270,468 

 

Total debt

 

296,250 

 

100,168 

 

200,000 

 

596,418 

 

Current maturities

 

(15,000)

 

(5,376)

 

 -

 

(20,376)

 

Long-term debt, less current maturities

 

281,250 

 

94,792 

 

200,000 

 

576,042 

 

Unamortized debt discount (3)

 

 -

 

 -

 

(27,838)

 

(27,838)

 

Long-term debt

$

281,250 

$

94,792 

$

172,162 

$

548,204 

 

 

(1) Amount reflects the borrowings made in July 2013 (see “Credit Agreement” below).

 

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

 

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

 

Included below is a summary of certain components of our indebtedness.  For additional information regarding our debt, see Note 7 to our 2012 Form 10-K.

 

Credit Agreement 

 

In June 2013, we entered into a Credit Agreement (the “Credit Agreement”) with a group of lenders pursuant to which we may borrow up to $300 million in a term loan (the “Term Loan”) and may borrow revolving loans (the “Revolving Loans”) under a revolving credit facility up to an outstanding amount of $600 million (the “Revolving Credit Facility”).  The Revolving Credit Facility also permits us to obtain letters of credit up to the full amount of the Revolving Credit Facility.  Subject to customary conditions, we may request an increase of up to $200 million in aggregate commitments with respect to the Revolving Credit Facility, additional term loans or a combination thereof.  In July 2013, we borrowed $300 million under the Term Loan in connection with our early redemption of the remaining $275 million Senior Unsecured Notes outstanding (see “Senior Unsecured Notes” below).

 

The Term Loan and the Revolving Loans (together, the “Loans”) will, at our election, bear interest either in relation to the base rate established by Bank of America N.A. or to a LIBOR rate, provided that all Swing Line Loans (as defined in the Credit Agreement) will be base rate loans.  The Term Loan currently bears interest at the LIBOR Rate plus 2.5%In September 2013, we entered into interest rate swap contracts to fix the interest rate on $148.1 million of the Term Loan (Note 16).

 

The Loans or portions thereof bearing interest at the base rate will bear interest at a per annum rate equal to the base rate plus a margin ranging from 1.00% to 2.00%.  The Loans or portions thereof bearing interest at a LIBOR rate will bear interest at the LIBOR rate selected by us plus a margin ranging from 2.00% to 3.00%.  A letter of credit fee is payable by us equal to our applicable margin for LIBOR rate Loans multiplied by the daily amount available to be drawn under outstanding letters of credit.  Margins on the Loans will vary in relation to the consolidated coverage ratio, as provided by the Credit Agreement.  We also pay a fixed commitment fee of 0.5% on the unused portion of our Revolving Credit Facility.  At September 30, 2013, our availability under the Revolving Credit Facility totaled $593.4 million, net of $6.6 million of letters of credit issued.

 

The Term Loan is repayable in scheduled principal installments of 5% in each of the initial two loan years ($15 million per year), and 10% in each of the remaining three loan years ($30 million per year), payable quarterly, with a balloon payment of $180 million at maturity.  These installment amounts are subject to adjustment for any prepayments on the Term Loan.  We may elect to prepay amounts outstanding under the Term Loan without premium or penalty, but may not reborrow any amounts prepaid. We may prepay amounts outstanding under the Revolving Loans without premium or penalty, and may reborrow any amounts paid up to the amount of the Revolving Credit Facility.  The Loans mature on June 19, 2018.  In certain circumstances, we will be required to prepay the Loans.

 

The Credit Agreement and the other documents entered into in connection with the Credit Agreement (together, the “Loan Documents”) include terms and conditions, including covenants, which we consider customary for this type of transaction.  The covenants include restrictions on our and our subsidiaries’ ability to grant liens, incur indebtedness, make investments, merge or consolidate, sell or transfer assets, pay dividends and incur capital expenditures.  In addition, the Credit Agreement obligates us to meet certain financial ratios, including the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio (as defined in the Credit Agreement).  We may designate one of our existing foreign subsidiaries, and any newly established foreign subsidiaries, as subsidiaries that are not generally subject to the covenants in the Credit Agreement (the “Unrestricted Subsidiaries”), provided we meet certain liquidity requirements, in which case the EBITDA of the Unrestricted Subsidiaries is not included in the calculations of our financial covenants.  Our obligations under the Credit Agreement are guaranteed by our domestic subsidiaries (except Cal Dive I – Title XI, Inc.) and Canyon Offshore Limited.  Our obligations under the Credit Agreement, and of the guarantors under their guarantee, are secured by most of our assets and assets of the guarantors and Canyon Offshore Limited, plus pledges of up to two thirds of the shares of certain foreign subsidiaries.

 

Former Credit Facility

 

Our former credit facility also contained both term loan and revolving loan components.  This indebtedness was scheduled to mature on July 1, 2015.  In February 2013, we repaid $318.4 million of borrowings outstanding under our former credit facility with the proceeds from the sale of ERT.  In connection with the repayment of this 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 former 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. 

 

In June 2013, we fully repaid the remaining $70.3 million of indebtedness outstanding under our former credit facility.  Prior to that repayment, the principal amounts outstanding were reduced by repayments of $80.1 million of the proceeds from the sale of the Caesar in June 2013 (Note 2).  Our former credit facility was replaced by our new Credit Agreement in June 2013.  In connection with the repayment and termination of our former credit agreement, we recorded a $0.6 million charge to accelerate the remaining deferred financings costs associated with our indebtedness under the term loan component of our former credit facility.  This charge is also a component of “Loss on early extinguishment of long-term debt” in the accompanying condensed consolidated statements of operations. 

 

Senior Unsecured Notes 

 

In December 2007, we issued $550 million of 9.5% Senior Unsecured Notes due 2016  (the “Senior Unsecured Notes”).  Interest on the Senior Unsecured Notes was payable semi-annually in arrears on each January 15 and July 15, commencing July 15, 2008.  The Senior Unsecured Notes were fully and unconditionally guaranteed by substantially all of our existing restricted domestic subsidiaries, except for Cal Dive I-Title XI, Inc.  The Indenture governing the Senior Unsecured Notes provided that, prior to their 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 June 2013, we elected to redeem our remaining Senior Unsecured Notes outstanding.  On July 22, 2013, we  paid $282.0 million to fully redeem the Senior Unsecured Notes, including $275.0 million with respect to the principal amount outstanding, $6.5 million of call premium and $0.5 million in accrued and unpaid interest.  Our third-quarter 2013 results of operations include a loss on early extinguishment of debt totaling $8.6 million, which reflects the $6.5 million call premium and a  $2.1 million charge to accelerate the remaining deferred financing costs associated with the original issuance of the Senior Unsecured Notes.

 

In March 2012, we purchased $200.0 million of the balance then outstanding of our Senior Unsecured NotesFor this purchase, we paid a total of $213.5 million, including $200.0 million in principal, a $9.5 million call premium and $4.0 million of accrued and unpaid interestThis purchase resulted in a loss on early extinguishment of debt totaling  $11.5 million, which reflects the $9.5 million call premium and a $2.0 million charge to accelerate a pro rata portion of the deferred financing costs associated with the issuance of the Senior Unsecured Notes.  The loss on this early extinguishment of these notes is reflected as a component of “Loss on early extinguishment of long-term debt” in the accompanying condensed consolidated statements of operations.

 

Convertible Senior Notes Due 2032 

 

In March 2012, we completed a public offering and sale of $200.0 million in aggregate principal amount of 3.25% Convertible Senior Notes due 2032 (the “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 below) in separate, privately negotiated transactions.  The remaining net proceeds were used for general corporate purposes, including the repayment of other indebtedness. 

 

The 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.  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 (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.

 

Prior to March 20, 2018, the 2032 Notes are not 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.  In addition, 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 (the "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 in February 2027.  The MARAD Debt is collateralized by the Q4000, is guaranteed 50% by us, and initially bore interest at a floating rate that 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. 

 

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 (the “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 this 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 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 in December 2012. 

 

Other 

 

In accordance with our Credit Agreement, 2032 Notes and MARAD Debt agreements, we are required to comply with certain covenants and restrictions,  including certain financial ratios such as consolidated interest coverage ratio and consolidated leverage ratio, as well as the maintenance of minimum net worth, working capital and debt-to-equity requirements.  As of September 30, 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 amortized over the life of the respective debt agreements.  The following table reflects the components of our deferred financing costs (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2013

 

December 31, 2012

 

 

 

Gross Carrying Amount

 

Accumulated Amortization

 

Net

 

Gross Carrying Amount

 

Accumulated Amortization

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term Loans (mature July 2015) (1)

$

 -

$

 -

$

 -

$

15,318 

$

(11,595)

$

3,723 

 

Revolving Credit Facility (matures July 2015) (1)

 

 -

 

 -

 

 -

 

20,021 

 

(12,466)

 

7,555 

 

Term Loan (matures June 2018) (2)

 

3,635 

 

(182)

 

3,453 

 

 -

 

 -

 

 -

 

Revolving Credit Facility (matures June 2018) (2)

 

13,272 

 

(663)

 

12,609 

 

 -

 

 -

 

 -

 

2025 Notes (mature December 2025)

 

 -

 

 -

 

 -

 

8,189 

 

(8,189)

 

 -

 

2032 Notes (mature March 2032)

 

3,759 

 

(995)

 

2,764 

 

4,251 

 

(534)

 

3,717 

 

Senior Unsecured Notes (mature January 2016) (3)

 

 -

 

 -

 

 -

 

10,643 

 

(8,252)

 

2,391 

 

MARAD Debt (matures February 2027)

 

12,200 

 

(5,614)

 

6,586 

 

12,200 

 

(5,248)

 

6,952 

 

Total deferred financing costs

$

32,866 

$

(7,454)

$

25,412 

$

70,622 

$

(46,284)

$

24,338 

 

 

(1) Relates to the term loans and revolving credit facility under our former credit agreement, which was terminated in June 2013.

 

(2) Relates to amounts allocated to the existing Term Loan and Revolving Credit Facility, which became effective in June 2013.

 

(3) In July 2013, we redeemed our remaining Senior Unsecured Notes.  In connection with this redemption, we recorded a charge of $2.1 million to accelerate the remaining deferred financing costs associated with the original issuance of this debt.

 

The following table details the components of our net interest expense (in thousands): 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2013

 

2012

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

 

Interest expense (1)

$

9,416 

$

12,720 

$

35,971 

$

40,660 

 

Interest income

 

(271)

 

(228)

 

(903)

 

(569)

 

Capitalized interest

 

(2,560)

 

(1,207)

 

(6,816)

 

(2,684)

 

Net interest expense

$

6,585 

$

11,285 

$

28,252 

$

37,407 

 

 

(1) Interest expense of $2.8 million for the nine-month period ended September 30, 2013,  and $7.1 million and $21.7 million for the three- and nine-month periods ended September 30, 2012, respectively, was allocated to ERT and is included in discontinued operations.  Following the sale of ERT in February 2013, we  ceased allocation of interest expense to ERT, which constitutes a discontinued operation.