Note 7 — Long-Term Debt

Long-term debt consisted of the following as of December 31, 2013 and 2012 (in thousands):


		2013		2012

Term Loans (mature July 2015)	$	-	$	367,181
Revolving Credit Facility (matures July 2015)		-		100,000
Term Loan (matures June 2018)		292,500		-
2025 Notes (mature December 2025)		-		3,487
2032 Notes (mature March 2032)		200,000		200,000
Senior Unsecured Notes (mature January 2016)		-		274,960
MARAD Debt (matures February 2027)		100,168		105,288
Unamoritized debt discount		(26,516)		(31,688)
Total debt		566,152		1,019,228
Less current maturities		(20,376)		(16,607)
Long-term debt	$	545,776	$	1,002,621

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”), at our election, will 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 December 31, 2013, our availability under the Revolving Credit Facility totaled $584.2 million, net of $15.8 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 for 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 guaranty, 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 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 the repayment 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 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 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 $75.0 million in principal and $2.4 million in premium. 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.

At December 31, 2011, we had $475.0 million of Senior Unsecured Notes outstanding. In March 2012, we purchased $200.0 million of the balance then outstanding of our Senior Unsecured Notes. For 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 interest. This 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 consolidated statements of operations.

At December 31, 2012, we had $275.0 million of Senior Unsecured Notes outstanding. In June 2013, we elected to redeem our remaining Senior Unsecured Notes. 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 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.

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 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 other 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. The initial conversion price represents a conversion premium of 35.0% over the closing price of our common stock on March 6, 2012 of $18.53 per share.

Prior to March 20, 2018, the 2032 Notes are not redeemable. On or after March 20, 2018, we, at our option, may 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 holder 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.

Our weighted average share price for 2013 and 2012 was below the $25.02 per share conversion price (and conversion trigger of $32.53 per share). As a result, there are no shares included in our diluted earnings per share calculation associated with the assumed conversion of the 2032 Notes (Note 2).

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 effective interest rate for the 2025 Notes was 6.6% after considering the effect of the accretion of the related debt discount that represented the equity component of the 2025 Notes at their inception.

In connection with the issuance of additional Convertible Senior Notes (see “Convertible Senior Notes Due 2032” above) 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 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.

Our weighted average share price for 2013, 2012 and 2011 was below the $32.14 per share conversion price. As a result, there are no shares included in our diluted earnings per share calculation associated with the assumed conversion of the 2025 Notes.

Other

In accordance with our Credit Agreement, 2032 Notes and MARAD Debt agreements, we are required to comply with certain covenants, including certain financial ratios such as a 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 December 31, 2013, we were in compliance with these covenants and restrictions.

We paid financing costs associated with our debt totaling $11.0 million in 2013 and $7.6 million in 2012. Unamortized deferred financing costs are included in “Other assets, net” in the accompanying 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 for the years ended December 31, 2013 and 2012 (in thousands):


		December 31, 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)		3,638		(364)		3,274		-		-		-
Revolving Credit Facility (matures June 2018) (2)		13,275		(1,327)		11,948		-		-		-
2025 Notes (mature December 2025)		-		-		-		8,189		(8,189)		-
2032 Notes (mature March 2032)		3,759		(1,148)		2,611		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		(5,736)		6,464		12,200		(5,248)		6,952
Total deferred financing costs	$	32,872	$	(8,575)	$	24,297	$	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.

Scheduled maturities of long-term debt outstanding as of December 31, 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		22,500		5,644		-		28,144
Two to three years		30,000		5,926		-		35,926
Three to four years		30,000		6,222		-		36,222
Four to five years		195,000		6,532		-		201,532
Over five years		-		70,468		200,000		270,468
Total debt		292,500		100,168		200,000		592,668
Current maturities		(15,000)		(5,376)		-		(20,376)
Long-term debt, less current maturities		277,500		94,792		200,000		572,292
Unamortized debt discount (3)		-		-		(26,516)		(26,516)
Long-term debt	$	277,500	$	94,792	$	173,484	$	545,776

(1) The amount reflects the borrowings made in July 2013 (see Credit Agreement discussion above).

(2) Beginning in March 2018, the holders of the 2032 Notes 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 2032 Notes will increase to their principal amount through accretion of non-cash interest charges through March 2018.

The following table details our interest expense and capitalized interest for the years ended December 31, 2013, 2012 and 2011 (in thousands):


		Year Ended December 31,
		2013		2012		2011

Interest expense (1)	$	44,484	$	53,601	$	72,824
Interest income		(1,167)		(548)		(1,366)
Capitalized interest		(10,419)		(4,893)		(1,277)
Net interest expense	$	32,898	$	48,160	$	70,181

(1) Interest expense of $2.8 million, $28.6 million and $25.8 million for 2013, 2012 and 2011, 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.