| Long Term Debt |
6. Long Term Debt
| |
|
The following table illustrates the Company’s debt portfolio: |
| |
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
|
December 31, |
|
| |
|
2011 |
|
|
2010 |
|
| |
|
(Dollars in Thousands) |
|
|
9.125% Senior Notes, due April 2018
|
|
$ |
300,000 |
|
|
$ |
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
2.125% Convertible Senior Notes, due July 2012
|
|
|
118,730 |
|
|
|
115,862 |
|
|
|
|
|
|
|
|
|
|
|
|
Term Note
|
|
|
73,000 |
|
|
|
32,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under the Company’s Revolving Credit Facility
|
|
|
— |
|
|
|
25,000 |
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
491,730 |
|
|
|
472,862 |
|
|
Less current portion
|
|
|
24,000 |
|
|
|
12,000 |
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$ |
467,730 |
|
|
$ |
460,862 |
|
|
|
|
|
|
|
|
|
| |
|
9.125% Senior Notes, due April 2018 |
| |
|
On March 22, 2010, we issued $300.0 million aggregate principal amount of 9.125% Senior Notes
due 2018 (9.125% Notes) pursuant to an Indenture between the Company and The Bank of New York
Mellon Trust Company, N.A. (Trustee). The 9.125% Notes were issued at par with interest payable
on April 1 and October 1 of each year, beginning October 1, 2010. Net proceeds from the 9.125%
Notes offering were primarily used to redeem the $225.0 million aggregate principal amount of
our 9.625% Senior Notes due 2013 and to repay $42.0 million of borrowings under our Revolver. |
| |
|
The 9.125% Notes are general unsecured obligations of the Company and rank equal in right of
payment with all of our existing and future senior unsecured indebtedness. The 9.125% Notes are
jointly and severally guaranteed by substantially all of our direct and indirect domestic
subsidiaries other than immaterial subsidiaries and subsidiaries generating revenue primarily
outside the United States. |
| |
|
At any time prior to April 1, 2013, we may redeem up to 35 percent of the aggregate principal
amount of the 9.125% Notes at a redemption price of 109.125 percent of the principal amount, plus
accrued and unpaid interest to the redemption date, with the net cash proceeds of certain equity
offerings by us. On and after April 1, 2014, we may redeem all or a part of the 9.125% Notes
upon appropriate notice, at a redemption price of 104.563 percent of the principal amount, and at
redemption prices decreasing each year thereafter to par. If we experience certain changes in
control, we must offer to repurchase the 9.125% Notes at 101.0 percent of the aggregate
principal amount, plus accrued and unpaid interest and additional interest, if any, to the date
of repurchase. |
| |
|
The Indenture restricts our ability and the ability of certain subsidiaries to: (i) sell assets;
(ii) pay dividends or make other distributions on capital stock or redeem or repurchase capital
stock or subordinated indebtedness; (iii) make investments; (iv) incur or guarantee additional
indebtedness; (v) create or incur liens; (vi) enter into sale and leaseback transactions; (vii)
incur dividend or other payment restrictions affecting subsidiaries; (viii) merge or consolidate
with other entities; (ix) enter into transactions with affiliates; and (x) engage in certain
business activities. Additionally, the Indenture contains certain restrictive covenants
designating certain events as Events of Default. These covenants are subject to a number of
important exceptions and qualifications. |
| |
|
On June 21, 2010, pursuant to the Registration Rights Agreement among the Company, the
guarantors named therein, the initial purchasers of the 9.125% Notes and the Trustee entered
into as of March 22, 2010 in connection with the closing of the 9.125% Notes offering, we filed
an exchange offer registration statement with respect to an offer to exchange the 9.125% Notes
for substantially identical notes that are registered under
the Securities Act. The
registration statement was deemed effective by the United States Securities and Exchange
Commission (SEC) on September 1, 2010. |
| |
|
9.625% Senior Notes, due October 2013 |
| |
|
As of December 31, 2009, we had outstanding $225.0 million in aggregate principal amount of
9.625% senior notes due 2013 (9.625% Notes). On March 8, 2010, we commenced a cash tender offer
(Tender Offer) and consent solicitation for all of our outstanding 9.625% Notes, which expired
on April 2, 2010. On March 22, 2010, we voluntarily called for redemption of all of our 9.625%
Notes that were not tendered pursuant to the Tender Offer, at the redemption price of 103.208
percent of the principal amount of the 9.625% Notes, or $1,032.08 per $1,000 principal amount of
the 9.625% Notes. On April 21, 2010, we redeemed in full the remaining $128.7 million principal
amount of the 9.625% Notes. This redemption resulted in the Company recording debt extinguishment
costs of $7.2 million during 2010. |
| |
|
2.125% Convertible Senior Notes, due July 2012 |
| |
|
On July 5, 2007, we issued $125.0 million aggregate principal amount of 2.125% Convertible
Senior Notes (2.125% Notes) due July 2012. |
| |
|
The significant terms of the 2.125% Notes are as follows: |
| |
• |
|
2.125% Notes Conversion Feature — The initial conversion price for holders to convert
their 2.125% Notes into shares is at a common stock share price equivalent of $13.85
(72.2217 shares of common stock) per $1,000 note value. Conversion rate adjustments occur
for any issuances of stock, warrants, rights or options (except for stock purchase plans
or dividend re-investments) or any other transfer of benefit to substantially all
stockholders, or as a result of a tender or exchange offer. We may, under advice of our
Board of Directors, increase the conversion rate at our sole discretion for a period of at
least 20 days. |
| |
| |
• |
|
2.125% Notes Settlement Feature — Upon tender of the 2.125% Notes for conversion, we
can either settle entirely in shares of common stock or a combination of cash and shares
of common stock, solely at our option. Our intent is to satisfy our conversion obligation
for our 2.125% Notes in cash, rather than in common stock, for at least the aggregate
principal amount of the 2.125% Notes. This reduces the resulting potential earnings
dilution to only include any possible conversion premium, which would be the difference
between the average price of our shares and the conversion price per share of common
stock. |
| |
| |
• |
|
Contingent Conversion Feature — Holders may only convert the 2.125% Notes when either
sales price or trading price conditions are met, on or after the 2.125% Notes’ due date or
upon certain accounting changes or certain corporate transactions (fundamental changes)
involving stock distributions. Make-whole provisions are only included in the accounting
and fundamental change conversions such that holders do not lose value as a result of the
changes. |
| |
| |
• |
|
Settlement Feature — Upon conversion, we will pay either cash or provide shares of our
common stock if any, based on a daily conversion rate multiplied by a volume weighted
average price of our common stock during a specified period following the conversion date.
Conversions can be settled in cash or shares, solely at our discretion. |
| |
|
As of June 30, 2011 and December 31, 2010, none of the conditions allowing holders of the 2.125%
Notes to convert had been met. |
| |
|
Concurrently with the issuance of the 2.125% Notes, we purchased a convertible note hedge (note
hedge) and sold warrants in private transactions with counterparties that were different than
the ultimate holders of the 2.125% Notes. The note hedge included purchasing free-standing call
options and selling free-standing warrants, both exercisable in our common shares. The note
hedge allows us to receive shares of our common stock from the counterparties to the transaction
equal to the amount of common stock related to the excess conversion value that we would issue
and/or pay to the holders of the 2.125% Notes upon conversion. |
| |
|
The terms of the call options mirror the 2.125% Notes’ major terms whereby the call option
strike price is the same as the initial conversion price as are the number of shares callable,
$13.85 per share and 9,027,713 shares, respectively. This feature prevents dilution of our
outstanding shares. The warrants allow us to sell 9,027,713 common shares at a strike price of
$18.29 per share. The conversion price of the 2.125% Notes remains at
$13.85 per share, and the existence of the call options and warrants serve to guard against
dilution at share prices less than $18.29 per share, since we would be able to satisfy our
obligations and deliver shares upon conversion of the 2.125% Notes with shares that are obtained
by exercising the call options. |
| |
|
We paid a premium of approximately $31.5 million for the call options, and received proceeds for
a premium of approximately $20.3 million for the sale of the warrants. This reduced the net
cost of the note hedge to $11.2 million. The expiration date of the note hedge is the earlier
of the last day on which the 2.125% Notes remain outstanding or the maturity date of the 2.125% Notes. |
| |
|
The 2.125% Notes are classified as a liability in our consolidated financial statements.
Because we have the choice of settling the call options and the warrants in cash or shares of
our common stock and these contracts meet all of the applicable criteria for equity
classification, the cost of the call options and proceeds from the sale of the warrants are
classified in stockholders’ equity in the Consolidated Balance Sheets. In addition, because
both of these contracts are classified in stockholders’ equity and are indexed solely to our
common stock, they are not accounted for as derivatives. |
| |
|
Debt issuance costs related to the 2.125% Notes of approximately $3.6 million are being
amortized over the five year term of the 2.125% Notes using the effective interest method.
Proceeds from the transaction of $110.2 million were used to redeem our outstanding senior
floating rate notes, to pay the net cost of hedge and warrant transactions, and for general
corporate purposes. |
| |
|
On May 15, 2008, we entered into a credit agreement (Credit Agreement) consisting of a senior
secured $80.0 million revolving credit facility (Revolver) and senior secured term loan facility
(Term Loan) of up to $50.0 million. The Credit Agreement provides that, subject to certain
conditions, including the approval of the Administrative Agent and the lenders’ acceptance (or
additional lenders being joined as new lenders), the amount of the Term Loan or Revolver could
be increased by an additional $50.0 million, so long as after giving effect to such increase,
the Aggregate Commitments shall not be in excess of $180.0 million. On April 1, 2011, the
Company exercised the additional $50.0 million accordion feature and entered into an amendment
to the Credit Agreement that increased the aggregate commitment under the Credit Agreement to
$159.0 million, and borrowed an additional $50.0 million in a Term Loan. When the facility was
increased, all other terms of the Credit Agreement remained the same, including covenants and
Applicable Rates (as defined in the Credit Agreement). |
| |
|
Our obligations under the Credit Agreement are guaranteed by substantially all of our domestic
subsidiaries, each of which has executed guaranty agreements. The Credit Agreement contains
customary affirmative and negative covenants with which we were in compliance as of June 30,
2011 and December 31, 2010. The Credit Agreement terminates on May 14, 2013. |
| |
|
Our Revolver is available for general corporate purposes and to support letters of credit.
Interest on Revolver loans accrues at a Base Rate plus an Applicable Rate or LIBOR plus an
Applicable Rate. The Applicable Rate varies from a rate per annum ranging from 2.75 percent to
3.25 percent for LIBOR rate loans and 1.75 percent to 2.25 percent for base rate loans,
determined by reference to the consolidated leverage ratio (as defined in the Credit Agreement).
Revolving loans are available subject to a borrowing base calculation based on a percentage of
eligible accounts receivable, certain specified barge drilling rigs and rental equipment of the
Company and its subsidiary guarantors. There were $0 and $25.0 million in revolving loans
outstanding at June 30, 2011 and December 31, 2010, respectively. Letters of credit outstanding
as of June 30, 2011 and December 31, 2010 totaled $6.3 million and $16.3 million, respectively. |
| |
|
The Term Loan originated at $50.0 million and requires quarterly principal payments of $3.0
million. Interest on the Term Loan accrues at either a Base Rate plus 2.25 percent or LIBOR
plus 3.25 percent. On April 1, 2011, the company expanded its Term Loan Facility by $50.0
million. Funding was provided by certain current lenders and Barclays Bank PLC, which joined as
a lender under the Credit Agreement. We used the proceeds from the additional Term Loan to
repay the $25.0 million outstanding on the Revolver, purchase additional rental tool inventory,
and for general corporate purposes. The additional Term Loan amortizes $3.0 million per quarter
beginning June 30, 2011. Upon the completion of the transaction, total borrowings under the
Term Loan Facility were $79.0 million. Total
amortization on the Term Loans will be $6.0 million per quarter. The outstanding balance on the
Term Loan at June 30, 2011 and December 31, 2010 was $73.0 million and $32.0 million,
respectively. |
|