| Long Term Debt |
| 6. |
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Long Term Debt |
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The following table illustrates the Company’s debt portfolio: |
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September 30, |
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December 31, |
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2011 |
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2010 |
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(Dollars in Thousands) |
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9.125% Senior Notes, due April 2018
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$ |
300,000 |
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$ |
300,000 |
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2.125% Convertible Senior Notes, due July 2012
|
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120,224 |
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115,862 |
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Term Note
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67,000 |
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32,000 |
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Borrowings under the Company’s Revolving Credit Facility
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— |
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25,000 |
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Total debt
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487,224 |
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472,862 |
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Less current portion
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144,224 |
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12,000 |
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Total long-term debt
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$ |
343,000 |
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$ |
460,862 |
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9.125% Senior Notes, due April 2018 |
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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. |
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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. |
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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. |
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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. |
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9.625% Senior Notes, due October 2013 |
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At 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. |
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2.125% Convertible Senior Notes, due July 2012 |
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On July 5, 2007, we issued $125.0 million aggregate principal amount of 2.125% Convertible Senior
Notes (2.125% Notes) due July 2012. As of September 30, 2011, the 2.125% Notes are classified as current debt in our consolidated condensed balance sheet. |
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The significant terms of the 2.125% Notes are as follows: |
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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. |
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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. |
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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. |
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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. |
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As of September 30, 2011 and December 31, 2010, none of the conditions allowing holders of the
2.125% Notes to convert had been met. |
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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. |
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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. |
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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. |
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The 2.125% Notes are classified as a liability in our consolidated condensed balance sheets.
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 condensed 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. |
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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. |
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Credit Agreement: |
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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). |
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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 September 30,
2011 and December 31, 2010. The Credit Agreement terminates on May 14, 2013. |
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Revolver: |
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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 no revolving loans outstanding at September 30,
2011 and $25.0 million in revolving loans outstanding at December 31, 2010, respectively. Letters
of credit outstanding as of September 30, 2011 and December 31, 2010 totaled $6.3 million and
$16.3 million, respectively. |
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Term Loan: |
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The Term Loan originated at $50.0 million and required 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. Amortization on the Term Loans is $6.0 million per quarter. The outstanding
balance on the Term Loan at September 30, 2011 and December 31, 2010 was $67.0 million and $32.0
million, respectively. |
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