Quarterly report pursuant to Section 13 or 15(d)

Long-Term Debt - Thermon Holding Corp

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Long-Term Debt - Thermon Holding Corp
9 Months Ended
Dec. 31, 2011
Long-Term Debt

11. Long-Term Debt

 

Long- term debt consisted of the following:

 

 

 

December 31,
2011

 

March 31,
2011

 

 

 

 

 

 

 

9.500% Senior Secured Notes, due May 2017

 

$

139,145

 

$

210,000

 

 

 

139,145

 

210,000

 

Less current portion

 

 

(21,000

)

 

 

$

139,145

 

$

189,000

 

 

Revolving Credit Facility and Senior Secured Notes

 

Revolving credit facility.  Simultaneously with the closing of the CHS Transactions and the sale of our senior secured notes, our wholly owned subsidiary, Thermon Industries, Inc., entered into a five-year, $40.0 million senior secured revolving credit facility, which we refer to as our revolving credit facility, of which up to $20.0 million is available to our Canadian subsidiary, subject to borrowing base availability. Availability of funds under our revolving credit facility is determined by a borrowing base equal to the sum of 85% of eligible accounts receivable, plus 60% of eligible inventory, plus 85% of the net orderly liquidation value of eligible equipment, plus 50% of the fair market value of eligible owned real property. In no case shall availability under our revolving credit facility exceed the commitments thereunder. As of December 31, 2011, we had $30.4 million of capacity available under our revolving credit facility after taking into account the borrowing base, outstanding loan advances and letters of credit. In addition to our revolving credit facility, we have various short term revolving lines of credit available to us at our foreign affiliates.  At December 31, 2011 we had $9.0 million of outstanding borrowings under the revolving credit facility with an interest rate of 5%.

 

The revolving credit facility will mature in 2015. Any borrowings on our revolving credit facility will incur interest expense that is variable in relation to the LIBOR rate. Borrowings denominated in Canadian Dollars under the Canadian facility bear interest at a variable rate in relation to the bankers’ acceptance rate, as set forth in the revolving credit facility. In addition to paying interest on outstanding borrowings under our revolving credit facility, we are required to pay a 0.75% per annum commitment fee to the lenders in respect of the unutilized commitments thereunder and letter of credit fees equal to the LIBOR margin or the bankers’ acceptance rate, as applicable, on the undrawn amount of all outstanding letters of credit.

 

Senior secured notes.  As of December 31, 2011, we had $139.1 million of indebtedness outstanding under our senior secured notes with annual cash interest expense of approximately $13.2 million. Our senior secured notes mature on May 1, 2017 and accrue interest at a fixed rate of 9.500%. We pay interest in cash semi-annually on May and November 1 of each year.  Our senior secured notes were issued in a Rule 144A exempt senior secured note offering to qualified institutional investors.  The proceeds were used to fund the purchase price for the CHS Transactions and related transaction costs.  In January 2011, we consummated an offer to exchange the old restricted senior secured notes for new, SEC-registered senior secured notes.

 

During the three and nine months ended December 31, 2011, the Company made partial redemptions of the senior secured notes in the amount of $4,265 and $70,855, respectively.  In connection with these redemptions, the Company paid cash premiums on redemption of $229 and $3,195 for the three and nine months ended December 31, 2011, respectively. In addition, the Company accelerated deferred debt amortization of $174 and $3,096 for the three and nine months ended December 31, 2011, respectively.  These expenses were included in interest expense for the periods reported.

 

Guarantees; security.  The obligations under our revolving credit facility and our senior secured notes are guaranteed on a senior secured basis by the Company and each of its existing and future domestic restricted subsidiaries, other than Thermon Industries, Inc., the issuer of the senior secured notes. The obligations under our revolving credit facility are secured by a first priority perfected security interest in substantially all of our and the guarantors’ assets, subject to certain exceptions, permitted liens and encumbrances reasonably acceptable to the agent under our revolving credit facility. Our senior secured notes and guarantees are also secured by liens on substantially all of our and the guarantors’ assets, subject to certain exceptions; provided, however, that the liens are contractually subordinated to the liens thereon that secure our revolving credit facility.

 

Restrictive covenants.  The revolving credit facility and senior secured notes contain various restrictive covenants that include restrictions or limitations on our ability to: incur additional indebtedness or issue disqualified capital stock unless certain financial tests are satisfied; pay dividends, redeem subordinated debt or make other restricted payments; make certain investments or acquisitions; issue stock of subsidiaries; grant or permit certain liens on our assets; enter into certain transactions with affiliates; merge, consolidate or transfer substantially all of our assets; incur dividend or other payment restrictions affecting certain of our subsidiaries; transfer or sell assets, including capital stock of our subsidiaries; and change the business we conduct. However, all of these covenants are subject to customary exceptions.

 

Information about our long-term debt that is not measured at fair value follows:

 

 

 

December 31, 2011

 

March 31, 2011

 

 

 

 

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

Valuation Technique

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

139,145

 

$

150,277

 

$

210,000

 

$

225,800

 

Level 2 - Market Approach

 

 

Differences between carrying value and fair value are primarily due to instruments that provide fixed interest rates or contain fixed interest rate elements. Inherently, such instruments are subject to fluctuations in fair value due to subsequent movements in interest rates.

 

Foreign Currency Transaction Risk.

 

We transact business in various foreign currencies and have established a program that primarily utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency exposures. Under this program, increases or decreases in our foreign currency exposures are offset by gains or losses on the forward contracts, to mitigate the possibility of foreign currency transaction gains or losses. These foreign currency exposures typically arise from intercompany transactions. Our forward contracts generally have terms of 90 days or less. We do not use forward contracts for trading purposes nor do we designate these forward contracts as hedging instruments pursuant to ASC 815. We adjust the carrying amount of all contracts to their fair value at the end of each reporting period and unrealized gains and losses are included in our results of operations for that period. These gains and losses largely offset gains and losses resulting from settlement of payments received from our foreign operations which are settled in U.S. dollars. All outstanding foreign currency forward contracts are marked to market at the end of the period with unrealized gains and losses included in miscellaneous expense. The balance sheet reflects unrealized gains within prepaid expenses and other current assets and unrealized losses within accrued liabilities. Our ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the contracts mature. As of December 31, 2011 and March 31, 2011, the notional amounts of forward contracts we held to sell U.S. Dollars in exchange for other major international currencies were $14,019 and zero, respectively.

 

Net foreign exchange transaction losses included in the accompanying condensed consolidated statements of operations were $213 and $1,456 in the three and nine months ended December 31, 2011, respectively. For the three months ended December 31, 2010, the period from May 1 through December 31, 2010 and the period from April 1 through April 30, 2010, losses from foreign exchange transactions were $242, $566 and zero, respectively. The fair values of foreign currency forward contracts were not significant individually and approximated $59 as of December 31, 2011.

 

Other Financial Assets and Liabilities

 

Financial assets and liabilities with the carrying amounts approximating fair value include cash and cash equivalents, accounts receivable, other current assets, current debt, accounts payable and other current liabilities.

Thermon Holding Corp
 
Long-Term Debt

10. Long-Term Debt

 

Long- term debt consisted of the following:

 

 

 

December 31,
2011

 

March 31,
2011

 

 

 

 

 

 

 

9.500% Senior Secured Notes, due May 2017

 

$

139,145

 

$

210,000

 

 

 

139,145

 

210,000

 

Less current portion

 

 

(21,000

)

 

 

$

139,145

 

$

189,000

 

 

Revolving Credit Facility and Senior Secured Notes

 

Revolving credit facility.  Simultaneously with the closing of the CHS Transactions and the sale of our senior secured notes, our wholly owned subsidiary, Thermon Industries, Inc., entered into a five-year, $40.0 million senior secured revolving credit facility, which we refer to as our revolving credit facility, of which up to $20.0 million is available to our Canadian subsidiary, subject to borrowing base availability. Availability of funds under our revolving credit facility is determined by a borrowing base equal to the sum of 85% of eligible accounts receivable, plus 60% of eligible inventory, plus 85% of the net orderly liquidation value of eligible equipment, plus 50% of the fair market value of eligible owned real property. In no case shall availability under our revolving credit facility exceed the commitments thereunder. As of December 31, 2011, we had $30.4 million of capacity available under our revolving credit facility after taking into account the borrowing base, outstanding loan advances and letters of credit. In addition to our revolving credit facility, we have various short term revolving lines of credit available to us at our foreign affiliates.  At December 31, 2011 we had $9.0 million of outstanding borrowings under the revolving credit facility with an interest rate of 5%.

 

The revolving credit facility will mature in 2015. Any borrowings on our revolving credit facility will incur interest expense that is variable in relation to the LIBOR rate. Borrowings denominated in Canadian Dollars under the Canadian facility bear interest at a variable rate in relation to the bankers’ acceptance rate, as set forth in the revolving credit facility. In addition to paying interest on outstanding borrowings under our revolving credit facility, we are required to pay a 0.75% per annum commitment fee to the lenders in respect of the unutilized commitments thereunder and letter of credit fees equal to the LIBOR margin or the bankers’ acceptance rate, as applicable, on the undrawn amount of all outstanding letters of credit.

 

Senior secured notes.  As of December 31, 2011, we had $139.1 million of indebtedness outstanding under our senior secured notes with annual cash interest expense of approximately $13.2 million. Our senior secured notes mature on May 1, 2017 and accrue interest at a fixed rate of 9.500%. We pay interest in cash semi-annually on May and November 1 of each year.  Our senior secured notes were issued in a Rule 144A exempt senior secured note offering to qualified institutional investors.  The proceeds were used to fund the purchase price for the CHS Transactions and related transaction costs.  In January 2011, we consummated an offer to exchange the old restricted senior secured notes for new, SEC-registered senior secured notes.

 

During the three and nine months ended December 31, 2011, the Company made partial redemptions of the senior secured notes in the amount of $4,265 and $70,855, respectively.  In connection with these redemptions, the Company paid cash premiums on redemption of $229 and $3,195 for the three and nine months ended December 31, 2011, respectively. In addition, the Company accelerated deferred debt amortization of $174 and $3,096 for the three and nine months ended December 31, 2011, respectively.  These expenses were included in interest expense for the periods reported.

 

Guarantees; security.  The obligations under our revolving credit facility and our senior secured notes are guaranteed on a senior secured basis by the Company and each of its existing and future domestic restricted subsidiaries, other than Thermon Industries, Inc., the issuer of the senior secured notes. The obligations under our revolving credit facility are secured by a first priority perfected security interest in substantially all of our and the guarantors’ assets, subject to certain exceptions, permitted liens and encumbrances reasonably acceptable to the agent under our revolving credit facility. Our senior secured notes and guarantees are also secured by liens on substantially all of our and the guarantors’ assets, subject to certain exceptions; provided, however, that the liens are contractually subordinated to the liens thereon that secure our revolving credit facility.

 

Restrictive covenants.  The revolving credit facility and senior secured notes contain various restrictive covenants that include restrictions or limitations on our ability to: incur additional indebtedness or issue disqualified capital stock unless certain financial tests are satisfied; pay dividends, redeem subordinated debt or make other restricted payments; make certain investments or acquisitions; issue stock of subsidiaries; grant or permit certain liens on our assets; enter into certain transactions with affiliates; merge, consolidate or transfer substantially all of our assets; incur dividend or other payment restrictions affecting certain of our subsidiaries; transfer or sell assets, including capital stock of our subsidiaries; and change the business we conduct. However, all of these covenants are subject to customary exceptions.

 

Information about our long-term debt that is not measured at fair value follows:

 

 

 

December 31,
2011

 

March 31,
2011

 

 

 

 

 

Carrying
Value

 

Fair Value

 

Carrying
Value

 

Fair Value

 

Valuation Technique

 

Financial Liabilities

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

139,145

 

$

150,277

 

$

210,000

 

$

225,800

 

Level 2 - Market Approach

 

 

Differences between carrying value and fair value are primarily due to instruments that provide fixed interest rates or contain fixed interest rate elements. Inherently, such instruments are subject to fluctuations in fair value due to subsequent movements in interest rates.

 

Foreign Currency Transaction Risk.

 

We transact business in various foreign currencies and have established a program that primarily utilizes foreign currency forward contracts to offset the risk associated with the effects of certain foreign currency exposures. Under this program, increases or decreases in our foreign currency exposures are offset by gains or losses on the forward contracts, to mitigate the possibility of foreign currency transaction gains or losses. These foreign currency exposures typically arise from intercompany transactions. Our forward contracts generally have terms of 90 days or less. We do not use forward contracts for trading purposes nor do we designate these forward contracts as hedging instruments pursuant to ASC 815. We adjust the carrying amount of all contracts to their fair value at the end of each reporting period and unrealized gains and losses are included in our results of operations for that period. These gains and losses largely offset gains and losses resulting from settlement of payments received from our foreign operations which are settled in U.S. dollars. All outstanding foreign currency forward contracts are marked to market at the end of the period with unrealized gains and losses included in miscellaneous expense. The balance sheet reflects unrealized gains within prepaid expenses and other current assets and unrealized losses within accrued liabilities. Our ultimate realized gain or loss with respect to currency fluctuations will depend on the currency exchange rates and other factors in effect as the contracts mature. As of December 31, 2011 and March 31, 2011, the notional amounts of forward contracts we held to sell U.S. Dollars in exchange for other major international currencies were $14,019 and zero, respectively.

 

Net foreign exchange transaction losses included in the accompanying condensed consolidated statements of operations were $213 and $1,456 in the three and nine months ended December 31, 2011, respectively.  For the three months ended December 31, 2010, the period from May 1 through December 31, 2010 and the period from April 1 through April 30, 2010, losses from foreign exchange transactions were $242, $566 and zero, respectively. The fair values of foreign currency forward contracts were not significant individually and approximated $59 as of December 31, 2011.

 

Other Financial Assets and Liabilities

 

Financial assets and liabilities with the carrying amounts approximating fair value include cash and cash equivalents, accounts receivable, other current assets, current debt, accounts payable and other current liabilities.