"On March 11, 2010, we amended our Bank Facility (the “Amendment”). In connection with the Amendment, certain key terms, as defined within the Bank Facility, were revised as follows:
· Depending on the Consolidated Leverage Ratio (Consolidated Funded Indebtedness to Consolidated Operating Cash Flow), we may elect an interest rate equal to: (1) the Eurodollar Rate plus fees that can range from 0.5% to 2.5%; or (2) the Base Rate plus fees that can range from 0.0% to 1.5%, where the Base Rate is the highest of: (a) the Federal Funds Rate plus 0.5%; (b) the Eurodollar Rate plus 1.0%; and (c) the Prime Rate;
· During periods when the Consolidated Leverage Ratio exceeds six times, we are: (a) restricted in our ability to take certain actions, including but not limited to, the payment of dividends and the repurchase of our stock; and (b) subject to additional limitations on acquisitions and investments.
Under the Amendment, Consolidated Leverage Ratio cannot exceed seven times in 2010. This covenant ratio decreases quarterly in 2011 to a ratio of six times as of December 31, 2011."
"The Amendment was treated as a modification to a debt instrument. As a result, in the first quarter of 2010 we recorded deferred financing costs of $5.2 million related to the Amendment that will be amortized under the effective interest rate method over the remaining life of the Bank Facility. In addition, unamortized deferred financing costs of $3.1 million as of the Amendment date will continue to be amortized over the remaining life of the Bank Facility."
In March, 2010, it cost the company an extra $5.2 million to get the Consolidated Leverage Ratio limit increased to 7 for a while. Notice that the interest rate elections do not work out to particularly high rates, and the $5.2 million fee is less than one per cent of the roughly $700 million debt. The banks were willing to raise the ratio for a while for a fee that is equivalent, worst case ballpark figure, to a 1% interest rate increase--and this was in March. By early 2011, the debt will be smaller, and the interest rate on the refinancing will be no greater than it is now.