7. Long‑Term Debt

The total undiscounted face amount of Headwaters’ outstanding long‑term debt was approximately $573.9 million as of September 30, 2015 and $768.8 million as of September 30, 2016. As of those dates, the discounted carrying value of long‑term debt consisted of the following:


(in thousands)	2015		2016
Senior secured term loan, due March 2022 (face amount $423,938 as of September 30, 2015 and $768,804 as of September 30, 2016)	$	414,490	$	754,501
7¼% Senior notes, due January 2019 (face amount $150,000)		147,840		—
Carrying amount of long-term debt, net of discounts and debt issue costs		562,330		754,501
Less current portion		(4,250)		(7,785)
Long-term debt	$	558,080	$	746,716

Senior Secured Term Loan — In March 2015, Headwaters entered into a new Term Loan Facility, under which a senior secured loan for $425.0 million was obtained. In August 2016, Headwaters entered into an Incremental Amendment to the Term Loan Facility for an additional senior secured loan totaling $350.0 million. The entire combined loan will mature in March 2022. The Term Loan Facility requires scheduled quarterly repayments in an aggregate annual amount equal to approximately 1.0% of the original combined principal amounts (subject to reduction for certain permitted prepayments), with the balance due at maturity. Headwaters determined that the $350.0 million incremental amendment constituted a debt modification. As described below, a portion of the proceeds was used to redeem the remaining outstanding $99.0 million of the 7¼% Senior Notes.

The Term Loan Facility allows Headwaters to request one or more incremental term loans and certain other types of incremental debt in an aggregate amount not to exceed $150.0 million plus an additional amount which is dependent on Headwaters’ pro forma net leverage ratio, as defined. Any additional borrowings are contingent upon the receipt of commitments by existing or additional lenders.

Borrowings under the Term Loan Facility bear interest at a rate equal to, at Headwaters’ option, either (a) a base rate determined by reference to the highest of (i) the publicly announced prime rate of the administrative agent, (ii) the federal funds rate plus 0.50%, and (iii) the eurocurrency (LIBO) rate for a one-month interest period plus 1.0%, subject in all cases to a 2.0% floor; or (b) a eurocurrency (LIBO) rate determined by reference to the cost of funds for eurocurrency deposits in dollars, subject to a 1.0% floor; plus, in each case, an applicable margin of 3.0% for any eurocurrency loan and 2.0% for any alternate base rate loan. Interest is payable quarterly, and as of September 30, 2016, the interest rate on borrowings under the Term Loan Facility was 4.0%.

Headwaters may voluntarily repay outstanding loans under the Term Loan Facility at any time without premium or penalty, other than customary breakage costs with respect to LIBO rate loans, which shall be subject to a prepayment premium of 1.0%. The Term Loan Facility requires Headwaters to prepay outstanding term loans, subject to certain exceptions, with (i) up to 50% of Headwaters’ annual excess cash flow, as defined, to the extent such excess cash flow exceeds $1.0 million, commencing with fiscal year 2016, with such required prepayment to be reduced by the amount of voluntary prepayments of term loans and certain other types of senior secured debt; (ii) 100% of the net cash proceeds of certain non-ordinary course asset sales; and (iii) 100% of the net cash proceeds of certain issuances of debt.

The Term Loan Facility is secured by substantially all assets of Headwaters, except that the obligations have a second priority position with respect to the assets that secure Headwaters’ ABL Revolver, primarily consisting of certain trade receivables and inventories of Headwaters’ building products and construction materials segments. The Term Loan Facility contains customary covenants restricting the ability of Headwaters to incur additional debt and liens on assets, prepay future new subordinated debt, merge or consolidate with another company, sell all or substantially all assets, make investments and pay dividends or distributions, among other things. The Term Loan Facility contains customary events of default, including with respect to a change in control of Headwaters. Headwaters was in compliance with all covenants as of September 30, 2016.

The net proceeds from the initial borrowing under the Term Loan Facility were approximately $414.7 million, after giving effect to original issue discount of approximately $2.1 million and transaction costs of approximately $8.2 million. As described below, the net proceeds from the original borrowing under the Term Loan Facility were primarily used to pay the redemption price for all of the outstanding 7-5/8% senior secured notes. The net proceeds from the incremental 2016 borrowing under the Term Loan Facility were approximately $341.6 million after giving effect to original issue discount of approximately $0.9 million and transaction costs of approximately $7.5 million, which consisted of $1.8 million in non-capitalizable costs charged to interest expense and $5.7 million of debt issuance costs. As described below, a portion of the net proceeds from the incremental borrowing under the Term Loan Facility were used to pay the redemption price for all of the remaining outstanding 7¼% Senior Notes. Most of the remaining proceeds were used to acquire Krestmark as described in Note 4.

ABL Revolver — Since entering into the ABL Revolver, Headwaters has not borrowed any funds under the arrangement and has no borrowings outstanding as of September 30, 2016. Availability under the ABL Revolver cannot exceed $70.0 million, which includes a $35.0 million sub‑line for letters of credit and a $10.5 million swingline facility. Availability under the ABL Revolver is further limited by the borrowing base valuations of the assets of Headwaters’ building products and construction materials segments which secure the borrowings, currently consisting of certain trade receivables and inventories. In addition to the first lien position on these assets, the ABL Revolver lenders have a second priority position on substantially all other assets of Headwaters.

As of September 30, 2016, Headwaters had secured letters of credit under the ABL Revolver of approximately $8.6 million for various purposes and had availability under the ABL Revolver of approximately $59.4 million. The ABL Revolver terminates in March 2020. There is a contingent provision for early termination at any time within three months prior to the earliest maturity date of the senior secured Term Loan Facility at which time any amounts borrowed must be repaid.

Outstanding borrowings under the ABL Revolver accrue interest at Headwaters’ option, at either i) the London Interbank Offered Rate (LIBOR) plus 1.5%, 1.75% or 2.0%, depending on Headwaters’ average net excess availability under the ABL; or ii) the “Base Rate” plus 0.25%, 0.5% or 0.75%, again depending on average net excess availability. The base rate is subject to a floor equal to the highest of i) the prime rate, ii) the federal funds rate plus 0.5%, and iii) the 30-day LIBO rate plus 1.0%. Fees on the unused portion of the ABL Revolver range from 0.25% to 0.375%, depending on the amount of the credit facility which is utilized. If there would have been borrowings outstanding under the ABL Revolver as of September 30, 2016, the interest rate on those borrowings would have been approximately 2.4%.

The ABL Revolver contains restrictions and covenants common to such agreements, including limitations on the incurrence of additional debt and liens on assets, prepayment of subordinated debt, merging or consolidating with another company, selling assets, making acquisitions and investments and the payment of dividends or distributions, among other things. In addition, if availability under the ABL Revolver is less than 12.5%, Headwaters is required to maintain a monthly fixed charge coverage ratio of at least 1.0x for the preceding twelve‑ month period. Headwaters was in compliance with all covenants as of September 30, 2016.

7¼% Senior Notes — In December 2013, Headwaters issued $150.0 million of 7¼% senior notes. Pursuant to open market transactions during the March 2016 quarter, Headwaters repurchased and cancelled approximately $3.75 million of the 7¼% senior notes. In July 2016, Headwaters redeemed $47.25 million of these notes at a redemption price equal to 103.625% of the principal amount. In September 2016, Headwaters redeemed the remaining $99.0 million of the notes at a redemption price equal to 103.625% of the principal amount. The associated premiums and accelerated debt issue costs for all of the transactions, aggregating approximately $7.0 million, were charged to interest expense.

7-5/8% Senior Secured Notes — In 2011, Headwaters issued $400.0 million of 7-5/8% senior secured notes. In March 2015, Headwaters irrevocably deposited with the trustee of the notes an amount sufficient to pay and discharge all obligations under the notes and the related indenture, which discharge the trustee acknowledged. This discharge resulted in a loss on extinguishment of debt of approximately $21.3 million, comprised of the early repayment premium of approximately $15.3 million, interest to the April 2015 redemption date totaling approximately $2.5 million, and accelerated amortization of unamortized debt issue costs of approximately $3.5 million. The loss on debt extinguishment is reflected as interest expense in Headwaters’ statement of income for 2015.

Convertible Senior Subordinated Notes — Pursuant to open market transactions in February 2015, Headwaters repurchased and canceled substantially all of the outstanding 8.75% convertible senior subordinated notes, aggregating approximately $49.0 million. Premiums and accelerated amortization of debt discount and debt issue costs aggregating approximately $3.5 million were paid and charged to interest expense.

Headwaters’ Chairman and CEO was a holder of $1.16 million of the 8.75% notes, which holding was purchased in the open market. Due to immateriality, the remaining balance of these convertible notes was included with other accrued liabilities in the consolidated balance sheet as of September 30, 2015. The notes matured in the March 2016 quarter in normal course and were repaid.

Interest Costs and Debt Maturities — During 2014, Headwaters incurred total interest costs of approximately $46.9 million, including approximately $2.2 million of non‑cash interest expense. During 2015, Headwaters incurred total interest costs of approximately $64.9 million, including approximately $6.2 million of non-cash interest expense. During 2016, Headwaters incurred total interest costs of approximately $43.3 million, including approximately $4.0 million of non-cash interest expense. As described above, approximately $21.3 million and $7.0 million of interest expense incurred in 2015 and 2016, respectively resulted from the early repayment of the 7-5/8% senior secured notes and the 7¼% senior notes. In 2016, there was also approximately $3.1 million of non-routine interest expense associated with other debt transactions. Neither capitalized interest nor interest income was material for any period presented.

The weighted-average interest rate on the face amount of outstanding long-term debt, excluding amortizable debt discount and debt issue costs, was approximately 5.2% at September 30, 2015 and 4.0% at September 30, 2016. Except for the required repayments of the Term Loan Facility of approximately $1.9 million per quarter, Headwaters has no debt maturities until March 2022.

Future maturities of long-term debt as of September 30, 2016 are shown in the following table:


Year Ended September 30,	(in thousands)
2017	$	7,785
2018		7,785
2019		7,785
2020		7,785
2021		7,785
Thereafter		729,879
Total long-term debt	$	768,804