3. Long-Term Debt

Long-term debt consisted of the following (in thousands):

	June 30,		December 31,
	2013		2012
Guitar Center
Senior secured asset-based revolving facility	$	138,000	$	—
Senior secured term loan	619,125		621,762
Obligations under capital leases, payable in monthly installments through 2014 and 2013, respectively	397		54
Senior unsecured notes	394,890		394,890
	1,152,412		1,016,706
Less current portion	6,761		5,941
Guitar Center long-term debt, net of current portion	1,145,651		1,010,765

Holdings
Senior unsecured PIK notes	434,889		564,673
Less current portion	—		129,784
Holdings long-term debt, net of current portion	434,889		434,889

Holdings consolidated long-term debt, net of current portion	$	1,580,540	$	1,445,654

Guitar Center long-term debt as of June 30, 2013 consisted of (1) a senior secured asset-based revolving facility, referred to as the asset-based facility, with a maximum availability of $373 million, (2) a senior secured term loan facility, referred to as the term loan, with an initial aggregate principal amount of $650 million and (3) senior unsecured notes, referred to as the senior notes, with an initial aggregate principal amount of $375 million.

Holdings long-term debt as of June 30, 2013 consisted of senior unsecured payment-in-kind notes, referred to as the senior PIK notes, with an initial aggregate principal amount of $375 million.

Asset-based facility

As of June 30, 2013 we had $138.0 million of borrowings outstanding on the asset-based facility at a weighted average interest rate of 3.0%.

The available borrowing base is calculated monthly based on specified percentages of the value of eligible inventory, credit card receivables and trade receivables. As of June 30, 2013, the borrowing base was $318 million, which supported $138 million of outstanding borrowings, $9 million of outstanding letters of credit and $171 million of availability. During the first half of 2013, our daily average borrowings on the asset-based facility were $48.6 million.

Term loan modification

In June 2013, we reached an agreement with our lenders to modify certain terms of the term loan credit agreement. The amendments included the following:

· with respect to the $611.2 million of outstanding principal that matures in April 2017, increased the pricing margin over LIBOR from 525 basis points to 600 basis points and increased the pricing margin over prime rate from 425 basis points to 500 basis points;

· amended the time period for a 1.0% prepayment premium to apply to a prepayment or re-pricing transaction occurring within one year of the modification date; and

· amended the maximum consolidated secured net leverage ratio covenant as follows:

4.35x from April 1, 2013 through September 30, 2013

4.0x from October 1, 2013 through December 31, 2014

3.75x from January 1, 2015 through June 30, 2015

3.0x from July 1, 2015 through maturity.

Additionally, we were not required to test the secured net leverage ratio as a maintenance covenant for the fiscal quarter ended June 30, 2013.

We paid the lenders an aggregate of $2.9 million in arrangement and consent fees as part of the transactions. Fees paid to lenders were capitalized as debt issuance costs and are included in other assets, net in our condensed consolidated balance sheets. We amortize debt issuance costs to interest expense over the term of the related debts, using the effective interest method. Fees and expenses paid to third parties, totaling $0.2 million, were expensed and are included in selling, general and administrative expenses in our condensed consolidated statements of comprehensive loss.

Guarantees, dividend restrictions and covenants

Guitar Center’s term loan, asset-based facility and senior notes are guaranteed by substantially all of its subsidiaries. The subsidiary guarantors are 100% owned, all of the guarantees are full and unconditional and joint and several and Guitar Center, Inc. has no assets or operations independent from its subsidiaries within the meaning of Regulation S-X, Rule 3-10. Any non-guarantor subsidiaries are minor.

For information about dividend restrictions among Holdings, Guitar Center and its guarantor subsidiaries, see Note 5 to the audited consolidated financial statements included in our annual report on Form 10-K for the year ended December 31, 2012.

As of June 30, 2013, we were in compliance with all of our debt covenants.

Future maturities

Future maturities of long-term debt as of June 30, 2013 were as follows (in thousands):

	Guitar Center		Holdings		Holdings Consolidated
Remainder of 2013	$	21,073	$	—	$	21,073
2014	14,582		—		14,582
2015	6,500		—		6,500
2016	126,806		—		126,806
2017	983,451		—		983,451
2018	—		434,889		434,889
	$	1,152,412	$	434,889	$	1,587,301

The asset-based facility matures in October 2013 with respect to $50 million of the maximum borrowing amount and in February 2016 with respect to $323 million of the maximum borrowing amount. Of the $138 million outstanding borrowings as of June 30, 2013, $17.7 million matures in October 2013 and $120.3 million matures in February 2016. We expect to refinance any outstanding borrowings maturing in October 2013 with extended borrowing commitments maturing in February 2016. Accordingly, the entire outstanding balance on the asset-based facility is classified as long-term debt in our condensed consolidated balance sheets.