Debt and Credit Lines

Amounts due banks consist of the following debt obligations that are due within the next twelve months:



(Dollars in millions)	May 31, 2014		November 30, 2013
$200 million Term Loan B – current portion (interest at 4.25%)	$	2.0	$	2.0
Foreign subsidiaries borrowings (interest at 11.5% - 12.9%)	2.0		2.6
Total	$	4.0	$	4.6

The Company has borrowing facilities at certain of its foreign subsidiaries in India and Thailand, which consist of working capital credit lines and facilities for the issuance of letters of credit. Borrowings by foreign subsidiaries are unsecured and totaled $2.0 million at May 31, 2014 and $2.6 million at November 30, 2013. As of May 31, 2014, total borrowing capacity for foreign working capital credit lines and letters of credit were $25.3 million, of which $2.0 million was utilized as borrowings and $3.0 million was utilized as letters of credit issued.

Note K – Debt and Credit Lines (continued)

The Company’s long-term debt consists of the following:



(Dollars in millions)	May 31, 2014			November 30, 2013
$200 million Term Loan B (interest at 4.25%)	$	193.0		$	194.0
Senior Unsecured Notes (interest at 7.875%)	250.0			250.0
Capital Lease obligations	3.0			3.0
Senior Revolving Credit Facility (interest at 1.90%)	—			—
	446.0			447.0
Less: current portion	(2.0		)	(2.0		)
Unamortized original issue discount	(.8		)	(1.0		)
Total Long-Term Debt, net of current portion	$	443.2		$	444.0

Senior Unsecured Notes

The Senior Unsecured Notes ("Senior Notes") have a face value of $250 million with a 7.875% interest rate which is payable semi-annually. The Senior Notes mature on November 1, 2018 and are unsecured. The Company may redeem the outstanding Senior Notes anytime after October 31, 2014 at a premium above par, subject to certain restrictions. The Senior Notes are fully and unconditionally and jointly and severally guaranteed on a senior, unsecured basis by all of OMNOVA Solutions Inc.’s existing and future material U.S. subsidiaries that from time to time guarantee obligations under the Company’s Senior Notes.

Term Loan

The Company also has a $200 million Term Loan (“Term Loan”) (balance of $193.0 million on May 31, 2014). The Term Loan matures May 31, 2018. The Term Loan is secured by all real property, plant and equipment of the Company's U.S. facilities and guaranteed by the material U. S. subsidiaries of the Company. The Term Loan carries a variable interest rate based on, at the Company’s option, either a eurodollar rate or a base rate, in each case plus an applicable margin. The eurodollar rate is a periodic fixed rate equal to the London Inter Bank Offered Rate (“LIBOR”) subject to a floor of 1.25%. The applicable margin for the eurodollar rate is 3.0%. The base interest rate is a fluctuating rate equal to the higher of (i) the Prime Rate, (ii) the sum of the Federal Funds Effective Rate plus 0.50% or (iii) the one-month eurodollar rate plus 1.0%. The applicable margin for the base rate is 2.0%. Annual principal payments consist of $2.0 million, due in quarterly installments, and potential annual excess free cash flow payments as defined in the Term Loan agreement, with any remaining balance to be paid on May 31, 2018. The Company does not expect to make any annual excess free cash flow payments during 2014. The Company can prepay any amount at anytime without penalty upon proper notice and subject to a minimum dollar requirement. Prepayments will be applied towards any required annual excess free cash flow payment.

Additionally, the Term Loan provides for additional borrowings of the greater of $75 million or an amount based on a senior secured leverage ratio, as defined in the Term Loan, provided that certain requirements are met. The Term Loan contains affirmative and negative covenants, including limitations on additional debt, certain investments and acquisitions outside of the Company’s line of business. The Term Loan requires the Company to maintain an initial senior secured net leverage ratio of less than 3.25 to 1, which decreases annually by 25 basis points through December 1, 2014 and then remains at 2.5 to 1 thereafter. The Company is in compliance with this covenant with a senior secured net leverage ratio of .7 to 1 at May 31, 2014. The Company’s EBITDA, as defined in the Term Loan for covenant purposes, was $94.1 million for the last twelve months ended May 31, 2014 which provided a cushion of approximately $69.0 million for covenant measurement purposes.

The Company issued the Term Loan at a discount of $2.0 million, receiving cash of $198 million. This original issue discount is reflected as a reduction of debt outstanding and is being amortized over the respective term of the debt as a non-cash component of interest expense.

Note K – Debt and Credit Lines (Continued)

Senior Revolving Credit Facility

The Company also has a Senior Secured Revolving Credit Facility (“Facility”) with a potential availability of $100 million, which can be further increased up to $150 million subject to additional borrowing base assets and lender approval. The Facility matures December 9, 2017. The Facility is secured by U.S. accounts receivable, inventory (collectively the “Eligible Borrowing Base”) and intangible assets. Availability under the Facility will fluctuate depending on the Eligible Borrowing Base and is determined by applying customary advance rates to the Eligible Borrowing Base. The Facility includes a $15 million sublimit for the issuance of commercial and standby letters of credit and a $10 million sublimit for swingline loans. Outstanding letters of credit on May 31, 2014 were $2.7 million. The Facility contains affirmative and negative covenants, similar to the Term Loan, including limitations on additional debt, certain investments and acquisitions outside of the Company’s line of business. If the average excess availability of the Facility falls below $25 million during any fiscal quarter, the Company must then maintain a fixed charge coverage ratio greater than 1.1 to 1 as defined in the agreement. Average excess availability is defined as the average daily amount available for borrowing under the Facility during the Company’s fiscal quarter. The Company was in compliance with this requirement as the average excess availability did not fall below $25 million during the second quarter of 2014 and averaged $78.0 million.

Advances under the Facility bear interest, at the Company’s option, at either an alternate base rate or a eurodollar rate, in each case plus an applicable margin. The alternate base interest rate is a fluctuating rate equal to the higher of the prime rate or the sum of the federal funds effective rate plus 0.50%. The eurodollar rate is a periodic fixed rate equal to LIBOR. Applicable margins are based on the Company’s average daily excess availability during the previous fiscal quarter. If average excess availability is greater than or equal to $50 million, the applicable margin will be 1.75% on eurodollar loans and 0.75% on base rate borrowings. If average excess availability is greater than or equal to $25 million but less than $50 million, the applicable margin will be 2.0% on eurodollar loans and 1.0% on base rate borrowings. If average excess availability is less than $25 million, the applicable margin will be 2.25% on eurodollar loans and 1.25% on base rate borrowings. The commitment fee for unused credit lines will be 0.25% if outstanding borrowings on the Facility are greater than or equal to 50% of the maximum revolver amount and 0.375% if outstanding borrowings are less than 50% of the maximum revolver amount.

At May 31, 2014, the Company had $128.3 million of eligible inventory and receivables to support the borrowing base which is capped at $100 million under the Facility. At May 31, 2014, letters of credit outstanding under the Facility were $2.7 million, there were no amounts borrowed under the Facility and the amount available for borrowing under the Facility was $87.8 million.

The weighted-average interest rate on the Company’s debt was 6.29% and 6.34% during the second quarters of 2014 and 2013, respectively.

Capital Lease Obligations

At May 31, 2014, the Company has one asset under capital lease totaling $3.0 million, which is included in land.

The following is a schedule by year of future minimum lease payments for this capital lease together with the present value of the net minimum lease payments as of May 31, 2014.



Year Ending November 30:	(Dollars in millions)
2017	$	.2
2018	.2
2019	.2
Thereafter	3.4
Total minimum lease payments	4.0
Less: Amount representing estimated executory costs	(.1		)
Net minimum lease payments	3.9
Less: Amount representing interest	(.9		)
Present value of minimum lease payments	$	3.0

Note K – Debt and Credit Lines (Continued)

Additionally, in November 2013, the Company entered into a financing lease with the Cleveland Port Authority for its future corporate headquarters building. The lease is effective upon the completion of construction of the building, which is expected to be completed during the fourth quarter of 2014. During the construction period, the Company will recognize construction costs as they are incurred as increases in property, plant and equipment with an offsetting current liability. Total costs incurred through May 31, 2014 are $4.8 million. At the end of the construction period, the Company will recognize the current liability as a financing lease and record the minimum present value of the lease payments, which is currently estimated to be approximately $14.0 million.

Deferred Financing Fees

Deferred financing costs and original issue discounts incurred in connection with the issuance of the Company's debt are being amortized over the respective terms of the underlying debt, including any amendments. Total amortization expense of deferred financing costs and original issue discounts was $0.5 million and $0.6 million for the second quarters of 2014 and 2013, respectively and $1.2 million for each of the first halves of 2014 and 2013.