Long-Term Debt

Credit Arrangements

At October 18, 2013, the Company entered into a new senior secured credit agreement providing (i) a $670 million Term Loan B facility, (ii) a $155 million Term Loan C facility and (iii) a $100 million revolving credit facility to replace the Company's existing credit facilities. See Note 18 for additional information.

At September 30, 2013, the Company’s credit arrangements included a senior secured credit agreement providing (i) a $200 million Term Loan A facility, (ii) a $550 million Term Loan B facility and (iii) a $110 million revolving credit facility (collectively, the “Credit Agreement”), and $325 million aggregate principal amount of 11.5% Senior Notes due 2018 (the “Senior Notes”). The Credit Agreement’s revolving credit facility also included borrowing capacity available for letters of credit and for borrowings on same-day notice, referred to as swing line loans.

As of September 30, 2013 and December 31, 2012, the Company’s long-term debt consisted of the following (in thousands):



	September 30, 2013			December 31, 2012
Credit Agreement:
Term Loan A, maturing August 17, 2015	$	118,750		$	143,750
Term Loan B, maturing August 17, 2016	466,432			466,432
11.5% Senior Notes due 2018	325,000			325,000
Total debt	910,182			935,182
Less: current portion of long-term debt	(18,750		)	(25,000		)
Total long-term debt	$	891,432		$	910,182

As of September 30, 2013, advances under the revolving credit facility could be made, and letters of credit could be issued, up to the $110 million borrowing capacity of the facility at any time prior to the facility expiration date of August 17, 2015. Outstanding letters of credit were $49.1 million and $45.4 million at September 30, 2013 and December 31, 2012, respectively. The letters of credit were issued to guarantee payments under the Company’s workers’ compensation program and for certain other commitments. As of September 30, 2013, the Company’s unused and available borrowing capacity under the Credit Agreement was $60.9 million.

The interest rate per annum on borrowings under the Credit Agreement was based on, at the option of the Company, (i) the Eurodollar Rate or (ii) the Base Rate, plus an Applicable Rate. The Base Rate represented the highest of (x) the Bank of America prime rate, (y) the federal funds rate plus 0.50 percent or (z) the Eurodollar Rate plus 1.00 percent. In determining the interest rates on the Term Loan A and Term Loan B facilities, in no event would the Eurodollar Rate be less than 1.25 percent and the Base Rate be less than 2.25 percent. The Applicable Rate component of the interest rate under the Company's Credit Agreement was based on the Company's consolidated leverage ratio as follows:



	Applicable Rates
	Revolving Credit Facility and Letter of Credit Fees		Term Loan A		Term Loan B
Consolidated Leverage Ratio	Eurodollar Rate	Base Rate	Eurodollar Rate	Base Rate	Eurodollar Rate	Base Rate
≥ 3.0:1	5.00%	4.00%	5.00%	4.00%	5.25%	4.25%
≥ 2.0:1 and < 3.0:1	4.50%	3.50%	4.75%	3.75%	5.25%	4.25%
< 2.0:1	4.00%	3.00%	4.50%	3.50%	5.25%	4.25%

The Company could select interest periods of one, two, three or six months for Eurodollar Rate loans, with interest being payable at the end of the selected interest period. From March 10, 2011 through March 5, 2012, the interest rate on Term Loan A borrowings was 4.50 percent and on Term Loan B borrowings was 4.75 percent. Subsequent to March 5, 2012, the interest rate on Term Loan A borrowings was 6.25 percent and on Term Loan B borrowings was 6.50 percent. The Company also paid a fee of 0.50 percent per annum on unused commitments under the revolving credit facility.

The Company could voluntarily repay outstanding loans under the revolving credit facility or Term Loan A at any time without premium or penalty, other than customary “breakage” costs with respect to LIBOR loans. Prepayment and commitment reductions were required with (i) certain asset sales, (ii) certain extraordinary receipts such as certain insurance proceeds, (iii) cash proceeds from the issuance of debt, (iv) 50 percent of the proceeds from the issuance of equity with step-downs based on leverage, with certain exceptions, and (v) 75 percent of “Excess Cash Flow” (as defined in the Credit Agreement) with two step-downs based on the Company’s leverage ratio.

As of September 30, 2013, the mandatory aggregate principal payments of long-term debt were $18.8 million due during the twelve months ending September 30, 2014, $100.0 million due during the twelve months ending September 30, 2015 and $466.4 million due during the twelve months ending September 30, 2016 under the Credit Agreement, and $325.0 million thereafter under the Senior Notes. The weighted average cash interest rate on outstanding borrowings was 8.3 percent per annum at September 30, 2013 and 8.2 percent per annum at December 31, 2012.

The Term Loan A facility was subject to mandatory principal payments of $25 million per year, payable in equal quarterly installments, with the remaining balance of the original $200 million loan payable on August 17, 2015. On February 28, 2013, the Company made a prepayment on its Term Loan A facility of $25.0 million. As a result of this prepayment, there were no required payments on the Company's Term Loan A facility until the first quarter of 2014, at which time $6.3 million would have been payable and for each quarter thereafter. The Company performed the calculation of "Excess Cash Flow" as defined in the Credit Agreement and met the requirement following the prepayment of $25 million noted above.

The Term Loan B facility was subject to mandatory principal payments of $13.8 million per year, payable in equal quarterly installments. As a result of prepayments the Company made, there were no required payments on the Company’s Term Loan B facility until August 17, 2016, at which time a payment of the outstanding balance of $466.4 million would have been required.

On March 6, 2012, the Company entered into Amendment No. 3 to the Credit Agreement. In connection with the amendment, the Company incurred costs of approximately $5.3 million. Approximately $4.1 million of these costs were capitalized and are being amortized over the remaining life of the debt using an effective interest rate.

Debt Covenants

The Credit Agreement contained a number of covenants that, among other things, restricted, subject to certain exceptions, the Company’s and its subsidiaries’ ability to incur additional indebtedness or issue certain preferred stock, create liens on assets, enter into sale and leaseback transactions, engage in mergers or consolidations with other companies, sell assets, pay dividends, repurchase capital stock, make investments, loans and advances, make certain acquisitions, engage in certain transactions with affiliates, amend material agreements, repay certain indebtedness, change the nature of the Company’s business, change accounting policies and practices, grant negative pledges and incur capital expenditures. The Credit Agreement also contained certain customary affirmative covenants and events of default. As of September 30, 2013, the Company was in compliance with all covenants in the Credit Agreement.

Gentiva’s permitted maximum consolidated leverage ratio and minimum consolidated cash interest coverage ratio is set forth in the following table:



Four Fiscal Quarters Ending	Maximum Consolidated Leverage Ratio
March 31, 2013 to September 30, 2014	≤ 6.25:1
Each fiscal quarter thereafter	≤ 5.75:1
Four Fiscal Quarters Ending	Minimum Consolidated Cash Interest Coverage Ratio
March 31, 2013 to June 30, 2013	≥ 2.00:1
September 30, 2013 to June 30, 2014	≥ 1.75:1
Each fiscal quarter thereafter	≥ 2.00:1

As of September 30, 2013, the Company’s consolidated leverage ratio was 5.5x and the Company’s cash interest coverage ratio was 2.2x.

Guaranty Agreement and Security Agreement

Gentiva and substantially all of its subsidiaries (the “Guarantor Subsidiaries”) entered into a guaranty agreement pursuant to which the Guarantor Subsidiaries agreed, jointly and severally, fully and unconditionally to guarantee all of the Company’s obligations under the Credit Agreement. Additionally, Gentiva and its Guarantor Subsidiaries entered into a security agreement pursuant to which a first-priority security interest was granted in substantially all of the Company’s and its Guarantor Subsidiaries’ present and future real, personal and intangible assets, including the pledge of 100 percent of all outstanding capital stock of substantially all of the Company’s domestic subsidiaries to secure full payment of all of the Company’s obligations for the ratable benefit of the lenders. See Note 17 for more information.

Senior Notes

The Senior Notes are unsecured, senior subordinated obligations of the Company. The Senior Notes are guaranteed by all of Gentiva’s subsidiaries that were guarantors under the Credit Agreement and will be secured by all of Gentiva's subsidiaries that are guarantors under the new credit agreement. Interest on the Senior Notes accrues at a rate of 11.5 percent per annum and is payable semi-annually in arrears on March 1 and September 1. Gentiva will make each interest payment to the holders of record on the immediately preceding February 15 and August 15.

The Senior Notes mature on September 1, 2018 and are generally free to be transferred. Gentiva may redeem the Senior Notes, in whole or in part, at any time prior to the first interest payment of 2014, at a price equal to 100 percent of the principal amount of the Senior Notes redeemed plus an applicable make-whole premium based on the present value of the remaining payments discounted at the treasury rate plus 50 basis points plus accrued and unpaid interest, if any, to the date of redemption. In addition, prior to September 1, 2013, Gentiva may redeem up to 35 percent of the aggregate principal amount of the Senior Notes with the net cash proceeds of a qualified equity offering at a redemption price equal to 111.5 percent of the aggregate principal amount, provided that (i) at least 65 percent of the aggregate principal amount of Senior Notes originally issued remain outstanding after the occurrence of such redemption and (ii) such redemption occurs within 180 days after the closing of a qualified equity offering.

On or after September 1, 2014, Gentiva may redeem all or part of the Senior Notes at redemption prices set forth below plus accrued and unpaid interest and Additional Interest, if any, as defined in the indenture relating to the Senior Notes during the twelve month period beginning on September 1 of the years indicated below:



Year	Redemption Percentage
2014	105.750%
2015	102.875%
2016 and thereafter	100.000%