Debt

9 Months Ended

Sep. 30, 2012

Debt

Debt

Note 5.  Debt

Long-term debt consisted of the following:

	September 30, 2012		December 31, 2011
Senior Notes (7.375% fixed rate) due November 2014	$	148.0	$	158.0
Revolving bank credit facility (variable rates) due November 2015	27.8		—
Neenah Germany project financing (3.8% fixed rate) due in 16 equal semi-annual installments ending December 2016	7.3		8.1
Neenah Germany revolving lines of credit (variable rates)	—		20.1
Total debt	183.1		186.2
Less: Debt payable within one year	1.6		21.7
Long-term debt	$	181.5	$	164.5

Unsecured Notes

On September 30, 2012, the Company had $148 million of ten-year 7.375% senior unsecured notes, originally issued on November 30, 2004 (the “Senior Notes”) outstanding.  A description and history of the Senior Notes is as follows:

·Original Issuance.  On November 30, 2004, the Company issued $225 million aggregate principal amount of Senior Notes. Interest on the Senior Notes is payable May 15 and November 15 of each year. The Senior Notes are fully and unconditionally guaranteed by substantially all of the Company’s subsidiaries, with the exception of our non-Canadian international subsidiaries.

·Covenants. The Senior Notes contain terms, covenants and events of default with which the Company must comply, which the Company believes are ordinary and standard for notes of this nature.  Among other things, the Senior Notes contain covenants restricting our ability to incur certain additional debt, make specified restricted payments, pay dividends, authorize or issue capital stock, enter into transactions with our affiliates, consolidate or merge with or acquire another business, sell certain of our assets or liquidate, dissolve or wind-up the Company.

·First Open Market Purchases.  During the three months ended September 30, 2010, the Company completed open market purchases of $2 million aggregate principal amount of the Senior Notes for slightly less than par value.

·First Early Redemption.  On March 10, 2011, the Company completed an early redemption of $65 million in aggregate principal amount of the Senior Notes (the “First Early Redemption”).  For the nine months ended September 30, 2011, the Company recognized a pre-tax loss, including the write-off of related unamortized debt issuance costs, of approximately $2.4 million in connection with the First Early Redemption.

·Second Early Redemption. On April 23, 2012, the Company redeemed $10 million in aggregate principal amount of the Senior Notes (the “Second Early Redemption”).  The Second Early Redemption was financed with available secured revolving credit facility borrowings.  For the nine months ended September 30, 2012, the Company recognized a pre-tax loss, including the write-off of related unamortized debt issuance costs, of approximately $0.2 million in connection with the Second Early Redemption.

·Third Early Redemption. On October 16, 2012, the Company announced that it has elected to conduct an early redemption (the “Third Early Redemption”) of $58 million of its Senior Notes. The Senior Notes will be purchased at par value on November 15, 2012. The Third Early Redemption will be financed by a combination of borrowings using the Company’s revolving credit facility and a new $30 million term loan. As of September 30, 2012 there were $148 million of Senior Notes outstanding.

·Redemption Rights/Open Market Purchases.  During the 12-month period commencing on November 15, 2011 and ending on November 14, 2012, the Company may redeem all or any portion of the Senior Notes at 101.229 percent of the principal amount plus accrued and unpaid interest.  Commencing on or after November 15, 2012, the Company may redeem all or any portion of the Senior Notes at 100 percent of the principal amount plus accrued and unpaid interest.  From time-to-time, the Company may either redeem or repurchase on the open market its Senior Notes.  The Company’s ability to either redeem or repurchase its Senior Notes is limited under the terms of its secured revolving credit facility.

Secured Revolving Credit Facility

Second Amended Credit Agreement.  On October 11, 2012, the Company amended and extended its credit facility by entering into a Second Amended and Restated Credit Agreement (the “Second Amended Credit Agreement”) by and among the Company and certain of its subsidiaries as co-borrowers, the financial institutions signatory to the Second Amended Credit Agreement as lenders, and JPMorgan Chase Bank, N.A., as agent for the lenders.

The Second Amended Credit Agreement, among other things: (i) extends the term of the prior credit facility by two years; (ii) increases the revolving credit commitment from $95 million to $105 million; (iii) adds a $30 million deferred draw term loan commitment (the “Term Loan”), borrowings which the Company will use to redeem a portion of its Senior Notes, (iv) reduces certain interest rates and fees payable on revolving credit borrowings; (v) removes Neenah Paper Company of Canada (“Neenah Canada”) as a Guarantor (as defined in the prior credit agreement) and releases liens and security interests previously granted by Neenah Canada; and (vi) makes certain definitional, administrative and covenant changes.  The revolving credit commitment includes a $10 million sublimit for letters of credit.

The Term Loan may be drawn in a single draw prior to November 30, 2012, and is subject to certain borrowing conditions.  Once drawn, the principal balance of the Term Loan is repayable in quarterly installments beginning on March 31, 2013.  Both the revolving credit commitment and the Term Loan mature on November 30, 2017 (or on August 15, 2014, if by that date the Senior Notes have not been redeemed, repurchased, defeased or repaid in full, or extended or refinanced to a date at least 90 days after November 30, 2017).

Amended Credit Agreement.  As of September 30, 2012, the Company had a $95 million secured revolving credit facility (the “Revolver”) pursuant to its amended credit agreement dated as amended on November 16, 2011 (the “Amended Credit Agreement”). As of September 30, 2012, the weighted-average interest rate on outstanding Revolver borrowings was 2.9 percent per annum.  Borrowing availability under the Revolver is reduced by outstanding letters of credit and reserves for certain other items as defined in the Amended Credit Agreement. As of September 30, 2012, the Company had $27.8 million of Revolver borrowings outstanding, approximately $0.7 million of outstanding letters of credit and other items, and $66.5 million of available credit under the Revolver.

As of September 30, 2012, the Amended Credit Agreement had the following general terms and conditions:

·Borrowing Limit.  The Company’s ability to borrow under the Revolver was limited to the lowest of (a) $95 million; (b) the Company’s borrowing base (as determined in accordance with the Amended Credit Agreement) and (c) the applicable cap on the amount of “credit facilities” under the indenture for the Senior Notes. Under certain conditions, the Company had the ability to increase the size of the Revolver to $150 million. The total commitment under the Amended Credit Agreement could not exceed $150 million.

·Term and Security.  The Amended Credit Agreement would terminate on November 30, 2015 (or on August 31, 2014 if the Senior Notes had not been repurchased, defeased, refinanced or extended as of such date). The Amended Credit Agreement was secured by substantially all of the assets of the Company and the subsidiary borrowers. Neenah Germany was not obligated with respect to the Amended Credit Agreement, either as a borrower or a guarantor.

·Interest Rate.  The Revolver bore interest at either (1) a prime rate-based index plus a percentage ranging from 0.75 percent to 1.00 percent, or (2) LIBOR plus a percentage ranging from 2.25 percent to 2.50 percent, depending upon the amount of borrowing availability under the Revolver.  The Company was also required to pay a monthly facility fee on the unused amount of the Revolver commitment at a per annum rate ranging between 0.375 percent and 0.50 percent, depending upon usage under the Revolver.

·Terms, Covenants and Events of Default.  The Amended Credit Agreement contained terms, covenants and events of default with which the Company must comply, which the Company believed were ordinary and standard for agreements of this nature.  Among other things, such covenants restricted the Company’s ability to incur certain additional debt, make specified restricted payments, authorize or issue capital stock, enter into transactions with affiliates, consolidate or merge with or acquire another business, sell certain of its assets, or dissolve or wind up.    In addition, if borrowing availability under the Amended Credit Agreement was less than $20 million, the Company was required to achieve a fixed charge coverage ratio (as defined in the Amended Credit Agreement) of not less than 1.1 to 1.0 for the preceding 12-month period, tested as of the end of such quarter.  As of September 30, 2012, borrowing availability under the Amended Credit Agreement was $66.5 million and the Company was not required to comply with the fixed charge coverage ratio.  The Company’s ability to pay cash dividends on its common stock was limited under the terms of both the Amended Credit Agreement and the Senior Notes. At September 30, 2012, under the most restrictive terms of these agreements, the Company’s ability to pay cash dividends on its common stock was limited to a total of $8 million in a 12-month period.

·Stock Repurchases.  The Amended Credit Agreement allowed the Company to repurchase (1) up to $15 million of its own stock on or before December 31, 2012, and (2) up to an additional $10 million of its stock annually thereafter during the term of the Amended Credit Agreement, subject to the terms and conditions contained in the Amended Credit Agreement.

Other Debt

German Project Financing

German Loan Agreement.  In December 2006, Neenah Germany entered into a 10-year agreement with HypoVereinsbank and IKB Deutsche Industriebank AG to provide €10.0 million of project financing (the “German Loan Agreement”). As of September 30, 2012, €5.6 million ($7.3 million, based on exchange rates at September 30, 2012) was outstanding under the German Loan Agreement.

German Lines of Credit

HypoVereinsbank Line of Credit.  Neenah Germany has a revolving line of credit with HypoVereinsbank (the “HypoVereinsbank Line of Credit”) that provides for borrowings of up to €15 million for general corporate purposes. As of December 31, 2011, the weighted-average interest rate on outstanding HypoVereinsbank Line of Credit borrowings was 3.8 percent per annum. As of September 30, 2012, no amounts were outstanding under the HypoVereinsbank Line of Credit and €15.0 million ($19.3 million, based on exchange rates at September 30, 2012) of credit was available.

Commerzbank Line of Credit.  In January 2011, Neenah Germany entered into an agreement with Commerzbank AG (“Commerzbank”) to provide up to €3.0 million of unsecured revolving credit borrowings for general corporate purposes (the “Commerzbank Line of Credit”).  In February 2012, the Company and Commerzbank amended the Commerzbank Line of Credit to provide up to €5.0 million of unsecured revolving credit borrowings.  As of December 31, 2011, the weighted average interest rate on Commerzbank Line of Credit borrowings was 3.6 percent per annum. As of September 30, 2012, no amounts were outstanding under the Commerzbank Line of Credit and €5.0 million ($6.5 million, based on exchanges rates at September 30, 2012) of credit was available.

Restrictions under German Credit Facilities

Neenah Germany’s ability to pay dividends or transfer funds to the Company is limited under the terms of both the HypoVereinsbank and Commerzbank lines of credit, to not exceed certain limits defined in the agreements without approval from the lenders or repayment of the amount outstanding under the lines of credit.  In addition, the terms of the HypoVereinsbank and Commerzbank lines of credit require Neenah Germany to maintain a ratio of stockholder’s equity to total assets equal to or greater than 45 percent. The Company was in compliance with all provisions of the HypoVereinsbank and Commerzbank lines of credit as of September 30, 2012.