Debt

Short-term borrowings outstanding and the current portion of long-term debt and capital lease obligations at June 30, 2016 and September 30, 2015 are summarized below:



	Successor		Predecessor
	June 30, 2016		September 30, 2015
Short-term borrowings	$	41.0	$	34.9
Current portion of long-term debt and capital lease obligations	9.0		37.5
Total short-term borrowings and current portion of long-term debt and capital lease obligations, net	$	50.0	$	72.4

Long-term debt outstanding at June 30, 2016 and September 30, 2015 is summarized below:



	Successor			Predecessor
	June 30, 2016			September 30, 2015
New ABL Facility	$	131.1		$	—
New Term Loan Facility	655.0			—
Predecessor ABL Facility	—			85.5
Predecessor Term Loan Facility	—			647.2
Notes	—			159.2
Capital lease obligations ⁽¹⁾	25.2			12.7
Total long-term debt	811.3			904.6
Less: unamortized debt discount ⁽²⁾	(3.3		)	(3.6		)
Less: debt issuance costs⁽³⁾	(18.4		)	(9.1		)
Less: current portion of long-term debt and capital lease obligations	(9.0		)	(37.5		)
Long-term debt and capital lease obligations, less current portion, net	$	780.6		$	854.4


⁽¹⁾	Capital lease obligations exclude executory costs and interest payments associated with the underlying leases. See “Capital Lease Obligations” below.

⁽²⁾

At June 30, 2016, included $3.3 million of unamortized debt discount related to the New Term Loan Facility for the Successor. At September 30, 2015, included $1.9 million of unamortized debt discount related to the Predecessor’s Term Loan Facility, with the remainder related to the Notes. Debt discount is amortized to interest expense over the life of the respective instruments using the effective interest rate method.


⁽³⁾	See discussion below under New Term Loan Facility and Debt Issuance Cost Amortization and Note 2 related to the adoption of ASU 2015-03 and ASU 2015-15.

Short-Term Borrowings

Short-term borrowings are associated with the Company’s operations in China and are summarized below:



	Facility Limit		Outstanding Borrowings Balance		Weighted Average Interest Rate on Borrowings	Outstanding LOC and Bankers’ Acceptance Bills		Remaining Availability
June 30, 2016 - Successor
Bank of America - China ⁽¹⁾	$	28.8	$	27.2	3.7%	$	—	$	1.6
Bank of Communications - China ⁽²⁾	22.6		13.8		5.3%	8.5		0.3
Total	$	51.4	$	41.0		$	8.5	$	1.9


September 30, 2015 - Predecessor
Bank of America - China	$	23.8	$	23.0	3.5%	$	—	$	0.8
Bank of Communications - China	23.6		11.9		6.1%	7.1		4.6
Total	$	47.4	$	34.9		$	7.1	$	5.4


⁽¹⁾	The borrowing limit of this facility is denominated in U.S. dollars. This line of credit is secured by a standby letter of credit drawn on the New ABL Facility covering at least 110% of the facility’s borrowing limit amount. Borrowings under the line of credit are payable in full within 12 months of the date of the advance.


⁽²⁾	The borrowing limit of this facility is denominated in RMB. This line of credit is secured by a standby letter of credit drawn on the New ABL Facility covering at least 100% of the facility’s borrowing limit amount. Borrowings under the line of credit are payable in full within 12 months of the date of the advance.

In addition to the above lines of credit, Nexeo Plaschem has an arrangement through which it makes borrowings on a short-term basis, usually six months, by using its line of credit with the bank or by pledging the proceeds of its notes receivable. The borrowings under this arrangement are used to fund Nexeo Plaschem’s working capital requirements. At June 30, 2016 and September 30, 2015, there were no outstanding borrowings, no notes receivable pledged and no outstanding bankers’ acceptance bills issued to suppliers under this arrangement.

Nexeo Plaschem has another similar arrangement whereby it is able to pledge proceeds from its notes receivable in exchange for bankers’ acceptance bills issued to suppliers. No notes receivable were pledged under this arrangement at June 30, 2016 and September 30, 2015.

Long-Term Debt

New ABL Facility

On June 9, 2016, the ABL Borrowers entered into the New ABL Facility which provides for revolving credit financing including a U.S. Tranche of up to $505.0 million and a Canadian Tranche of up to the U.S. dollar equivalent of $40.0 million, and a FILO Tranche up to $30.0 million. Under the New ABL Facility, up to $50.0 million in the case of the U.S. Tranche and $10.0 million in the case of the Canadian Tranche may be short-term borrowings upon same-day notice, referred to as swingline loans. The New ABL Facility is unconditionally guaranteed, jointly and severally, by Holdings and its wholly-owned subsidiary, Sub Holding. Additionally, Solutions, Holdings and Sub Holding are also co-borrowers under the U.S. Tranche and the FILO Tranche of the New ABL Facility on a joint and several basis, and Nexeo Solutions Canada Corp. is the borrower under the Canadian Tranche. The New ABL Facility matures on June 9, 2021. Provided no default or event of default then exists or would arise therefrom, the ABL Borrowers have the option, at the beginning of each quarter, to request that the New ABL Facility be increased by an aggregate amount, when included with any incremental borrowings issued under the New Term Loan Facility, not to exceed $175.0 million.

The New ABL Facility includes a letter of credit sub-facility, which permits up to $200.0 million of letters of credit under the U.S. Tranche (which may be denominated in U.S. dollars, euros or other currencies approved by the administrative agent and the issuing bank) and up to the U.S. dollar equivalent of $10.0 million of letters of credit under the Canadian Tranche (which may be denominated in CAD only). The New ABL Facility also contains a FILO Tranche which can be used by any non-Canadian foreign subsidiary for loans or letters of credit up to an aggregate amount not to exceed $30.0 million.

Obligations under the New ABL Facility are also secured by a first priority lien on inventory and accounts receivable of the ABL Borrowers and a second priority lien on outstanding equity interests of Holdings and certain of its subsidiaries.

The amount of available credit changes every month, depending on the amount of eligible receivables and inventory the ABL Borrowers have available to serve as collateral. In general, the facility is limited to the lesser of (i) the aggregate commitment or (ii) the sum of (a) 90% of eligible accounts receivable, as defined, and (b) 85% of the orderly liquidation value of the eligible inventory and (c) 100% of cash and cash equivalents held in blocked accounts, as defined, maintained by the ABL Agent, for each ABL Borrower. Available credit for the U.S. and Canadian Tranches are calculated separately, and the borrowing base components are subject to customary reserves and eligibility criteria.

Borrowings under the U.S. Tranche and the Canadian Tranche of the New ABL Facility bear interest, at the ABL Borrowers’ option, at either an alternate base rate or Canadian prime rate, as applicable, plus an applicable margin (ranging from 0.25% to 0.75% pursuant to a grid based on average excess availability) or LIBOR or Canadian BA rate (as defined therein), as applicable, plus an applicable margin (ranging from 1.25% to 1.75% pursuant to a grid based on average excess availability). Loans under the FILO Tranche, within the New ABL Facility, bear interest at an alternate base rate plus an applicable margin (ranging from 1.00% to 1.50% pursuant to a grid based on average excess availability) or LIBOR plus an applicable margin (ranging from 2.00% to 2.50% pursuant to a grid based on average excess availability). In addition to paying interest on outstanding principal amounts under the New ABL Facility, the ABL Borrowers are required to pay a commitment fee in respect of the unutilized commitments, which commitment fee is 0.250% or 0.375% per annum and is determined based on average utilization of the New ABL Facility (increasing when utilization is low and decreasing when utilization is high). The ABL Borrowers are required to pay customary letters of credit fees.

The New ABL Facility requires that if the sum of (i) excess availability, as defined (for the ABL Borrowers) and (ii) the amount by which the then-current borrowing base exceeds the aggregate commitments under the New ABL Facility (for the ABL Borrowers) is less than the greater of (a) $40.25 million and (b) 10.0% of the Line Cap (as defined in the New ABL Facility), the ABL Borrowers shall comply with a minimum fixed charge coverage ratio of at least 1.0 to 1.0. In addition, the New ABL Facility contains negative covenants that restrict Holdings and its subsidiaries, including the ABL Borrowers from, among other things, incurring additional debt, granting liens, entering into guarantees, entering into certain mergers, making certain loans and investments, disposing of assets, prepaying certain debt, declaring dividends, modifying certain material agreements or changing the business it conducts.

The New ABL Facility also contains certain customary representations and warranties, affirmative covenants and events of default, including among other things payment defaults, breach of representations and warranties, covenant defaults, cross-defaults and cross-acceleration to certain indebtedness, certain events of bankruptcy, certain events under the Employee Retirement Income Security Act of 1974, as amended from time to time, material judgments, actual or asserted failure of any guaranty or security document supporting the New ABL Facility to be in full force and effect, and change of control. If such an event of default occurs, the lenders under the New ABL Facility are entitled to take various actions, including the acceleration of amounts due under the New ABL Facility and all actions permitted to be taken by a secured creditor.

The weighted average interest rate on borrowings under the New ABL Facility was 2.6% at June 30, 2016. Solutions had the U.S. dollar equivalent of $73.7 million in outstanding letters of credit under the New ABL Facility at June 30, 2016. The collective credit availability under the U.S. and Canadian Tranches of the New ABL Facility was $125.2 million at June 30, 2016. There was no availability under the FILO Tranche at June 30, 2016.

The ABL Borrowers’ accounts receivable and inventory in the U.S. and Canada are collateral under the New ABL Facility. These accounts receivable and inventory totaled $601.1 million in the aggregate as of June 30, 2016 for the Successor.

Fees paid to the lenders in connection with the New ABL Facility totaled $6.8 million and were recorded as debt issuance costs in Other non-current assets on the condensed consolidated balance sheets to be amortized as interest expense over the remaining term of the New ABL Facility. See Note 4.

As of June 30, 2016, the ABL Borrowers were in compliance with the covenants of the New ABL Facility.

New Term Loan Facility

On June 9, 2016, Neon Finance Company LLC (which was subsequently merged with and into Solutions) entered into a New Term Loan Facility that provides secured debt financing in an aggregate principal amount of up to $655.0 million and the right, at Solutions’ option, to request additional tranches of term loans in an aggregate principal amount, when included with any incremental borrowings issued under the New ABL Facility, of up to $175.0 million, plus unlimited additional amounts such that the aggregate principal amount of indebtedness outstanding at any one time does not cause the consolidated net senior secured leverage ratio, calculated on a pro forma basis, to exceed 4.1 to 1.0. Availability of such additional tranches of term loans are subject to the absence of any default, and among other things, the receipt of commitments by existing or additional financial institutions. Borrowings under the New Term Loan Facility bear interest at the borrower’s option at either (i) LIBOR rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, which shall be no less than 1.0%, plus an applicable margin of 4.25% or (ii) a base rate determined by reference to the highest of (a) the prime commercial lending rate published by Bank of America, N.A. as its "prime rate," (b) the federal funds effective rate plus 0.50% and (c) a one-month LIBOR rate plus 1.0%, plus an applicable margin of 3.25%. Commencing with the quarter ending September 30, 2016, Solutions is required to make scheduled quarterly payments in an aggregate annual amount equal to 1.0% of the aggregate principal amount of the initial term loans made on the Closing Date of the Mergers, with the balance due at maturity. The New Term Loan Facility matures on June 9, 2023. The interest rate for the New Term Loan Facility was 5.25% at June 30, 2016. Proceeds of $651.7 million, net of discount of $3.3 million were received in connection with the New Term Loan Facility.

Additionally, the New Term Loan Facility agreement requires Solutions to make early principal payments on an annual basis, commencing with the fiscal year ended September 30, 2017, if cash flows for the year, as defined in the agreement, exceed certain levels specified in the agreement. Solutions generally has the right to prepay loans in whole or in-part, without incurring any penalties for early payment. Solutions is not required to make an early principal payment for the fiscal year ended September 30, 2016.

The New Term Loan Facility contains a number of covenants that, among other things and subject to certain exceptions, restrict Holdings’ ability and the ability of its subsidiaries to incur additional indebtedness, pay dividends on its capital stock or redeem, repurchase or retire its capital stock or other indebtedness, make investments, loans and acquisitions, create restrictions on the payment of dividends or other amounts to the Company from its restricted subsidiaries, engage in transactions with its affiliates, sell assets, including capital stock of its subsidiaries, alter the business it conducts, consolidate or merge, incur liens. The credit agreement governing the New Term Loan Facility does not require Solutions to comply with any financial maintenance covenants and contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default. As of June 30, 2016, Solutions was in compliance with the covenants of the New Term Loan Facility.

Obligations under the New Term Loan Facility are secured by a first priority lien on outstanding equity interests of Holdings and certain subsidiaries and a second priority lien on accounts receivables and inventory that are subject to the New ABL Facility first priority lien.

Fees paid to the lenders in connection with the New Term Loan Facility totaled $18.5 million and were recorded as a reduction of the debt balance to be amortized as interest expense over the remaining term of the New Term Loan Facility.

Redemption of Predecessor 8.375% Senior Subordinated Notes due 2018

On June 9, 2016, all of the approximately $149.7 million principal amount of the Notes outstanding were redeemed at a redemption price equal to 100% of the principal amount. The Issuers and the guarantors under the Notes were released from their respective obligations under the Notes and the Indenture (as defined in the Merger Agreement) governing the Notes.

During the second quarter of fiscal year 2016, the Predecessor acquired $9.5 million in aggregate principal amount of its Notes for $8.7 million in cash and recorded a gain on early extinguishment of $0.6 million, inclusive of the write-off of related debt issuance costs and original issue discount which was recorded in Other income in the condensed consolidated statement of operations.

Debt issuance costs totaling $1.4 million were derecognized as part of the purchase consideration allocation.

Predecessor ABL Facility

On June 9, 2016, the Predecessor’s $540.0 million multicurrency ABL Facility was terminated. There was no outstanding balance at the time of termination. Solutions provided notice to the administrative agent and settled all remaining commitments under the facility. Accordingly, the administrative agent released the credit parties from their respective obligations under the facility, effective June 9, 2016.

Predecessor debt issuance costs totaling $3.3 million were derecognized as part of the purchase consideration allocation.

The weighted average interest rate on borrowings under the Predecessor ABL Facility was 1.8% at September 30, 2015. At September 30, 2015, the Predecessor had $67.4 million in outstanding letters of credit under the Predecessor ABL Facility. Collective credit availability under the U.S. and Canadian tranches of the Predecessor ABL Facility was $321.4 million at September 30, 2015.

Predecessor Term Loan Facility

On June 9, 2016, the principal outstanding balance of $617.5 million related to all three tranches of the term loans under the Credit Agreement was paid and the facility was terminated. Accordingly, the administrative agent released the credit parties from their respective obligations and all other commitments under the facility, effective June 9, 2016.

Related debt issuance costs totaling $4.6 million were derecognized as part of the purchase consideration allocation.

Debt Issuance Cost Amortization

Amortization expense included in interest expense related to debt issuance costs of the New Term Loan Facility was $0.1 million for the three and nine months ended June 30, 2016 for the Successor, $0.8 million and $3.0 million for the periods April 1, 2016 through June 8, 2016 and from October 1, 2015 through June 8, 2016 for the Predecessor, respectively, and $1.0 million and $3.1 million for the three and nine months ended June 30, 2015 for the Predecessor, respectively.

Capital Lease Obligations

The capital lease obligation balance of $25.2 million as of June 30, 2016 is primarily associated with tractors delivered under the Ryder Lease. See Note 5. This obligation excludes future executory costs payments of $2.1 million per year, for aggregate executory costs of $13.2 million, as well as decreasing annual interest payments ranging from $1.0 million to $0.3 million, for aggregate interest payments totaling $4.7 million.