DEBT

The warrants sold in conjunction with the issuance of the 3.75% Senior Exchangeable Notes due 2012 began maturing on January 15, 2013 and continued to mature through March 27, 2013. In first and second quarter 2013, 8,313,511 of warrants were settled, resulting in the issuance of 2,135,221 Rayonier common shares.

As of June 30, 2013, the $172.5 million 4.50% Senior Exchangeable Notes due 2015 became exchangeable at the option of the holders for the calendar quarter ending September 30, 2013. According to the indenture, in order for the notes to become exchangeable, the Company’s stock price must exceed 130 percent of the exchange price for 20 trading days during a period of 30 consecutive trading days as of the last day of the quarter. During the three months ended September 30, 2013, three groups of note holders elected to exercise their right to redeem $41.5 million of the notes. As of September 30, 2013, two redemptions in the amount of $31.5 million have settled. The third redemption of $10 million was settled on October 3, 2013 and classified as short-term debt at September 30, 2013. In accordance with Accounting Standards Codification (“ASC”) 470-50, Modifications and Extinguishments [Debt], the fair value of the debt prior to redemption was compared to its carrying amount and the difference expensed, along with unamortized discount and issuance costs. As a result, Rayonier recorded a loss on debt extinguishment of $3 million in the third quarter.

Based upon the average stock price for the 30 trading days ended September 30, 2013, these notes again became exchangeable at the option of the holder for the calendar quarter ending December 31, 2013. The remaining balance of the notes is classified as long-term debt at September 30, 2013 due to the ability and intent of the Company to refinance them on a long-term basis.

During the nine months ended September 30, 2013, the Company had no net activity on its $450 million unsecured revolving credit facility. The Company had $172 million of available borrowings under this facility at September 30, 2013, net of $3 million to secure its outstanding letters of credit. During the nine months ended September 30, 2013, the Company borrowed an additional $200 million on the term credit agreement for general corporate purposes. Additional draws totaling $140 million remain available on the term credit agreement.

Joint Venture Debt

On April 4, 2013, Rayonier acquired an additional 39 percent interest in its New Zealand JV, bringing its total ownership to 65 percent and as a result, the New Zealand JV’s debt was consolidated effective on that date. See Note 6 — Joint Venture Investment for further information.

The New Zealand JV’s debt consisted of the following at September 30, 2013:



	September 30, 2013
Senior Secured Facilities Agreement
Revolving Credit Facility due 2016 at variable interest rate of 4.39%	$	194,533
Working Capital Facility due 2014	—

Noncontrolling interest shareholder loan at a 0% interest rate	31,717

Total debt	226,250
Less: Current maturities of long-term debt	—
Long-term debt	$	226,250

Senior Secured Facilities Agreement

The New Zealand JV is party to a $214 million variable rate Senior Secured Facilities Agreement comprised of two tranches. Tranche A, a $195 million revolving cash advance facility expires September 2016 and Tranche B, a $19 million working capital facility expires July 2014. Although the maximum amounts available under the agreement are denominated in New Zealand dollars, advances on Tranche A are also available in U.S. dollars. This agreement is secured by a Security Trust Deed that provides recourse only to the New Zealand JV’s assets; there is no recourse to Rayonier Inc. or any of its subsidiaries.

Revolving Credit Facility

As of September 30, 2013 the Senior Secured Facilities Agreement had $195 million outstanding on Tranche A at 4.39 percent due September 2016. The interest rate is indexed to the 90 day New Zealand Bank bill rate and is generally repriced quarterly. The margin on the index rate fluctuates based on the interest coverage ratio. The New Zealand JV manages these rates through interest rate swaps, as discussed at Note 9 — Derivative Financial Instruments and Hedging Activities.

Working Capital Facility

The $19 million Working Capital Facility is available for short-term operating cash flow needs of the New Zealand JV. This facility holds a variable interest rate indexed to the Official Cash Rate set by the Reserve Bank of New Zealand. The margin ranges from 1.17 percent to 1.44 percent based on the interest coverage ratio and the length of time each borrowing is outstanding. At September 30, 2013, there was no outstanding balance on the Working Capital Facility.

Shareholder Loan

The shareholder loan is an interest-free loan from the noncontrolling New Zealand JV interest in the amount of $32 million. This loan represents part of the noncontrolling party’s investment in the New Zealand JV. The loan is secured by timberlands owned by the New Zealand JV and is subordinated to the Senior Secured Facilities Agreement. Although Rayonier Inc. is not liable for this loan, the shareholder loan instrument contains features with characteristics of both debt and equity and is therefore required to be classified as debt and consolidated. As the loan is effectively at call, the carrying amount is deemed to be the fair value. The entire balance of the shareholder loan remained classified as long-term debt at September 30, 2013 due to the ability and intent of the Company to refinance it on a long-term basis.

Debt Covenants

In connection with the New Zealand JV’s Senior Secured Facilities Agreement, covenants must be met, including generation of sufficient cash flows to meet a minimum interest coverage ratio of 1.25 to 1 on a quarterly basis and maintenance of a leverage ratio of bank debt versus the forest and land valuation below the covenant's maximum ratio of 40 percent. At September 30, 2013, the New Zealand JV was in compliance with all its covenants.

There were no other significant changes to the Company’s outstanding debt as reported in Note 11 — Debt in the Company’s 2012 Annual Report on Form 10-K.

Subsequent Event

On October 3, 2013, the third settlement of Senior Exchangeable Notes due 2015 in the amount of $10 million was completed. As a result, Rayonier recorded a $1 million loss on the redemption in the fourth quarter.