DEBT

Rayonier’s debt consisted of the following at December 31, 2014 and 2013:



	2014			2013
Senior Notes due 2022 at a fixed interest rate of 3.75%		$325,000			$325,000
Senior Exchangeable Notes due 2015 at a fixed interest rate of 4.50% (a)	129,706			127,749
Installment note due 2014 at a fixed interest rate of 8.64%	—			112,500
Mortgage notes due 2017 at fixed interest rates of 4.35% (b)	53,801			65,165
Solid waste bond due 2020 at a variable interest rate of 1.3% at December 31, 2014	15,000			15,000
Revolving Credit Facility borrowings due 2016 at a variable interest rate of 1.34% at December 31, 2014	16,000			205,000
Term Credit Agreement borrowings due 2019 at a variable interest rate of 1.63% at December 31, 2014	—			500,000
New Zealand JV Revolving Credit Facility due 2016 at a variable interest rate of 4.47% at December 31, 2014	184,099			193,311
New Zealand JV Noncontrolling interest shareholder loan at 0% interest rate	27,949			30,499
Total debt	751,555			1,574,224
Less: Current maturities of long-term debt	(129,706		)	(112,500		)
Long-term debt		$621,849			$1,461,724

Principal payments due during the next five years and thereafter are as follows:



2015 (a)		$130,973
2016	200,099
2017 (b)	52,500
2018	—
2019	—
Thereafter	367,949
Total Debt		$751,521


(a)	Our Senior Exchangeable Notes maturing in 2015 were discounted by $1.3 million and $3.2 million as of December 31, 2014 and 2013, respectively. Upon maturity the liability will be $131 million.


(b)	The mortgage notes due in 2017 were recorded at a premium of $1.3 million and $2.2 million as of December 31, 2014 and 2013, respectively. Upon maturity the liability will be $53 million.

Term Credit Agreement

In December 2012, the Company entered into a $640 million senior unsecured term credit agreement with banks in the farm credit system, which is a network of cooperatives. As part of the spin-off of Performance Fibers, the facility was fully repaid and, in second quarter 2014, amended to reduce the Company’s borrowing capacity to $100 million after the spin-off was completed. The agreement matures in December 2019 and has a delayed draw feature that allows borrowings up to $100 million through December 2017 using a maximum of three remaining advances. The periodic interest rate on the term credit agreement is LIBOR plus 163 basis points, with an unused commitment fee of 20 basis points. The Company receives annual patronage refunds, which are profit distributions made by a cooperative to its member-users based on the quantity or value of business done with the member-user. The Company expects the effective interest rate to approximate LIBOR plus 107 basis points after consideration of the patronage refunds. At December 31, 2014, the Company had $100 million of available borrowings under this facility.

Revolving Credit Facility

In April 2011, the Company entered into a five year $300 million unsecured revolving credit facility, replacing the previous $250 million facility which was scheduled to expire in August 2011. In August 2011, the Company increased the revolving credit facility to $450 million. As part of the spin-off of Performance Fibers, the revolving credit facility was fully repaid and, in second quarter 2014, amended to reduce the Company’s borrowing capacity to $200 million after the spin-off was completed. The April 2016 expiration date remained unchanged. The periodic interest rate on the revolving credit facility is LIBOR plus 118 basis points, with an unused commitment fee of 20 basis points. At December 31, 2014, the Company had $182 million of available borrowings under this facility, net of $2 million to secure its outstanding letters of credit.

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 4 — Joint Venture Investment for further information.

Senior Secured Facilities Agreement

The New Zealand JV is party to a $202 million variable rate Senior Secured Facilities Agreement comprised of two tranches. Tranche A, a $184 million revolving cash advance facility expires September 2016 and Tranche B, an $18 million working capital facility expires June 2015. 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 December 31, 2014 the Senior Secured Facilities Agreement had $184 million outstanding on Tranche A at 4.47 percent due September 2016, with a commitment fee of 80 basis points. 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 6 — Derivative Financial Instruments and Hedging Activities. The notional amounts of the outstanding interest rate swap contracts at December 31, 2014 were $149 million, net of notional amounts of $13 million set to expire January 2015 for which replacement swaps have been entered into before year end. These interest rate swap contracts cover 81 percent of the variable rate debt. The weighted average fixed interest rate resulting from the swaps was 5.0 percent. The interest rate swap contracts have maturities between one and five years.

Working Capital Facility

The $18 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 1.20 percent to 1.45 percent based on the interest coverage ratio and the length of time each borrowing is outstanding. At December 31, 2014, 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 partner in the amount of $28 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 par, the carrying amount is deemed to be the fair value. The entire balance of the shareholder loan remained classified as long-term debt at December 31, 2014 due to the ability and intent of the Company to refinance it on a long-term basis.

3.75% Senior Notes issued March 2012

In March 2012, Rayonier Inc. issued $325 million of 3.75% Senior Notes due 2022, guaranteed by certain subsidiaries. The guarantors were revised in October 2012, leaving TRS and Rayonier Operating Company LLC as the remaining guarantors.

$105 Million Secured Mortgage Notes Assumed

In November 2011, in connection with the acquisition of approximately 250,000 acres of timberlands, the Company assumed notes totaling $105 million, secured by mortgages on certain parcels of the timberlands acquired. The notes bear fixed interest rates of 4.35 percent with original terms of seven years maturing in August 2017. The Company prepaid $21.0 million of principal on the mortgage notes concurrent with the acquisition and an additional $10.5 million during both 2014 and 2013, the maximum amounts allowed without penalty at the respective dates. The notes were recorded at fair value on the date of acquisition. At December 31, 2014, the carrying value of the debt outstanding was $53.8 million; however, the liability will be $52.5 million at maturity.

4.50% Senior Exchangeable Notes issued August 2009

In August 2009, TRS issued $172.5 million of 4.50% Senior Exchangeable Notes due 2015. The notes are guaranteed by Rayonier and are non-callable. The principal will be settled in cash and any excess exchange value will be settled at the option of the Company in either cash or stock of Rayonier. Note holders may convert their notes to common stock of Rayonier, subject to certain provisions including the market price of the stock and the trading price of the convertible notes. The current exchange rate is 42.47 shares per $1,000 principal based on an exchange price of $23.54.

In separate transactions, TRS and Rayonier purchased exchangeable note hedges and sold warrants, respectively, based on 5,169,653 underlying shares of Rayonier. These transactions had the effect of increasing the conversion premium from 22.5 percent to 46 percent or to $28.12 per share. The exchangeable note hedge and warrant transactions are intended to limit exposure of potential dilution to Rayonier shareholders from note holders who could exchange the notes for Rayonier common shares. Upon exercise of the hedges, TRS will receive shares of Rayonier common stock equal to the difference between the then market price and the strike price of $23.54. The holders of the warrants will receive net shares from Rayonier if the share price is above $28.12 at maturity of the warrants.

The purchased hedges and sold warrants are not part of the terms of the notes and will not affect the note holders’ rights. Likewise, the note holders will not have any rights with respect to the hedge or the warrants. The purchased hedges and the sold warrants do not meet the definition of a derivative instrument because they are indexed to the Company’s own stock. They were recorded in shareholders’ equity in the Consolidated Balance Sheet and are not subject to mark-to-market adjustments.

The $172.5 million 4.50% Senior Exchangeable Notes due 2015 were exchangeable at the option of the holders for all four calendar quarters ending in 2014. Per 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 in a period of 30 consecutive trading days as of the last day of the quarter. During the twelve months ended December 31, 2014, the note holders did not elect to exercise the exchange option.

During the third quarter of 2013, three groups of note holders elected to exercise their right to redeem $41.5 million of the notes with all three redemptions settling by December 31, 2013. In accordance with 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 the early redemption of $4 million in 2013.

Based upon the average stock price for the 30 trading days ended December 31, 2014, these notes are not exchangeable for the calendar quarter ending March 31, 2015. The remaining balance of the notes is classified as current maturities of long-term debt at December 31, 2014 as the notes mature in September of 2015.

The amounts related to convertible debt in the Consolidated Balance Sheets as of December 31, 2014 and 2013 are as follows:



	2014			2013
Liabilities:
Principal amount of debt
4.50% Senior Exchangeable Notes		$130,973			$130,973
Unamortized discount (a)
4.50% Senior Exchangeable Notes	(1,267		)	(3,224		)
Net carrying amount of debt		$129,706			$127,749
Equity:
Common stock		$8,850			$8,850

(a) The discount for the 4.50% notes will be amortized through August 2015.

The amount of interest related to the convertible debt recognized in the Consolidated Statements of Income and Comprehensive Income for the three years ended December 31 is as follows:



	2014		2013		2012
Contractual interest coupon
4.50% Senior Exchangeable Notes		$5,930		$7,271		$7,763
Amortization of debt discount
4.50% Senior Exchangeable Notes	1,957		2,281		2,296
Total interest expense recognized		$7,887		$9,552		$10,059

The effective interest rate on the liability component for the years ended December 31, 2014, 2013 and 2012 was 6.21%.

Debt Covenants

In connection with the Company’s $200 million revolving credit facility, covenants must be met, including an interest coverage ratio based on the facility’s definition of EBITDA (“Covenant EBITDA”). Covenant EBITDA consists of earnings from continuing operations before the cumulative effect of accounting changes and any provision for dispositions, income taxes, interest expense, depreciation, depletion, amortization and the non-cash cost basis of real estate sold. Additionally, debt at subsidiaries (excluding Rayonier Operating Company LLC and TRS, which are borrowers under the agreement) is limited to 15 percent of Consolidated Net Tangible Assets. Consolidated Net Tangible Assets is defined as total assets less the sum of total current liabilities and intangible assets.

The term credit agreement contains various covenants customary to credit agreements with borrowers having investment-grade debt ratings. These covenants are substantially identical to those of the credit facility discussed above.

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.

In addition to the financial covenants listed above, the installment note, mortgage notes, senior notes, term credit agreement and revolving credit facility include customary covenants that limit the incurrence of debt and the disposition of assets, among others. At December 31, 2014, the Company was in compliance with all covenants.