Note 9 - Debt, Credit Facilities and Leases

6 Months Ended

Jun. 30, 2019

Notes to Financial Statements

Debt Disclosure [Text Block]

Note 9.    Debt, Credit Facilities and Leases

Senior Notes

On April 12, 2013, we completed an offering of $500 million in aggregate principal amount of our Senior Notes due May 1, 2021 in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, and in 2014, an additional $6.5 million aggregate principal amount of the Senior Notes was issued to one of our pension plans. The Senior Notes were subsequently exchanged for substantially identical Senior Notes registered with the SEC. The Senior Notes are governed by the Indenture, dated as of April 12, 2013, as amended (the "Indenture"), among Hecla Mining Company ("Hecla") and certain of our subsidiaries and The Bank of New York Mellon Trust Company, N.A., as trustee. The net proceeds from the initial offering of the Senior Notes ($490 million) were used to partially fund the acquisition of Aurizon and for general corporate purposes, including expenses related to the Aurizon acquisition.

The Senior Notes are recorded net of a 2% initial purchaser discount totaling $10 million at the time of the April 2013 issuance and having an unamortized balance of $2.4 million as of June 30, 2019. The Senior Notes bear interest at a rate of 6.875% per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for.  Interest on the Senior Notes is payable on May 1 and November 1 of each year, commencing November 1, 2013. During each of the six months ended June 30, 2019 and 2018, interest expense related to the Senior Notes and amortization of the initial purchaser discount and fees related to the issuance of the Senior Notes totaled $18.1 million.

The Senior Notes are guaranteed on a senior unsecured basis by certain of our subsidiaries (the "Guarantors").   The Senior Notes and the guarantees are, respectively, Hecla's and the Guarantors' general senior unsecured obligations and are subordinated to all of Hecla's and the Guarantors' existing and future secured debt to the extent of the assets securing that secured debt.  In addition, the Senior Notes are effectively subordinated to all of the liabilities of Hecla's subsidiaries that are not guaranteeing the Senior Notes, to the extent of the assets of those subsidiaries.

The Senior Notes became redeemable in whole or in part, at any time and from time to time after May 1, 2016, on the redemption dates and at the redemption prices specified in the Indenture, plus accrued and unpaid interest, if any, to the date of redemption.  As of May 1, 2019, the redemption price is 100% of the outstanding principal amount.

Upon the occurrence of a change of control (as defined in the Indenture), each holder of Senior Notes will have the right to require us to purchase all or a portion of such holder's Senior Notes pursuant to a change of control offer (as defined in the Indenture), at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, subject to the rights of holders of the Senior Notes on the relevant record date to receive interest due on the relevant interest payment date.

Ressources Québec Notes

On March 5, 2018, we entered into a note purchase agreement pursuant to which we issued CAD$40 million (approximately USD$30.8 million at the time of the transaction) in aggregate principal amount of our Series 2018-A Senior Notes due May 1, 2021 (the “RQ Notes”) to Ressources Québec, a subsidiary of Investissment Québec, a financing arm of the Québec government. Because the RQ notes are denominated in CAD, the reported USD-equivalent principal balance changes with movements in the exchange rate. The RQ Notes were issued at a discount of 0.58%, or CAD$0.2 million, and bear interest at a rate of 4.68% per year, payable on May 1 and November 1 of each year, commencing May 1, 2018. The RQ Notes are senior and unsecured and are pari passu in all material respects with the Senior Notes, including with respect to guarantees of the RQ Notes by certain of our subsidiaries. The net proceeds from the RQ Notes were required to be used for development and expansion of our Casa Berardi mine. During the six months ended June 30, 2019 and 2018, interest expense related to the RQ Notes, including discount and origination fees, totaled $0.7 million for each period.

As of June 30, 2019, the annual future obligations related to our debt, including interest, were (in thousands):

Twelve-month period ending June 30,	Senior Notes			RQ Notes			Total
2020 (interest only)	$	34,822		$	1,430		$	36,252
2021 (principal and interest)		535,518			31,756		$	567,274
Total		570,340			33,186			603,526
Less: interest		(63,840	)		(2,622	)	$	(66,462	)
Principal		506,500			30,564			537,064
Less: unamortized discount		(2,396	)		—		$	(2,396	)
Long-term debt	$	504,104		$	30,564		$	586,667

Credit Facilities

In July 2018, we entered into a $250 million senior secured revolving credit facility which replaced our previous $100 million credit facility and has a term ending on June 14, 2022, provided, however, that if we do not refinance our outstanding Senior Notes by November 1, 2020, the term of the credit facility ends on November 1, 2020. As of June 30, 2019, the credit facility was collateralized by the assets of certain of our subsidiaries, shares of common stock held in our material domestic subsidiaries and by our joint venture interests in the Greens Creek mine, all of our rights and interests in the joint venture agreement, and all of our rights and interests in the assets of the joint venture. Below is information on the interest rates, standby fee, and financial covenant terms under our credit facility in place as of June 30, 2019:

Interest rates:
Spread over the London Interbank Offer Rate	2.25	-	3.25%
Spread over alternative base rate	1.25	-	2.25%
Standby fee per annum on undrawn amounts		0.50 %
Covenant financial ratios:
Senior leverage ratio (debt secured by liens/EBITDA) 1	not more than 2.50:1
Leverage ratio (total debt less unencumbered cash/EBITDA) 1	not more than 4.50:1
Interest coverage ratio (EBITDA/interest expense) 1	not less than 3.00:1

¹ EBITDA is calculated as defined in the credit agreement.

In July 2019, we entered into an amendment to the revolving credit facility to, among other things:

i. change the leverage ratio to not more than:

1. 6.50:1 as of the last day of any fiscal quarter ending on or after June 30, 2019 but on or prior to September 30, 2019;

2. 6.00:1 as of the last day of the fiscal quarter ending December 31, 2019;

3. 5.50:1 as of the last day of the fiscal quarter ending March 31, 2020;

4. 5.00:1 as of the last day of the fiscal quarter ending June 30, 2020; and

5. 4.00:1 as of the last day of any fiscal quarter ending September 30, 2020 and thereafter.

ii. lower the amount available to be borrowed to $150 million until the earlier of (i) our election to restore the amount available to $250 million following the fiscal quarter ending September 30, 2020 or (ii) our election to restore the amount available to $250 million by demonstrating two consecutive quarters of leverage ratio less than or equal to 4.00:1 beginning in the third quarter of 2019.

iii. add Hecla Quebec as a Guarantor on the credit facility, pledge the equity of our ownership of Hecla Quebec (which owns the Casa Berardi mine), and grant a first priority lien on Casa Berardi and its related assets.

We are also able to obtain letters of credit under the facility, and for any such letters we are required to pay a participation fee of between 2.25% and 3.25% based on our total leverage ratio, as well as a fronting fee to each issuing bank of 0.20% annually on the average daily dollar amount of any outstanding letters of credit. There were $3.0 million in letters of credit outstanding as of June 30, 2019. Subsequent to June 30, 2019, we utilized an additional $20.0 million in letters of credit for financial support for environmental reclamation obligations, and there is a total of $23.0 million in letters of credit outstanding as of the date of this report.

We believe we were in compliance with all covenants under the credit agreement, and had $52.0 million drawn under the agreement, in addition to the $3.0 million in letters of credit outstanding, as of June 30, 2019.

Finance Leases

We have entered into various lease agreements, primarily for equipment at our Greens Creek, Lucky Friday, Casa Berardi and Nevada Operations units, which we have determined to be finance leases.  At June 30, 2019, the total liability balance associated with finance leases, including certain purchase option amounts, was $13.4 million, with $5.4 million of the liability classified as current and the remaining $8.0 million classified as non-current. At December 31, 2018, the total liability balance associated with finance leases was $13.1 million, with $5.3 million of the liability classified as current and $7.9 million classified as non-current. The right-of-use assets for our finance leases are recorded in properties, plants, equipment and mineral interests, net, on our condensed consolidated balance sheets and totaled $20.1 million as of June 30, 2019 and $20.0 million as of December 31, 2018, net of accumulated depreciation. Expense during the first half of 2019 related to finance leases included $3.4 million for amortization of the right-of-use assets and $0.4 million for interest expense. The total obligation for future minimum payments on finance leases was $14.3 million at June 30, 2019, with $0.9 million attributed to interest. The weighted-average remaining lease term for our finance leases as of June 30, 2019 was approximately 1.8 years.

At June 30, 2019, the annual maturities of finance lease commitments, including interest, were (in thousands):

Twelve-month period ending June 30,
2020	$	6,047
2021		4,886
2022		2,845
2023		487
Total		14,265
Less: imputed interest		(860	)
Finance lease liability	$	13,405

Operating Leases

We have entered into various lease agreements, primarily for equipment, buildings and other facilities, and land at our operating units and corporate offices, which we have determined to be operating leases.  Some of the operating leases allow for extension of the lease beyond the current term at our option. We have considered the likelihood and estimated duration of the extension options in determining the lease term for measurement of the liability and right-of-use asset. For our operating leases as of June 30, 2019, we have assumed discount rates of between 5% and 6.5%. At June 30, 2019, the total liability balance associated with the operating leases was $19.0 million, with $6.6 million of the liability classified as current and the remaining $12.4 million classified as non-current. The right-of-use assets for our operating leases are recorded as a non-current asset on our condensed consolidated balance sheets and totaled $19.0 million as of June 30, 2019. Lease expense on operating leases during the first half of 2019 totaled $4.0 million. The total obligation for future minimum operating lease payments, including assumed extensions beyond the current lease terms, was $19.2 million at June 30, 2019. The weighted-average remaining lease term for our operating leases as of June 30, 2019 was approximately 4.5 years.

At June 30, 2019, the annual maturities of undiscounted operating lease payments, including assumed extensions beyond the current lease terms, were (in thousands):

Twelve-month period ending June 30,
2020	$	7,585
2021		3,703
2022		3,099
2023		2,286
2024		1,181
More than 5 years		1,316
Total		19,170
Effect of discounting		(132	)
Operating lease liability	$	19,038