DEBT

Credit Facility

On December 7, 2011, the Company entered into a 5-year, $100 million revolving credit facility (the "Wells Credit Facility") with Wells Fargo Bank, N.A ("Wells Fargo"). Borrowings under the Wells Credit Facility bear interest at a floating rate (as defined in the Wells Credit Facility, 1.94% as of October 31, 2015) which, at the Company’s option, may be determined by reference to a LIBOR Rate or a Base Rate. Extensions of credit under the Wells Credit Facility are limited to a borrowing base consisting of specified percentages of eligible categories of assets, which is primarily eligible inventory that is subject to seasonal fluctuations. The Wells Credit Facility is available for direct borrowings and allows for the issuance of letters of credit, and up to $12.5 million is available for swing-line loans. The Wells Credit Facility is secured by liens and security interests with (a) a first priority security interest in the current and certain related assets of the Company including cash, cash equivalents, deposit accounts, securities accounts, credit card receivables and inventory, and (b) a second priority security interest in all assets and properties of the Company that are not secured by a first lien and security interest. The Wells Credit Facility also contains covenants that, subject to specified exceptions, restrict the Company’s ability to, among other things, incur additional indebtedness, incur liens, liquidate or dissolve, sell, transfer, lease or dispose of assets, or make loans, investments or guarantees. The Wells Credit Facility is scheduled to mature on December 7, 2016. As of October 31, 2015, the Company had $35 million of direct borrowings and $14 million in letters of credit outstanding under the Wells Credit Facility. The remaining availability under the Wells Credit Facility at October 31, 2015 was $22 million.

Pursuant to the terms of the Wells Credit Facility agreement, the Company is required to maintain minimum excess availability of $10 million (“Minimum Availability”) and is also subject to more frequent debt compliance reporting (“Weekly Borrowing Base Delivery Event”) and certain cash control requirements (“Cash Dominion Event”) if its availability under the Wells Credit Facility falls below $35 million and $25 million, respectively. In October 2015, Wells Fargo granted the Company a temporary reduction of the Cash Dominion Event through the end of December 31, 2015 from the $25 million threshold to an amount equal to at least 15% of the Loan Cap, defined as the lesser of the aggregate commitments of $100 million and the borrowing base. The Company is currently in compliance with the Minimum Availability covenant and the Cash Dominion Event requirement and expects to remain in compliance after the additional draw of $35 million in the fourth quarter of 2015. Based on current forecasts, the Company anticipates its available borrowings under the Wells Credit Facility will result in a Weekly Borrowing Base Delivery Event and a Cash Dominion Event in early fiscal 2016 for which the Company may seek to obtain waivers from Wells Fargo and Golden Gate similar to the waivers described above. There can be no assurances that such waivers will be obtained.

Term Loan

On December 7, 2011, the Company obtained the Term Loan funded by an affiliate of Golden Gate Capital. The Term Loan bears interest at a rate of 5.50% per annum to be paid in cash, due and payable quarterly in arrears, and 7.50% per annum, due and payable in kind (“PIK”) annually in arrears, with such PIK interest then due and payable being added to the outstanding principal balance of the Term Loan at the end of each fiscal year, and with adjustments to the cash and PIK portion of the interest rate in accordance with the Term Loan agreement, following principal prepayments. Annual cash interest for fiscal 2015 is expected to be approximately $4 million. The Term Loan is guaranteed by each of the Company’s subsidiaries and will be guaranteed by any future domestic subsidiaries of the Company. The Term Loan is secured by liens and security interests with (a) a first priority security interest in all long-term assets of the Company and PacSun Stores and all other assets not subject to a first lien and security interest pursuant to the Wells Credit Facility, (b) a first priority pledge of the equity interests of Miraloma and (c) a second priority security interest in all assets of the Company and PacSun Stores subject to a first lien and security interest pursuant to the Wells Credit Facility. The Term Loan also contains covenants substantially identical to those in the Wells Credit Facility. The principal balance and any unpaid interest related to the Term Loan is due on December 7, 2016.

Pursuant to the terms of the Term Loan credit agreement, the Company also is required to comply with the same Minimum Availability covenant, and is also subject to the same Weekly Borrowing Base Delivery Event and the Cash Dominion Event requirements as are provided in the Wells Credit Facility agreement. In October 2015, Golden Gate granted the Company a temporary reduction of the Cash Dominion Event through the end of December 31, 2015 from the $25 million threshold to an amount equal to at least 15% of the Loan Cap under the Wells Credit Facility. The Company is currently in compliance with the Minimum Availability covenant and the Cash Dominion Event requirement and expects to remain in compliance after the additional draw of $35 million under the Wells Credit Facility in the fourth quarter of fiscal 2015. Based on current forecasts, the Company anticipates its available borrowings under the Wells Credit Facility will result in a Weekly Borrowing Base Delivery Event and a Cash Dominion Event in early fiscal 2016 for which the Company may seek to obtain waivers from Wells Fargo and Golden Gate similar to the waivers described above. There can be no assurances that such waivers will be obtained.

Mortgage Debt

On August 20, 2010, the Company, through its wholly-owned subsidiaries, Miraloma and PacSun Stores, executed two promissory notes pursuant to which borrowings in an aggregate amount of $29.8 million from American National Insurance Company (“ANICO”) were incurred. The principal and interest payments are based on a 25-year amortization schedule, with the remaining principal balances and any accrued and unpaid interest due on September 1, 2017.

The original note executed by Miraloma (the "Miraloma Note") is secured by a deed of trust on the building and land comprising the Company’s principal executive offices in Anaheim, California and is non-recourse to the Company. The Miraloma Note does not contain any financial covenants. In connection with this transaction, the Company transferred the building and related land securing the Miraloma Note to Miraloma and entered into a lease for the building and land with Miraloma. The original note executed by PacSun Stores (the "PacSun Stores Note") is secured by a mortgage on the Company’s leasehold interest in the building and land comprising the Company’s distribution center in Olathe, Kansas, and is unconditionally guaranteed by the Company. The PacSun Stores Note does not contain any financial covenants.

On July 1, 2014, the Company modified certain terms associated with the Miraloma Note and the PacSun Stores Note. The note modification executed by Miraloma (the "New Miraloma Note”) (i) provided for an additional advance of $0.3 million to fund the payment of fees, commissions and expenses incurred by the Company in connection with the New Miraloma Note, resulting in a new principal balance of $15.9 million; (ii) extended the maturity date of the Miraloma Note to July 1, 2021; (iii) reduced the interest rate to 5.25% per annum; and (iv) provided that the Miraloma Note may not be prepaid prior to July 1, 2017 and thereafter may be prepaid only upon payment of prepayment fees pursuant to a schedule set forth in the New Miraloma Note. The amended note executed by PacSun Stores (the "New PacSun Stores Note”) (i) provided for an additional advance of $0.2 million to fund the payment of fees, commissions and expenses incurred by the Company in connection with the New PacSun Stores Note, resulting in a new principal balance of $12.3 million; (ii) extended the maturity date of the PacSun Stores Note to July 1, 2021; (iii) reduced the interest rate to 5.25% per annum; and (iv) provided that the PacSun Stores Note may not be prepaid prior to July 1, 2017 and thereafter may be prepaid only upon payment of prepayment fees pursuant to a schedule set forth in the New PacSun Stores Note.

As of October 31, 2015, the remaining aggregate principal payments due under the Term Loan and the Mortgage Debt are as follows:



	(In thousands)
	2015		2016		2017		2018		2019		Thereafter		Total
Mortgage Debt	$	562	$	592	$	624	$	658	$	693	$	24,395	$	27,524
Term Loan ⁽¹⁾	—		75,623		—		—		—		—		75,623
Total	$	562	$	76,215	$	624	$	658	$	693	$	24,395	$	103,147
			Less: Term Loan discount										(5,562		)
			Less: Current portion of long-term debt										(562		)
			Total long-term debt										$	97,023

⁽¹⁾Upon maturity of the Term Loan, $26.6 million of PIK interest will become due and payable, of which $15.6 million is included in the Term Loan balance and $4.3 million is accrued and included in other current liabilities as of October 31, 2015.

The Company recorded interest expense of $4.3 million and $3.9 million during the third quarters of fiscal 2015 and 2014, respectively, and $12.8 million and $11.8 million during the first three quarters of fiscal 2015 and 2014, respectively.