Borrowings

On May 18, 2012, we completed the refinancing of substantially all of the existing indebtedness of our wholly-owned subsidiaries Libbey Glass Inc. (Libbey Glass) and Libbey Europe B.V. (Libbey Europe). The refinancing included:


•	the entry into an amended and restated credit agreement with respect to our ABL Facility;


•	the issuance of $450.0 million in aggregate principal amount of 6.875 percent Senior Secured Notes of Libbey Glass due 2020 (New Senior Secured Notes);


•	the repurchase and cancellation of $320.0 million of Libbey Glass’s then outstanding 10.0 percent Senior Secured Notes due 2015 (Old Senior Secured Notes); and


•	the redemption of $40.0 million of Libbey Glass's then outstanding 10.0 percent Old Senior Secured Notes (completed June 29, 2012).

We used the proceeds of the offering of the New Senior Secured Notes to fund the repurchase and redemption of $320.0 million of the Old Senior Secured Notes, pay related fees and expenses, and contribute $79.7 million to our U.S. pension plans to fully fund our target obligations under ERISA.

On June 29, 2012, we used the remaining proceeds of the New Senior Secured Notes, together with cash on hand, to redeem the remaining $40.0 million of Old Senior Secured Notes and to pay related fees.

The above transactions included charges of $23.6 million for an early call premium and $11.0 million for the write off of the remaining financing fees and discounts from the Old Senior Secured Notes and were considered in the computation of the loss on redemption of debt.

On February 8, 2010, we completed the refinancing of substantially all of the existing indebtedness of our wholly-owned subsidiaries Libbey Glass and Libbey Europe. The refinancing included:


•	the entry into an amended and restated credit agreement with respect to our ABL Facility;


•	the issuance of $400.0 million in aggregate principal amount of 10.0 percent Old Senior Secured Notes;


•	the repurchase and cancellation of all of Libbey Glass’s then outstanding $306.0 million in aggregate principal amount of floating rate notes; and


•	the redemption of all of Libbey Glass’s then outstanding $80.4 million in aggregate principal amount 0.0 percent payment-in-kind notes (PIK Notes).

We used the proceeds of the offering of the Old Senior Secured Notes, together with cash on hand, to fund the repurchase of the floating rate notes, the redemption of the PIK Notes and to pay certain related fees and expenses. Upon completion of the refinancing, we recorded a gain of $71.7 million related to the redemption of the PIK Notes. This gain was partially offset by $13.4 million representing a write-off of bank fees, discounts and a call premium on the floating rate notes, resulting in a net gain of $58.3 million as shown on the Consolidated Statements of Operations.

Concurrently with the issuance of the original PIK Notes in 2006, we issued, to the holder of the original PIK Notes, detachable warrants to purchase 485,309 shares of Libbey Inc. common stock at an exercise price of $11.25 per share. These warrants, which did not have voting rights, were exercised in November, 2011 for approximately $5.5 million.

In October 2009, we entered into a transaction with Merrill Lynch PCG, Inc. to exchange the PIK Notes due in December 2011, for a combination of debt and equity securities. As part of this transaction, we issued to the Merrill Lynch PCG, Inc. 933,145 shares of Libbey Inc. common stock and warrants conveying the right to purchase, for $0.01 per share, an additional 3,466,856 shares of the Company’s common stock.

The additional 3.5 million shares were issued in August, 2010 as the warrant holder chose to exercise these warrants, and on August 18, 2010, we announced the closing of a secondary offering of these 4.4 million shares of our common stock on behalf of Merrill Lynch PCG, Inc., the selling stockholder, at a price to the public of $10.25 per share. The total offering size reflects the underwriters’ exercise of their option to purchase an additional 573,913 shares of common stock, on the same terms and conditions, to cover over-allotments. We did not receive any proceeds from the offering. The fees of approximately $1.0 million related to this transaction were recorded as selling, general and administrative expense in the Consolidated Statements of Operations in 2010.

Borrowings consist of the following:



(dollars in thousands)	Interest Rate		Maturity Date	December 31, 2012		December 31, 2011
Borrowings under ABL Facility	floating		May 18, 2017	$	—	$	—
New Senior Secured Notes	6.875%	(1)	May 15, 2020	450,000		—
Old Senior Secured Notes	10.00%	(1)	February 15, 2015	—		360,000
Promissory Note	6.00%		January, 2013 to September, 2016	903		1,111
Notes Payable	floating		January, 2013	—		339
RMB Loan Contract	floating		January, 2014	9,522		28,332
BES Euro Line	floating		December, 2013	4,362		7,835
AICEP Loan	0.00%		January, 2016 to July 30, 2018	1,272		—
Total borrowings				466,059		397,617
Less — unamortized discount				—		4,300
Plus — carrying value adjustment on debt related to the Interest Rate Agreement ⁽¹⁾				408		4,043
Total borrowings — net				466,467		397,360
Less — long term debt due within one year				4,583		4,192
Total long-term portion of borrowings — net				$	461,884	$	393,168

____________________________________


(1)	See Interest Rate Agreements under “Senior Secured Notes” below and in note 13.

Annual maturities for all of our total borrowings for the next five years and beyond are as follows:



2013	2014	2015	2016	2017	Thereafter
$4,583	$9,757	$249	$621	$424	$450,425

Amended and Restated ABL Credit Agreement

Pursuant to the refinancing, Libbey Glass and Libbey Europe entered into an Amended and Restated Credit Agreement, dated as of February 8, 2010 and amended as of April 29, 2011 and May 18, 2012 (as amended, the ABL Facility), with a group of four financial institutions. The ABL Facility provides for borrowings of up to $100.0 million, subject to certain borrowing base limitations, reserves and outstanding letters of credit.

All borrowings under the ABL Facility are secured by:


•	a first-priority security interest in substantially all of the existing and future personal property of Libbey Glass and its domestic subsidiaries (Credit Agreement Priority Collateral);


•	a first-priority security interest in:


•	100 percent of the stock of Libbey Glass and 100 percent of the stock of substantially all of Libbey Glass’s present and future direct and indirect domestic subsidiaries;


•	100 percent of the non-voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries; and


•	65 percent of the voting stock of substantially all of Libbey Glass’s first-tier present and future foreign subsidiaries


•	a first-priority security interest in substantially all proceeds and products of the property and assets described above; and


•	a second-priority security interest in substantially all of the owned real property, equipment and fixtures in the United States of Libbey Glass and its domestic subsidiaries, subject to certain exceptions and permitted liens (New Notes Priority Collateral).

Additionally, borrowings by Libbey Europe under the ABL Facility are secured by:


•	a first-priority lien on substantially all of the existing and future real and personal property of Libbey Europe and its Dutch subsidiaries; and


•	a first-priority security interest in:


•	100 percent of the stock of Libbey Europe and 100 percent of the stock of substantially all of the Dutch subsidiaries; and


•	100 percent (or a lesser percentage in certain circumstances) of the outstanding stock issued by the first tier foreign subsidiaries of Libbey Europe and its Dutch subsidiaries.

Swingline borrowings are limited to $15.0 million, with swing line borrowings for Libbey Europe being limited to the US equivalent of $7.5 million. Loans comprising each CBFR (CB Floating Rate) Borrowing, including each Swingline Loan, bear interest at the CB Floating Rate plus the Applicable Rate, and euro-denominated swing line borrowings (Eurocurrency Loans) bear interest calculated at the Netherlands swing line rate, as defined in the ABL Facility. The Applicable Rates for CBFR Loans and Eurocurrency Loans vary depending on our aggregate remaining availability. The Applicable Rates for CBFR Loans and Eurocurrency Loans were 0.50 percent and 1.50 percent, respectively, at December 31, 2012. Libbey pays a quarterly Commitment Fee, as defined by the ABL Facility, on the total credit provided under the ABL Facility. The Commitment Fee was 0.38 percent at December 31, 2012. No compensating balances are required by the Agreement. The Agreement does not require compliance with a fixed charge coverage ratio covenant, unless aggregate unused availability falls below $10.0 million. If our aggregate unused ABL availability were to fall below $10.0 million, the fixed charge coverage ratio requirement would be 1:00 to 1:00. Libbey Glass and Libbey Europe have the option to increase the ABL Facility by $25.0 million. There were no Libbey Glass or Libbey Europe borrowings under the facility at December 31, 2012 or at December 31, 2011. Interest is payable on the last day of the interest period, which can range from one month to six months depending on the maturity of each individual borrowing on the facility.

The borrowing base under the ABL Facility is determined by a monthly analysis of the eligible accounts receivable and inventory. The borrowing base is the sum of (a) 85 percent of eligible accounts receivable and (b) the lesser of (i) 85 percent of the net orderly liquidation value (NOLV) of eligible inventory, (ii) 65 percent of eligible inventory, or (iii) $75.0 million.

The available total borrowing base is offset by rent reserves totaling $0.7 million and mark-to-market reserves for natural gas contracts of $0.4 million as of December 31, 2012. The ABL Facility also provides for the issuance of $30.0 million of letters of credit, which are applied against the $100.0 million limit. At December 31, 2012, we had $8.5 million in letters of credit outstanding under the ABL Facility. Remaining unused availability under the ABL Facility was $68.6 million at December 31, 2012, compared to $63.8 million under the ABL Facility at December 31, 2011.

New Senior Secured Notes

On May 18, 2012, Libbey Glass closed its offering of the $450.0 million New Senior Secured Notes. The notes offering was issued at par and had related fees of approximately $13.6 million. These fees will be amortized to interest expense over the life of the notes.

The New Senior Secured Notes were issued pursuant to an Indenture, dated May 18, 2012 (New Notes Indenture), between Libbey Glass, the Company, the domestic subsidiaries of Libbey Glass listed as guarantors therein (Subsidiary Guarantors and together with the Company, Guarantors), and The Bank of New York Mellon Trust Company, N.A., as trustee (New Notes Trustee) and collateral agent. Under the terms of the New Notes Indenture, the New Senior Secured Notes bear interest at a rate of 6.875 percent per year and will mature on May 15, 2020. Although the New Notes Indenture does not contain financial covenants, the New Notes Indenture contains other covenants that restrict the ability of Libbey Glass and the Guarantors to, among other things:


•	incur, assume or guarantee additional indebtedness;


•	pay dividends, make certain investments or other restricted payments;


•	create liens;


•	enter into affiliate transactions;


•	merge or consolidate, or otherwise dispose of all or substantially all the assets of Libbey Glass and the Guarantors; and


•	transfer or sell assets.

The New Notes Indenture provides for customary events of default. In the case of an event of default arising from bankruptcy or insolvency as defined in the New Notes Indenture, all outstanding New Senior Secured Notes will become due and payable immediately without further action or notice. If any other event of default under the New Notes Indenture occurs or is continuing, the New Notes Trustee or holders of at least 25 percent in aggregate principal amount of the then outstanding New Senior Secured Notes may declare all the New Senior Secured Notes to be due and payable immediately.

The New Senior Secured Notes and the related guarantees under the New Notes Indenture are secured by (i) first priority liens on the New Notes Priority Collateral and (ii) second priority liens on the Credit Agreement Priority Collateral.

On February 8, 2010, Libbey Glass closed its offering of the $400.0 million Old Senior Secured Notes. The net proceeds of the offering of Senior Secured Notes were approximately $379.8 million, after the 1.918% percent original issue discount of $7.7 million, $10.0 million of commissions payable to the initial purchasers and $2.5 million of fees related to the offering. These fees were amortized to interest expense over the life of the notes.

In connection with the sale of the New Senior Secured Notes, Libbey Glass and the Guarantors entered into a registration rights agreement, dated May 18, 2012 (Registration Rights Agreement), under which they agreed to make an offer to exchange the New Senior Secured Notes and the related guarantees for registered, publicly tradable notes and guarantees that have substantially identical terms to the New Senior Secured Notes and the related guarantees, and in certain limited circumstances, to file a shelf registration statement that would allow certain holders of New Senior Secured Notes to resell their respective New Senior Secured Notes to the public. On November 6, 2012, we exchanged $450.0 million aggregate principal amount of 6.875 percent New Senior Secured Notes due 2020 for an equal principal amount of a new issue of 6.875 percent New Senior Secured Notes due 2020, which have been registered under the Securities act of 1933, as amended.

Prior to May 15, 2015, we may redeem in the aggregate up to 35 percent of the New Senior Secured Notes with the net cash proceeds of one or more equity offerings at a redemption price of 106.875 percent of the principal amount, provided that at least 65 percent of the original principal amount of the New Senior Secured Notes must remain outstanding after each redemption and that each redemption occurs within 90 days of the closing of the equity offering. In addition, prior to May 15, 2015, but not more than once in any twelve-month period, we may redeem up to 10 percent of the New Senior Secured Notes at a redemption price of 103 percent plus accrued and unpaid interest. The New Senior Secured Notes are redeemable at our option, in whole or in part, at any time on or after May 15, 2015 at set redemption prices together with accrued and unpaid interest.

On March 25, 2011, Libbey Glass redeemed an aggregate principal amount of $40.0 million of the Old Senior Secured Notes in accordance with the terms of the Old Notes Indenture. Pursuant to the terms of the Old Notes Indenture, the redemption price for the Old Senior Secured Notes was 103 percent of the principal amount of the redeemed Old Senior Secured Notes, plus accrued and unpaid interest. At completion of the redemption, the aggregate principal amount of the Old Senior Secured Notes outstanding was $360.0 million. In conjunction with this redemption, we recorded $2.8 million of expense, representing $1.2 million for an early call premium and $1.6 million for the write off of a pro rata amount of financing fees and discounts.

We had an Interest Rate Agreement (Old Rate Agreement) in place through April 18, 2012 with respect to $80.0 million of our Old Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. The Old Rate Agreement effectively converted this portion of our long-term borrowings from fixed rate debt to variable rate debt. The variable interest rate for our borrowings related to the Old Rate Agreement at April 18, 2012, excluding applicable fees, was 7.79 percent. Total remaining Old Senior Secured Notes not covered by the Old Rate Agreement had a fixed interest rate of 10.0 percent per year. On April 18, 2012, the swap was called at fair value. We received proceeds of $3.6 million. During the second quarter of 2012, $0.1 million of the carrying value adjustment on debt related to the Old Rate Agreement was amortized into interest expense. Upon the refinancing of the Old Senior Secured Notes, the remaining unamortized balance of $3.5 million of the carrying value adjustment on debt related to the Old Rate Agreement was recognized as a gain in the loss on redemption of debt on the Consolidated Statements of Operations.

On June 18, 2012, we entered into an Interest Rate Agreement (New Rate Agreement) with respect to $45.0 million of our New Senior Secured Notes as a means to manage our fixed to variable interest rate ratio. The New Rate Agreement effectively converts this portion of our long-term borrowings from fixed rate debt to variable rate debt. Prior to May 15, 2015, but not more than once in any twelve-month period, the counterparty may call up to 10 percent of the New Rate Agreement at a call price of 103 percent. The New Rate Agreement is callable at the counterparty’s option, in whole or in part, at any time on or after May 15, 2015 at set call premiums. The variable interest rate for our borrowings related to the New Rate Agreement at December 31, 2012, excluding applicable fees, is 5.57 percent. This New Rate Agreement expires on May 15, 2020. Total remaining New Senior Secured Notes not covered by the New Rate Agreement have a fixed interest rate of 6.875 percent per year through May 15, 2020. If the counterparty to this New Rate Agreement were to fail to perform, this New Rate Agreement would no longer afford us a variable rate. However, we do not anticipate non-performance by the counterparty. The interest rate swap counterparty was rated A+, as of December 31, 2012, by Standard and Poor’s.

The fair market value and related carrying value adjustment are as follows:



(dollars in thousands)	December 31, 2012		December 31, 2011
Fair market value of Rate Agreements - asset (liability)	$	298	$	3,606
Adjustment to increase (decrease) the carrying value of the related long-term debt	$	408	$	4,043

The net impact recorded on the Consolidated Statements of Operations is as follows:



For the year ended December 31, (dollars in thousands)	2012		2011		2010
Income (expense) on hedging activities in other income (expense)	$	280	$	293	$	(730	)
Income on hedging activities in loss on redemption of debt	$	3,502	$	—	$	—

The fair value of the Old and New Rate Agreements are based on the market standard methodology of netting the discounted expected future fixed cash receipts and the discounted future variable cash payments. The variable cash payments are based on an expectation of future interest rates derived from observed market interest rate forward curves. See note 13 for further discussion.

Promissory Note

In September 2001, we issued a $2.7 million promissory note at an interest rate of 6.0 percent in connection with the purchase of our Laredo, Texas warehouse facility. At December 31, 2012 and December 31, 2011, we had $0.9 million and $1.1 million, respectively, outstanding on the promissory note. Principal and interest with respect to the promissory note are paid monthly.

Notes Payable

We have an overdraft line of credit for a maximum of €1.0 million. At December 31, 2012, there were no borrowing under the facility, which had an interest rate of 5.80 percent. The $0.3 million outstanding at December 31, 2011, was the U.S. dollar equivalent under the euro-based overdraft line. Interest with respect to the note is paid monthly.

RMB Loan Contract

On January 23, 2006, Libbey Glassware (China) Co., Ltd. (Libbey China), an indirect wholly owned subsidiary of Libbey Inc., entered into an RMB Loan Contract (RMB Loan Contract) with China Construction Bank Corporation Langfang Economic Development Area Sub-Branch (CCB). Pursuant to the RMB Loan Contract, CCB agreed to lend to Libbey China RMB 250.0 million, or the equivalent of approximately $39.7 million, for the construction of our production facility in China and the purchase of related equipment, materials and services. The loan has a term of eight years and bears interest at a variable rate as announced by the People’s Bank of China. As of the date of the initial advance under the Loan Contract, the annual interest rate was 5.51 percent, and as of December 31, 2012, the annual interest rate was 5.90 percent. As of December 31, 2012, the outstanding balance was RMB 60.0 million (approximately $9.5 million). As of December 31, 2011, the outstanding balance was RMB 180.0 million (approximately $28.3 million). Interest is payable quarterly. In 2012 and 2011, we pre-paid principal payments of RMB 120.0 million (approximately $19.0 million) and RMB 70.0 million (approximately $11.1 million), respectively. A principal payment in the amount of RMB 60.0 million (approximately $9.5 million) is due on January 20, 2014. The obligations of Libbey China are secured by a guarantee executed by Libbey Inc. for the benefit of CCB and a mortgage lien on the Libbey China facility.

BES Euro Line

In January 2007, Crisal entered into a seven-year, €11.0 million line of credit (approximately $14.5 million) with Banco Espírito Santo, S.A. (BES). The $4.4 million outstanding at December 31, 2012, was the U.S. dollar equivalent of the €3.3 million outstanding under the line at an interest rate of 3.77 percent. Payment of principal in the amount of €3.3 million (approximately $4.4 million) is due in December 2013. Interest with respect to the line is paid every semi-annually.

AICEP Loan

In July 2012, Libbey Portugal entered into a loan agreement with Agencia para Investmento Comercio Externo de Portugal, EPE (AICEP), the Portuguese Agency for investment and external trade. The amount of the loan is €1.0 million (approximately $1.3 million) and has an interest rate of 0.0 percent. Semi-annual installments of principal are due beginning in January 2016 through the maturity date of July 2018.

Fair Value of Borrowings

The fair value of our debt has been calculated based on quoted market prices (Level 1 in the fair value hierarchy) for the same or similar issues. Our $450.0 million of New Senior Secured Notes had an estimated fair value of $488.3 million at December 31, 2012. This compares to our $360.0 million of Old Senior Secured Notes with an estimated fair value of $385.2 million at December 31, 2011. The fair value of the remainder of our debt approximates carrying value at December 31, 2012 and 2011 due to variable rates.

Capital Resources and Liquidity

Historically, cash flows generated from operations, cash on hand and our borrowing capacity under our ABL Facility have enabled us to meet our cash requirements, including capital expenditures and working capital requirements. At December 31, 2012 we had no amounts outstanding under our $100.0 million ABL Facility, although we had $8.5 million of letters of credit issued under that facility. As a result, we had $68.6 million of unused availability remaining under the ABL Facility at December 31, 2012, as compared to $63.8 million of unused availability at December 31, 2011. In addition, we had $67.2 million of cash on hand at December 31, 2012, compared to $58.3 million of cash on hand at December 31, 2011.

On May 18, 2012, we used the proceeds of a debt offering of $450.0 million of 6.875 percent New Senior Secured Notes, to repurchase and cancel $320.0 million of 10.0 percent Old Senior Notes that were outstanding at that date, amend and restate our ABL Facility, and contribute $79.7 million to our U.S. pension plans to fully fund our target obligations under ERISA. On June 29, 2012, we used the remaining proceeds of the New Senior Secured Notes, together with cash on hand, to redeem the remaining $40.0 million of Old Senior Secured Notes.

In addition, we prepaid RMB 120.0 million (approximately $19.0 million) on our loan in China that was not due until 2013, and we repaid €2.8 million (approximately $3.7 million) on our BES Euro Line in 2012.

Based on our operating plans and current forecast expectations, we anticipate that our level of cash on hand, cash flows from operations and our borrowing capacity under our amended and restated ABL Facility will provide sufficient cash availability to meet our ongoing liquidity needs.