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Debt

3 Months Ended

Sep. 30, 2012

6. Debt:

On July 20, 2011, in connection with the Transaction, the Company (i) entered into senior secured credit facilities, consisting of an $875.0 million Term Loan B Facility and a $100.0 million Revolver, or the Credit Agreement, and (ii) issued $400.0 million aggregate principal amount of 11% Senior Notes. The Term Loan B Facility was issued at a discount of $8.75 million.

At June 30, 2012 and September 30, 2012, debt consisted of the following (in thousands):

	June 30,			September 30,
	2012			2012

Secured Term Loan B Facility	$	735,000		$	715,000
Less: Unamortized Discount		(7,479	)		(7,157	)
Secured Term Loan B Facility, net		727,521			707,843
Senior Notes due 2019 at 11%		400,000			400,000
Total debt		1,127,521			1,107,843

Current portion of long-term debt		-			-

Long-term debt	$	1,127,521		$	1,107,843

As of September 30, 2012, the fair value of the Company’s debt approximates carrying value.

The senior secured credit facilities and the indenture governing the Senior Notes issued in connection with the Transaction limit the Company’s ability to incur additional indebtedness, pay dividends or make other distributions or repurchase capital stock, make certain investments, enter into certain types of transactions with affiliates, use assets as security in other transactions, and sell certain assets.

The Company is required to meet a net senior secured leverage ratio covenant quarterly if any revolving loan, swing-line loan or letter of credit is outstanding on the last day of the quarter. The ratio is calculated as the consolidated net secured indebtedness as of the last day of the quarter (defined as the consolidated net debt secured by any lien minus any cash and permitted investments) to the preceding four quarters’ consolidated EBITDA (as defined in the Credit Agreement). As of June 30, 2012 and September 30, 2012, the Company’s net senior secured leverage ratio was 3.6x. During the period from July 21, 2011 through September 30, 2011 and the three months ended September 30, 2012, the Company borrowed and subsequently repaid $10.0 million and $20.0 million, respectively, under its Revolver. The Company had no outstanding letters of credit or borrowings under its Revolver as of June 30, 2012 and September 30, 2012. As of September 30, 2012, the Company was in compliance with all of its covenants.

Senior Secured Credit Facilities

Borrowings under the senior secured credit facilities bear interest at a rate equal to an applicable margin plus London Interbank Offered Rate, or LIBOR, with a 1.25% floor, or, at the Company’s option, an applicable margin plus an alternative base rate determined by reference to the higher of the prime rate or the federal funds rate plus 0.5%, with a 2.25% floor. In addition to paying interest on outstanding principal under the senior secured credit facilities, the Company pays a per annum commitment fee on undrawn amounts under the revolving credit facility and customary administrative fees. The senior secured credit facilities are guaranteed by the Company’s wholly-owned subsidiaries and by Sterling Parent. The Term Loan B Facility matures in July 2018 and the Revolver matures in July 2016.

In addition, the senior secured credit facilities require the Company to prepay outstanding term loans, subject to certain exceptions, in the case of excess cash flow, or ECF, and in the event of certain asset sales, condemnation events and issuances of debt. Any required ECF payments are due on October 15 each year. The Company repaid $140.0 million of its Term Loan B Facility in fiscal 2012, which satisfied all of the Company’s required quarterly principal payments for the term of the loan and satisfied the Company’s required ECF principal payments for fiscal 2012. The Company repaid $20.0 million in fiscal 2013, which partially satisfies the ECF requirement for fiscal 2013.

The $8.75 million Term Loan B Facility original issue discount is being amortized to interest expense using the effective interest method and added to the recorded debt amount over the seven year term of the loan. During the period from July 21, 2011 through September 30, 2011 and the three months ended September 30, 2012, $0.2 million and $0.3 million, respectively, of the original issue discount was amortized and reflected in interest expense in the condensed consolidated statements of operations.

Costs incurred in connection with the issuance of the debt are amortized using the effective interest method over the life of the related debt and accelerated to the extent that any repayment is made. Due to the repayments, the Company accelerated a proportional amount of the amortization of the debt issuance costs and original issue discount totaling $0.1 million for the three months ended September 30, 2012. During the period from July 21, 2011 through September 30, 2011 and the three months ended September 30, 2012, $1.2 million and $1.6 million, respectively, of debt issuance costs were amortized and reflected in interest expense in the condensed consolidated statements of operations.

For the three months ended September 30, 2012, interest accrued at an average rate of 6.5% for the Senior Secured Credit Facilities. Interest payments of $12.1 million were made in the three months ended September 30, 2012, including a $0.1 million commitment fee for the same period.

Senior Notes due 2019

The Senior Notes due 2019 are guaranteed by all of the Company’s wholly-owned subsidiaries. The guarantees are full and unconditional and joint and several. Each of the subsidiary guarantors are 100% owned by the Company and have no independent assets or operations.

Interest on the Senior Notes is payable semi-annually. The Senior Notes are redeemable in whole or in part, at the option of the Company, at varying redemption prices that generally include premiums. In addition, until October 1, 2014, the Company may, at its option redeem up to 35% of the then outstanding aggregate principal amount of the Senior Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 111% of the aggregate principal amount thereof.

For the three months ended September 30, 2012, interest accrued at an average rate of 11.0% for the Senior Notes. The Company paid $22.0 million of interest related to the Senior Notes in the three months ended September 30, 2012.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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