Avon 2012 Annual Report Download - page 53

PART II
Term Loan Agreement
On June 29, 2012, we entered into a $500.0 term loan agreement (the “term loan agreement”). Subsequently on August 2, 2012, we
borrowed an incremental $50.0 of principal from subscriptions by new lenders under the term loan agreement. At December 31, 2012,
$550.0 remained outstanding under the term loan agreement.
The term loan agreement contains covenants limiting our ability to incur liens and enter into mergers and consolidations or sales of
substantially all our assets. In addition, the term loan agreement contains financial covenants which require our interest coverage ratio at the
end of each fiscal quarter to equal or exceed 4:1 and our leverage ratio to not be greater than 4:1 at the end of each fiscal quarter on or
prior to March 31, 2013, 3.75:1 at the end of each fiscal quarter on or prior to December 31, 2013, and 3.5:1 at the end of each fiscal
quarter thereafter. The interest coverage ratio is determined by dividing our consolidated EBIT (as defined in the term loan agreement) by
our consolidated interest expense, in each case for the period of four fiscal quarters ending on the date of determination. The leverage ratio
is determined by dividing the amount of our consolidated funded debt on the date of determination by our consolidated EBITDA (as defined
in the term loan agreement) for the period of four fiscal quarters ending on the date of determination. For purposes of calculating the ratios,
consolidated EBIT and consolidated EBITDA are adjusted for non-cash expenses. In addition, the term loan agreement contains customary
events of default and cross-default provisions. We were in compliance with our interest coverage and leverage ratios under the term loan
agreement for the four fiscal quarters ended December 31, 2012.
Pursuant to the term loan agreement, we are required to repay an amount equal to 25% of the aggregate principal amount of the term
loan on June 29, 2014, and the remaining outstanding principal amount of the term loan on June 29, 2015. Amounts repaid or prepaid
under the term loan agreement may not be reborrowed. Borrowings under the term loan agreement bear interest, at our option, at a rate
per annum equal to LIBOR plus an applicable margin or a floating base rate plus an applicable margin, in each case subject to adjustment
based on our credit ratings. The term loan agreement also provides for mandatory prepayments and voluntary prepayments. Subject to
certain exceptions (including the issuance of commercial paper and draw-downs on our revolving credit facility), we are required to prepay
the term loan in an amount equal to 50% of the net cash proceeds received from any incurrence of debt for borrowed money in excess of
$500.
Private Notes
On November 23, 2010, we issued, in a private placement exempt from registration under the Securities Act of 1933, as amended, $142
principal amount of 2.60% Senior Notes, Series A, due November 23, 2015, $290 principal amount of 4.03% Senior Notes, Series B, due
November 23, 2020, and $103 principal amount of 4.18% Senior Notes, Series C, due November 23, 2022 (collectively, the “Private
Notes”). The Private Notes are senior unsecured obligations of the Company, rank equal in right of payment with all of our other senior
unsecured indebtedness, and are unconditionally guaranteed by one of our wholly-owned subsidiaries. The proceeds from the sale of the
Private Notes were used to repay existing debt and for general corporate purposes.
The total $535 principal amount of the Private Notes were issued pursuant to a note purchase agreement that contains covenants limiting,
among other things, the ability of our subsidiaries to incur indebtedness, our and our subsidiaries’ ability to incur liens and our and any
subsidiary guarantor’s ability to enter into mergers and consolidations or sales of substantially all of our or its assets. In addition, the note
purchase agreement contains a financial covenant which requires our interest coverage ratio at the end of each fiscal quarter to equal or
exceed 4:1. The interest coverage ratio is determined by dividing our consolidated pre-tax income by our consolidated interest expense, in
each case for the period of four fiscal quarters ending on the date of determination. Except as set forth below, the note purchase agreement
does not provide for adjustments of our consolidated pre-tax income for certain one-time charges, such as non-cash impairments, currency
devaluations, or legal or regulatory settlements when calculating the interest coverage ratio. The note purchase agreement contains
customary events of default and cross-default provisions and any prepayment of the Private Note at our option would require payment of a
make-whole premium.
On July 31, 2012, we obtained a waiver from the holders of the Private Notes that allowed us to exclude the non-cash impairment charge
associated with the Silpada business recorded during the fourth quarter of 2011 from the interest coverage ratio calculation pursuant to our
note purchase agreement for the four fiscal quarters ended September 30, 2012. On August 15, 2012, we entered into the first amendment
to the note purchase agreement to, among other things, (i) add a financial covenant requiring our leverage ratio (which is calculated in the
same manner as in the term loan agreement) to not be greater than 4:1 at the end of each fiscal quarter on or prior to March 31, 2013, and
3.75:1 at the end of each fiscal quarter thereafter, unless a bank credit agreement or any other principal credit facility contains a leverage
ratio more favorable to the holders of the Private Notes, then such more favorable ratio will apply for the fiscal quarters ended March 31,