Rayovac 2006 Annual Report Download - page 50

38 SPECTRUM BRANDS | 2006 ANNUAL REPORT
The Senior Credit Facilities contain fi nancial covenants with
respect to borrowings, which include maintaining minimum
interest coverage and maximum leverage ratios. In accordance
with the Senior Credit Facilities, the limits imposed by such
ratios become more restrictive over time. In addition, the Senior
Credit Facilities restrict our ability to, among other things, incur
additional indebtedness, create liens, make investments or speci-
fi ed payments, give guarantees, pay dividends, make capital
expenditures and enter into a merger or acquisition or sell assets.
Indebtedness under these facilities (i) is secured by substantially
all of our assets and (ii) is guaranteed by certain of our subsidiar-
ies. (Please see the remainder of this discussion and Item 9B,
OTHER INFORMATION, herein for additional information
about fi nancial covenants.)
The terms of both the $350 million 81
/
2% and $700 million
73
/
8% Senior Subordinated Notes permit the holders to require us
to repurchase all or a portion of the notes in the event of a change
of control. In addition, the terms of the notes restrict or limit our
ability to, among other things: (i) pay dividends or make other
restricted payments; (ii) incur additional indebtedness and issue
preferred stock; (iii) create liens; (iv) enter into mergers, consoli-
dations or sales of all or substantially all of our assets; (v) make asset
sales; (vi) enter into transactions with affi liates; and (vii) issue or
sell capital stock of our wholly owned subsidiaries. Payment obli-
gations of the notes are fully and unconditionally guaranteed on a
joint and several basis by all of our domestic subsidiaries.
Due to a downgrade of our credit rating on January 30, 2006
and two credit amendments with our senior lenders which
occurred on December 12, 2005 and May 9, 2006, interest costs
on our existing U.S. Dollar and Canadian Dollar Term Loans
increased 100 basis points from 2.00% to 3.00%. Interest costs
on our existing Revolving Credit Facility increased by 75 basis
points as a result of the May 9, 2006 amendment.
Interest costs on our existing Euro Term Loan increased by 50
basis points due to a downgrade of our credit rating on January 30,
2006 and the May 9, 2006 amendment. Interest costs on our exist-
ing Euro Tranche B Term Loan increased from 2.25% to 3.00%
due to a downgrade of our credit rating on January 30, 2006
and the May 9, 2006 amendment. In connection with the
December 12, 2005 amendment, we incurred approximately
$2.1 million of fees and approximately $3.5 million in fees for the
May 9, 2006 credit amendment. Fees are being amortized over the
remaining term of the Senior Credit Facilities.
Under the terms of an amendment to our credit agreement
dated May 9, 2006, interest costs on indebtedness under our
Revolving Credit Facility, U.S. Dollar, Canadian Dollar and Euro
Term loans would decrease if our leverage ratio improves to cer-
tain levels in future periods.
We were in compliance with all covenants associated with our
Senior Credit Facilities, as amended, and Senior Subordinated
Notes, with the exception of the Fixed Charge Coverage Ratio
relating to the Senior Subordinated Notes, that were in effect as
of and during the period ended September 30, 2006. Due to sig-
nifi cant restructuring charges and reduced business performance,
we are not in compliance with the minimum requirement of 2:1
for the Fixed Charge Coverage Ratio under the indentures gov-
erning our Subordinated Notes. Until we return to compliance
with the ratio, we are limited in our ability to make signifi cant
acquisitions or incur signifi cant additional senior debt beyond
our existing Senior Credit Facilities. We do not expect this to
impair our ability to provide adequate liquidity to meet the short-
term and long-term liquidity requirements of our existing busi-
ness, although no assurance can be given in this regard.
We have engaged advisors to assist with a sale of various assets
in order for us to sharpen our focus on strategic growth busi-
nesses, reduce our outstanding indebtedness and maximize long-
term shareholder value. In connection with this undertaking, we
have entered into discussions to dispose of certain of our assets.
The assets which are the subject of such discussions, subject to
negotiations of a defi nitive sales agreement, consist primarily of:
inventory; goodwill and intangible assets; and property plant and
equipment, as well as executory contracts related to the assets to
be disposed. We currently expect that any such sale would be con-
summated during the second quarter of fi scal 2007. See Note 18,
Subsequent Events, of Notes to Consolidated Financial Statements
of this Annual Report on Form 10-K for additional information
regarding this divestiture.
On December 12, 2006, we reached agreement with our
Senior Lenders to amend the maximum consolidated leverage
ratio and the minimum consolidated interest coverage ratio cove-
nants associated with our Senior Credit Facilities effective for the
periods ended December 31, 2006 and April 1, 2007. The amend-
ment raises the interest rate on all of our debt under our Senior
Credit Facilities by 0.25% per annum until we prepay at least
$500 million in principal amount of our term loans with pro-
ceeds from the sale of certain of our assets. Our ability to com-
ply with future debt covenants beyond the fi rst quarter of fi scal
2007, ending December 31, 2006, will depend on our ability to
consummate the disposal of the above mentioned assets on
favorable contractual terms. In connection with the amend-
ment, we incurred approximately $1.3 million of fees which
are being amortized over the remaining term of our Senior
Credit Facilities. Failure to comply with the fi nancial covenants
and other provisions could materially adversely affect our abil-
ity to fi nance our future operations or capital needs and could
create a default under such instrument and cause all amounts
borrowed to become due and payable immediately. In the event
of default under the Senior Credit Facilities, the amounts out-
standing under our Senior Subordinated Notes would also be
subject to acceleration.
2006 Form 10-K Annual Report
Spectrum Brands, Inc.