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Loans under the Credit Agreement bear interest at a per annum rate equal to LIBOR plus a predetermined margin that ranges from 1.50%
to 2.25% or the Base Rate (as defined in the Credit Agreement) plus a predetermined margin that ranges from 0.50% to 1.25% . HSNi can elect
to borrow at either LIBOR or the Base Rate and the predetermined margin is based on HSNi's leverage ratio. The term loan interest rate as of
December 31, 2012 was 1.72% . HSNi pays a commitment fee ranging from 0.25% to 0.40%
(based on the leverage ratio) on the unused portion
of the revolving credit facility.
The amount available to HSNi under the revolving credit facility portion of the Credit Agreement is reduced by the amount of outstanding
letters of credit issued under the revolving credit facility, which totaled $29.2 million as of December 31, 2012. The ability to draw funds under
the revolving credit facility is dependent upon meeting the aforementioned financial covenants. As of December 31, 2012, the amount that could
be borrowed under the revolving credit facility, in consideration of the financial covenants and the outstanding letters of credit, was
approximately $320.8 million . As of December 31, 2012, there was no outstanding balance due under the revolving credit facility.
On July 28, 2008, HSNi issued $240 million of 11.25% senior notes due 2016 (the “Senior Notes”).
The Senior Notes were fully redeemed
on August 1, 2012 for $253.5 million , or 105.625% of the principal amount, plus accrued and unpaid interest to the redemption date, at which
time the Senior Notes were no longer deemed to be outstanding, interest ceased to accrue thereon and all rights of the holders of the Senior Notes
ceased to exist, except for the right to receive the redemption price. HSNi drew $250 million from its term loan on July 31, 2012 and used its
cash on hand to fund the redemption. HSNi reported approximately $18.6 million in pre-tax charges primarily associated with redemption of the
Senior Notes. These charges resulted from the redemption premium of $13.5 million and $5.1 million related to the write-off of unamortized
issuance costs and original issue discount.
Aggregate contractual maturities of long-term debt are as follows (in thousands):
NOTE 8—DERIVATIVE INSTRUMENTS
HSNi uses derivatives in the management of its interest rate risk with respect to its variable rate debt. HSNi's strategy is to eliminate the
cash flow risk on a portion of its variable rate debt caused by changes in the benchmark interest rate (LIBOR). Derivative instruments are not
entered into for speculative purposes.
HSNi entered into a forward-starting interest rate swap agreement on December 20, 2012 with a notional amount of $187.5 million at a
fixed rate of 0.8525% , resulting in an all-in fixed rate of 2.3525% based on HSNi's leverage ratio as of December 31, 2012. The interest rate
swap takes effect on January 31, 2014 with a maturity date in April 2017. Under this swap, HSNi pays at a fixed rate and receives payments at a
variable rate based on one-month LIBOR. The swap effectively fixes the floating LIBOR-based interest of our outstanding LIBOR-based debt.
The interest rate swap was designated and qualified as a cash flow hedge; therefore, the effective portion of the changes in fair value is recorded
in accumulated other comprehensive income. Any ineffective portions of the changes in fair value of the interest rate swap will be immediately
recognized directly to earnings in the consolidated statement of operations. As of December 31, 2012, the change in fair value of the interest rate
swap totaling $0.5 million , net of tax, was reflected in accumulated other comprehensive income. As of December 31, 2012, HSNi estimates
that none of the unrealized losses included in accumulated other comprehensive income related to this swap will be realized and reported in
earnings within the next twelve months.
The fair value of the interest rate swap liability as of December 31, 2012 was $0.8 million and was recorded in "Other long-term
liabilities" in the consolidated balance sheets. See Note 9 for discussion of of the fair value measurements concerning this interest rate swap.
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Years Ending December 31,
2013
$
9,375
2014
12,500
2015
17,188
2016
18,750
2017
192,187
$
250,000