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Notes, as discussed below. HSNi capitalized $5.5 million in financing costs related to the Credit Agreement and is amortizing
these costs to interest expense over the Credit Agreement's five-year term.
The Credit Agreement includes various covenants, limitations and events of default customary for similar facilities
including a maximum leverage ratio of 3.00x and a minimum interest coverage ratio of 3.00x. HSNi was in compliance with all
such covenants as of December 31, 2013, with a leverage ratio of 0.73x and an interest coverage ratio of 60.68x. The Credit
Agreement also contains covenants that limit our ability and the ability of our subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make other distributions to third parties, repurchase or redeem our stock, make
investments, sell assets, incur liens, enter into agreements restricting our subsidiaries' ability to pay dividends, enter into
transactions with affiliates and consolidate, merge or sell all or substantially all of our assets. Dividends, loans or advances to
HSNi by its subsidiaries are not restricted by the Credit Agreement.
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, 2013 was 1.66%. 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 $31.7 million as of December
31, 2013. The ability to draw funds under the revolving credit facility is dependent upon meeting the aforementioned financial
covenants. As of December 31, 2013, 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 $318.3 million. As of December 31, 2013, 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):
Years Ending December 31,
2014. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,500
2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,188
2016. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,750
2017. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 192,187
$ 240,625
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, 2013. 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. The change in fair value of the interest rate swap
was a gain of $0.8 million and a loss of $0.5 million, net of tax, for the years ended December 2013 and 2012, respectively, and