Rayovac 2007 Annual Report Download - page 29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Spectrum Brands, Inc.
SPECTRUM BRANDS | 2007 ANNUAL REPORT 27
The Term Loan Facilities are subject to repayment according
to a scheduled amortization, with the fi nal payment of all
amounts outstanding, plus accrued interest, due on March 30,
2013. Beginning with the fi scal year ended September 30, 2007,
the Senior Credit Agreement provides for annual mandatory
prepayments, over and above the normal amortization as a result
of excess cash fl ow, as defi ned in the Senior Credit Agreement.
The Senior Credit Agreement also provides for other mandatory
prepayments, subject to certain exceptions and reinvestment
provisions, of net proceeds as a result of certain events, including
the issuance of debt, sales of certain assets above a specifi ed
threshold, receipt of proceeds from certain casualty events and
the issuance of equity interests by us or any of our subsidiaries.
The Senior Credit Agreement contains fi nancial covenants with
respect to debt which include a maximum senior secured leverage
ratio. In accordance with the agreement, the limits imposed by
such ratio become more restrictive over time. In addition, the
Senior Credit Agreement contains customary restrictive cove-
nants, including, but not limited to, restrictions on our ability to
incur additional indebtedness, create liens, make investments or
specifi ed payments, give guarantees, pay dividends, make capital
expenditures and merge or acquire or sell assets.
The Senior Credit Agreement also contains customary events
of default and is secured by substantially all of our domestic
assets pursuant to a Guarantee and Collateral Agreement entered
into on March 30, 2007.
The ABL Credit Facility includes a $60 million U.S. Dollar
Letter of Credit sub-facility and a $30 million U.S. Dollar swin-
gline loan sub-facility within the $225 million overall facility
amount. The ABL Facility is subject to repayment with the fi nal
payment of all amounts outstanding, plus accrued interest, due
on September 28, 2011. The ABL Facility provides for manda-
tory prepayments of net proceeds to the extent the borrowing
base is reduced or in connection with sales of business assets.
The ABL Agreement is secured by certain of our liquid assets,
including, among other things, deposit accounts and substan-
tially all of our domestic trade receivables and inventory and
contains customary restrictive covenants, including, but not
limited to, restrictions on our ability to incur additional indebt-
edness, create liens, make investments or specifi ed payments,
give guarantees, pay dividends, make capital expenditures and
merge or acquire or sell assets.
As of September 30, 2007, we were in compliance with all
covenants associated with the Senior Credit Facilities.
Senior Subordinated Notes
Beginning on March 16, 2007, we conducted an offer to exchange
the entire $350 million of outstanding principal amount of our
8½% Senior Subordinated Notes due 2013 (the “Existing Notes”)
for the same aggregate principal amount of Variable Rate Toggle
Senior Subordinated Notes due 2013 (the “New Notes”) pursuant
to the terms of an exchange offer (the “Exchange Offer”). The terms
of the Exchange Offer further provided that holders of Existing
Notes who tendered their Existing Notes for exchange following
the expiration of a consent solicitation period, which ended on
March 29, 2007, would receive a reduced principal amount of New
Notes in exchange for tendered Existing Notes. As of the expiration
of the Exchange Offer on April 13, 2007, holders of Existing Notes
had tendered $347 million of Existing Notes, which were accepted
by us and exchanged, pursuant to the terms of the Exchange Offer,
for $347 million of New Notes. At September 30, 2007, $3 million
principal amount of Existing Notes remained outstanding.
In connection with the Exchange Offer, on March 30, 2007,
we and certain of our domestic subsidiaries, as guarantors,
entered into an indenture (the “Indenture”) with Wells Fargo
Bank, N.A., as trustee (the “Trustee”), governing the New Notes.
Approximately $4 million of fees and expenses incurred in
association with the Exchange Offer have been capitalized and
will be amortized over the term of the New Notes. In addition,
in connection with the Exchange Offer approximately $9 mil-
lion of debt issuance costs associated with the Existing Notes
were written off and included in Interest expense in the Consoli-
dated Statements of Operations for the fi scal year ended Sep-
tember 30, 2007.
Subject to certain conditions, we have the option to pay interest
on the New Notes entirely in cash or by increasing the principal
amount of the New Notes. The New Notes are subject to a variable
rate of interest that increases semi-annually, varying depending
on whether interest is paid in cash or increased principal. As of
September 30, 2007, the New Notes bore interest at 11.25%.
Interest will be payable semi-annually in arrears on October 2 and
April 2. We made the fi rst interest payment in cash on October 2,
2007. At such time as the Fixed Charge Coverage Ratio test under
the Indenture governing the New Notes is above 2:1, we are
required to pay interest of 1% over the scheduled rates referred to
above. We will make each interest payment to the holders of record
of the New Notes as of the immediately preceding March 15 and
September 15, respectively. The New Notes are general unsecured
obligations of us. The New Notes are subordinated in right of pay-
ment to all existing and future senior debt by us, including our
indebtedness pursuant to the Senior Credit Facilities. The New
Notes are equal in right of payment with all existing and any future
senior subordinated indebtedness of ours, including, without
limitation, our 7 3
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8% Senior Subordinated Notes due 2015 and our
Existing Notes, which remain outstanding following the closing of
the Exchange Offer. The New Notes are also senior in right of pay-
ment to any future subordinated indebtedness of ours.
The terms of the New Notes are governed by the Indenture.
The Indenture contains customary covenants that limit our abil-
ity to, among other things, incur additional indebtedness, pay
dividends on or redeem or repurchase our equity interests, make
certain investments, expand into unrelated businesses, create