Annual report pursuant to Section 13 and 15(d)

Indebtedness

v3.6.0.2
Indebtedness
12 Months Ended
Dec. 31, 2016
Debt Disclosure [Abstract]  
Debt Disclosure
Indebtedness
Debt consisted of the following:
 
As of December 31,
 
2016
 
2015
Term loan credit facilities
$
284,233

 
$
256,519

Alon USA, LP Credit Facility

 
55,000

Convertible senior notes
136,602

 
129,623

Retail credit facilities
107,131

 
114,820

Total debt
527,966

 
555,962

Less: Current portion
16,414

 
16,420

Total long-term debt
$
511,552

 
$
539,542


(a)
Alon USA Energy, Inc.
Convertible Senior Notes (share values in dollars). In September 2013, we completed an offering of 3.00% unsecured convertible senior notes (the “Convertible Notes”) in the aggregate principal amount of $150,000, which mature in September 2018. Interest on the Convertible Notes is payable in arrears in March and September of each year. The Convertible Notes are not redeemable at our option prior to maturity. Under the terms of the Convertible Notes, the holders of the Convertible Notes cannot require us to repurchase all or part of the notes except for instances of a fundamental change, as defined in the indenture. The Convertible Notes do not contain any maintenance financial covenants.
The holders of the Convertible Notes may convert at any time after June 15, 2018 if our common stock is above the conversion price. Prior to June 15, 2018 and after December 31, 2013, holders may convert if our common stock is 130% above the conversion price, as defined in the indenture. The Convertible Notes may be converted into shares of our common stock, into cash, or into a combination of cash and shares of common stock, at our election. Our current intent is to settle conversions of each $1 (in thousands) principal amount of the Convertible Notes through cash payments, with any excess of this amount to be settled by a combination of cash and shares of our common stock.
The conversion rate of the Convertible Notes is subject to adjustment upon the occurrence of certain events, including cash dividend adjustments, but will not be adjusted for any accrued and unpaid interest. As of December 31, 2016, the adjusted conversion rate was 73.171 shares of our common stock per each $1 (in thousands) principal amount of Convertible Notes, equivalent to a per share conversion price of approximately $13.67, to reflect cash dividend adjustments. As of December 31, 2016, there have been no conversions of the Convertible Notes.
The Convertible Notes were issued at an offering price of 100% and we received gross proceeds of $150,000 (before fees and expenses related to the offering). We used $15,225 of the proceeds to fund the cost of entering into convertible note hedge transactions (after such cost was partially offset by the proceeds we received from entering into warrant transactions) described below.
The $150,000 principal amount of the Convertible Notes was separated between the liability component and the equity component (i.e. the embedded conversion feature). The fair value of the liability component was calculated using a discount rate of an identical unsecured instrument without a conversion feature. Based on this borrowing rate, the fair value of the liability component of the Convertible Notes on the issuance date was $119,635, with a corresponding debt discount of $30,365, to be amortized at an effective interest rate of 8.15% over the term of the Convertible Notes. The carrying amount of the embedded conversion feature was determined to be $30,365, by deducting the fair value of the liability component from the $150,000 principal amount of the Convertible Notes. The embedded conversion feature was recorded to additional paid-in capital because this financial instrument could be settled in our common stock and does not meet the definition of a derivative instrument. Additionally, $4,933 of transaction costs were allocated on a proportionate basis between long-term debt and additional paid-in capital in the consolidated balance sheets.
For the years ended December 31, 2016, 2015 and 2014, interest expense on the Convertible Notes’ contractual coupon rates was $4,500, $4,500 and $4,500, respectively. The amounts charged to interest expense for amortization of the original issuance discount on the Convertible Notes for the years ended December 31, 2016, 2015 and 2014 were $6,180, $5,674 and $5,208, respectively.
As of December 31, 2016, the if-converted value of the Convertible Notes did not exceed the outstanding principal balance.
The principal balance, unamortized discount, unamortized issuance costs and net carrying amount of the liability and equity components of the Convertible Notes as of December 31, 2016 and 2015 are as follows:
 
As of December 31,
 
2016
 
2015
Equity component, pretax (1)
$
30,365

 
$
30,365

Convertible Notes:
 
 
 
Principal balance
150,000

 
150,000

Less: Unamortized issuance discount
(11,848
)
 
(18,028
)
Less: Unamortized issuance costs
(1,550
)
 
(2,349
)
Convertible Notes, net
$
136,602

 
$
129,623

_________________
(1)A deferred tax liability of $11,171 was recognized related to the issuance of the Convertible Notes.
Convertible Note Hedge Transactions
In connection with the Convertible Notes offering, we also entered into convertible note hedge transactions with respect to our common stock (the “Purchased Options”) with the initial purchasers of the Convertible Notes (the “Hedge Counterparties”). We paid an aggregate amount of $28,455 to the Hedge Counterparties for the Purchased Options. The Purchased Options allow us to purchase up to 10,975,665 shares of our common stock, subject to customary anti-dilution adjustments, that underlie the Convertible Notes sold in the offering. As of December 31, 2016, the Purchased Options had an adjusted strike price of $13.67 per share of our common stock. The Purchased Options will expire in September 2018.
The Purchased Options are intended to reduce the potential dilution with respect to our common stock upon conversion of the Convertible Notes as well as offset any potential cash payments we are required to make in excess of the principal amount upon any conversion of the notes. The Purchased Options of $17,987, which is net of tax of $10,468, have been included in additional paid-in capital on the consolidated balance sheets.
The Purchased Options are separate transactions and are not part of the terms of the Convertible Notes and are excluded from classification as a derivative as the amount could be settled in our stock. Holders of the Convertible Notes do not have any rights with respect to the Purchased Options.
Warrant Transactions
In connection with the Convertible Notes offering, we also entered into warrant transactions (the “Warrants”), whereby we sold to the Hedge Counterparties warrants in an aggregate amount of $13,230. The Warrants allow the Hedge Counterparties to purchase up to 10,975,665 shares of our common stock, subject to customary anti-dilution adjustments. As of December 31, 2016, the Warrants had an adjusted strike price of $18.57 per share of our common stock. The Warrants will be settled on a net-share basis and will expire in April 2019. The Warrants have been included in additional paid-in capital on the consolidated balance sheets.
The Warrants are separate transactions and are not part of the terms of the Convertible Notes and are excluded from classification as a derivative as the amount could be settled in our stock. Holders of the Convertible Notes do not have any rights with respect to the Warrants.
Letter of Credit Facilities. In December 2013, we entered into a Letter of Credit Facility (the “Alon Energy Letter of Credit Facility”). The Alon Energy Letter of Credit Facility is for the issuance of standby letters of credit in an amount not to exceed $60,000. We are required to pledge $100,000 of the Partnership’s common units as collateral for the Alon Energy Letter of Credit Facility. Additionally, Alon Assets, Inc. (“Alon Assets”) was named as a guarantor, guaranteeing all of our obligations under the Alon Energy Letter of Credit Facility in the event of default. The Alon Energy Letter of Credit Facility matures November 2017 and contains certain restrictive covenants including maintenance financial covenants.
At December 31, 2016 and 2015, we had outstanding letters of credit under this facility of $57,727 and $60,627, respectively.
Alon Energy Term Loan. In March 2014, we entered into a five-year Term Loan Agreement (“Alon Energy Term Loan”) for a principal amount of $25,000, maturing in March 2019. Repayments are monthly, commencing June 2014. Borrowings under this agreement incur interest at an annual rate equal to LIBOR plus a margin of 3.75%. We pledged 4,033,333 of the Partnership’s common units as collateral for the Alon Energy Term Loan. Additionally, Alon Assets guarantees all payments under the Alon Energy Term Loan. The Alon Energy Term Loan contains certain restrictive covenants including maintenance financial covenants.
At December 31, 2016 and 2015, the Alon Energy Term Loan had an outstanding balance, net of unamortized issuance costs, of $11,574 and $16,717, respectively.
2015 Term Loan Credit Facility. In August 2015, we entered into a $3,049 unsecured term loan (“2015 Term Loan”), which requires principal repayments of $51 monthly until maturity in August 2020. Borrowings under the 2015 Term Loan incur interest at an annual rate equal to LIBOR plus 2.50%. At December 31, 2016 and 2015, the 2015 Term Loan had an outstanding balance, net of unamortized issuance costs, of $2,137 and $2,720, respectively.
2016 Term Loan. In December 2016, we entered into a $35,000 secured term loan (“2016 Term Loan”). The 2016 Term Loan requires quarterly principal repayments, commencing December 2018 until maturity in December 2020. The 2016 Term Loan bears interest at a rate equal to LIBOR plus a margin of 3.75% per annum. The 2016 Term Loan is secured by a lien on certain of our asphalt terminals. The 2016 Term Loan contains certain restrictive covenants, including maintenance financial covenants. At December 31, 2016, the 2016 Term Loan had an outstanding balance, net of unamortized issuance costs, of $34,203.
(b)
Alon USA Partners, LP
Partnership Term Loan Credit Facility. In November 2012, the Partnership entered into a $250,000 term loan (the “Partnership Term Loan”). The Partnership Term Loan requires principal payments of $2,500 per annum paid in quarterly installments until maturity in November 2018. The Partnership Term Loan bears interest at a rate equal to the sum of (i) the Eurodollar rate (with a floor of 1.25% per annum) plus (ii) a margin of 8.00% per annum. Based on Eurodollar market rates at December 31, 2016, the interest rate was 9.25% per annum.
The Partnership Term Loan is secured by a first priority lien on all of the Partnership’s fixed assets and other specified property, as well as on the general partner interest in the Partnership held by the General Partner, and a second lien on the Partnership’s cash, accounts receivables, inventories and related assets. The Partnership Term Loan contains restrictive covenants, such as restrictions on liens, mergers, consolidations, sales of assets, additional indebtedness, different businesses, certain lease obligations and certain restricted payments. The Partnership Term Loan does not contain any maintenance financial covenants.
At December 31, 2016 and 2015, the Partnership Term Loan had an outstanding balance, net of unamortized issuance costs and issuance discount, of $236,319 and $237,082, respectively.
Revolving Credit Facility. We have a $240,000 revolving credit facility (the “Alon USA, LP Credit Facility”) that will mature in May 2019. The Alon USA, LP Credit Facility can be used both for borrowings and the issuance of letters of credit subject to a limit of the lesser of the facility amount or the borrowing base amount under the facility. Borrowings under the Alon USA, LP Credit Facility bear interest at the Eurodollar rate plus 3.00% per annum.
The Alon USA, LP Credit Facility is secured by a first lien on the Partnership’s cash, accounts receivables, inventories and related assets and a second lien on the Partnership’s fixed assets and other specified property. The Alon USA, LP Credit Facility contains certain restrictive covenants including maintenance financial covenants.
At December 31, 2016, there were no outstanding borrowings under our Revolving Credit Facility, compared to borrowings of $55,000 at December 31, 2015. At December 31, 2016 and 2015, we had letters of credit outstanding of $100,613 and $48,590, respectively, under the Alon USA, LP $240,000 revolving credit facility.
(c)
Alon Refining Krotz Springs, Inc.
Senior Secured Notes. In October 2009, Alon Refining Krotz Springs, Inc. issued 13.50% senior secured notes (the “Senior Secured Notes”) in aggregate principal amount of $216,500 that matured in October 2014, with the entire principal amount due at maturity.
During 2014, we redeemed the remaining principal balance on the Senior Secured Notes. As a result of the prepayment of the Senior Secured Notes, write-offs of unamortized original issuance discount and debt issuance costs of $391 and $358, respectively, were charged to interest expense in the consolidated statements of operations for the year ended December 31, 2014.
(d)
Retail
Alon Retail Credit Agreement. In March 2014, Southwest Convenience Stores, LLC and Skinny’s LLC, (“Alon Retail”) entered into a credit agreement (“Alon Retail Credit Agreement”), maturing in March 2019. The Alon Retail Credit Agreement includes an initial $110,000 term loan and a $10,000 revolving credit loan. The Alon Retail Credit Agreement also includes an accordion feature that provides for incremental term loans up to $30,000 to fund store rebuilds, new builds and acquisitions. In August 2015, we borrowed $11,000 using the accordion feature and amended the Alon Retail Credit Agreement to restore the undrawn amount of the accordion feature back to $30,000. The $11,000 incremental term loan was used to fund our acquisition of 14 retail convenience stores in New Mexico (Note 11).
Borrowings under the Alon Retail Credit Agreement bear interest at the Eurodollar rate plus an applicable margin between 2.00% and 2.75% per annum, determined quarterly based upon Alon Retail’s leverage ratio. As of December 31, 2016, the applicable margin was 2.50% per annum. Principal payments are made in quarterly installments based on a 15-year amortization schedule.
Obligations under the Alon Retail Credit Agreement are secured by a first lien on substantially all of the assets of Alon Retail. The Alon Retail Credit Agreement also contains certain restrictive covenants including maintenance financial covenants.
At December 31, 2016 and 2015, the Alon Retail Credit Agreement had $96,922 and $104,540, respectively, of outstanding term loans, net of unamortized issuance costs, and $10,000 and $10,000, respectively, outstanding under the revolving credit loan.
Other Retail Related Credit Facilities. At December 31, 2016 and 2015, we have other loans that mature in 2019 with outstanding balances of $209 and $280, respectively.
(e)
Financial Covenants
We have certain credit agreements that contain maintenance financial covenants. At December 31, 2016, we were in compliance with these covenants.
(f)
Maturity of Long-Term Debt
The aggregate scheduled maturities of long-term debt for each of the four years subsequent to December 31, 2016 are as follows:
Year ended December 31,
 
2017
$
16,414

2018
405,310

2019
109,298

2020
15,961

Total
$
546,983


(g)
Interest and Financing Expense
Interest and financing expense included the following:
 
Year Ended December 31,
 
2016
 
2015
 
2014
Interest expense on debt
$
33,204

 
$
33,162

 
$
37,850

Letters of credit and finance charges
30,815

 
40,058

 
65,156

Amortization of debt issuance costs
3,052

 
3,595

 
3,759

Write-off of debt issuance costs

 

 
558

Amortization of original issuance discount
6,831

 
6,273

 
6,306

Write-off of original issuance discount

 

 
391

Less: Capitalized interest
(4,185
)
 
(3,262
)
 
(2,877
)
Total interest expense
$
69,717

 
$
79,826

 
$
111,143