Debt

12 Months Ended

Dec. 25, 2011

DEBT

Long-term debt as of December 25, 2011 and December 26, 2010, including amounts payable within one year, was as follows (in thousands):



	December 25, 2011			December 26, 2010
Long-term debt:
10.5% Senior Secured Notes due November 2013	$	300,000		$	300,000
Unamortized discount	(3,066		)	(4,464		)
10.5% Senior Secured Notes due November 2013, net	296,934			295,536
8.5% Senior Subordinated Notes due February 2014	325,000			325,000
Asset-based Revolving Credit Facility, maturing July 2013	36,480			10,027
Canadian Revolving Credit Facility, maturing December 2013	—			2,669
Capital lease obligations	4,050			4,483
Total long-term debt	662,464			637,715
Less: Current maturities of long-term debt	452			430
Long-term debt, net of current maturities	$	662,012		$	637,285

Scheduled maturities of long-term debt at December 25, 2011, excluding capital lease obligations (Note 10), are as follows (in thousands):



	December 25, 2011
2013	$	336,480
2014	325,000
	$	661,480

On July 2, 2009, Solo Delaware and Solo Cup Operating Corporation issued $300.0 million of 10.5% Senior Secured Notes due 2013, and we entered into a new asset-based revolving credit facility providing for borrowings of up to $200.0 million, subject to borrowing base limitations and other specified terms and conditions. We used the initial borrowings under our asset-based revolving credit facility of $28.3 million, together with net proceeds of $293.8 million from the issuance of our senior secured notes, to (1) repay the $300.9 million of borrowings outstanding, including accrued interest thereon, under the first lien credit facility, (2) pay $17.3 million of debt issuance costs relating to the senior secured notes and the asset-based revolving credit facility, and (3) provide $3.9 million for operating needs. We deferred the debt issuance costs and are amortizing them through 2013, when the senior secured notes and borrowings under the asset-based revolving credit facility mature. As of December 25, 2011, unamortized debt issuance costs related to the refinancing of $8.4 million are included in other assets on our Consolidated Balance Sheet.

In connection with these refinancing transactions, we reclassified $9.1 million of unrealized losses associated with interest rate swap agreements from accumulated other comprehensive loss to interest expense during the thirteen weeks ended June 28, 2009. See further description in Note 12. In addition, the unamortized balance of debt issuance costs related to the first lien credit facility of $2.5 million was written off in July 2009 as a result of the refinancing.

10.5% Senior Secured Notes

Solo Delaware and Solo Cup Operating Corporation co-issued the senior secured notes under an indenture, dated as of July 2, 2009, among the co-issuers, the initial guarantors identified therein and U.S. Bank National Association, as trustee. The senior secured notes mature on November 1, 2013 and bear interest at a rate of 10.5% per annum. Interest on the senior secured notes is payable semi-annually on May 1 and November 1 of each year. We made our first interest payment on November 1, 2009 and have made all scheduled interest payments to date. The senior secured notes were issued at 97.928% of their aggregate principal amount for gross proceeds of $293.8 million, representing a yield to maturity of 11.125%. As of December 25, 2011, we were in compliance with the covenants included in this indenture.

The obligations of Solo Delaware and Solo Cup Operating Corporation under the senior secured notes are fully and unconditionally guaranteed, jointly and severally, by the existing guarantors under the indenture (SF Holdings Group, Inc., Solo Manufacturing LLC, P.R. Solo Cup, Inc., Solo Cup Owings Mills Holdings, Lily-Canada Holding Corporation, Solo Cup (UK) Limited, Insulpak Holdings Limited, Solo Cup Europe Limited and Solo Cup Finance Limited). The senior secured notes and related guarantees are secured by a senior lien on substantially all of the assets (other than accounts receivable, specified payment intangibles, inventory, deposit accounts, commodity accounts, securities accounts, lock-boxes, instruments, chattel paper, cash and cash equivalents, general intangibles related to any of the foregoing, proceeds and products of the foregoing and specified assets related thereto, and specifically excluded assets) of the co-issuers and guarantors and by a junior lien on the accounts receivable and other assets identified above that are not subject to the senior lien.

We may redeem all or a part of the senior secured notes at a redemption price equal to a percentage of the principal amount thereof, plus any accrued and unpaid interest. If redeemed during the 12-month period beginning May 1, 2011, the redemption price would be 105.25%. If redeemed on May 1, 2012 or thereafter, the redemption price would be 100%.

If specified change of control events occur, we must offer to repurchase the senior secured notes at a repurchase price equal to 101% of the principal amount of the senior secured notes repurchased, plus any accrued and unpaid interest to the applicable repurchase date. If we sell assets under specified circumstances, we must offer to repurchase the senior secured notes at a repurchase price equal to 100% of the principal amount of the senior secured notes repurchased, plus any accrued and unpaid interest to the applicable repurchase date.

The indenture contains covenants that, among other things, restrict the ability of Solo Delaware and its restricted subsidiaries to incur additional debt or issue disqualified stock or preferred stock; create liens; pay dividends, make investments or make other restricted payments; sell assets; consolidate, merge, sell or otherwise dispose of all or substantially all of the assets of Solo Delaware and its restricted subsidiaries; enter into transactions with affiliates; and designate subsidiaries as unrestricted. These covenants are subject to a number of important limitations and exceptions.

Asset-Based Revolving Credit Facility

The asset-based revolving credit facility provides for revolving credit financing of up to $200.0 million, including a $40.0 million sub-limit for letters of credit, and has a maturity date of July 2, 2013. Our ability to borrow under the asset-based revolving credit facility is limited to a borrowing base equal to 85% of eligible accounts receivable plus the lower of (1) 65% of eligible inventory and (2) 85% of the net orderly liquidation value of eligible inventory, minus availability reserves, and is subject to other conditions, limitations and reserve requirements. As of December 25, 2011, we had available capacity of $122.5 million under our asset-based revolving credit facility after taking into account borrowing base limitations and outstanding letters of credit.

Under the asset-based revolving credit facility, we have the right to increase the aggregate principal amount of the commitments from time to time, in an aggregate amount not to exceed $100.0 million, without the consent of any lender (other than the lenders participating in such increase), so long as any such increase is at least $25.0 million, subject to borrowing base limitations and other specified terms and conditions.

Interest accrues on outstanding borrowings under the asset-based revolving credit facility at a rate of either LIBOR (as defined in the asset-based revolving credit facility) plus a margin of 4% per annum or a specified base rate plus a margin of 3% per annum, at our option. These interest rate margins are subject to adjustment based on borrowing base availability. As of December 25, 2011, outstanding borrowings under the asset-based revolving credit facility bore interest at an effective rate of 6.25%. As of December 25, 2011, we were in compliance with the covenants included in this debt agreement.

8.5% Senior Subordinated Notes

On February 27, 2004, Solo Delaware issued $325.0 million of 8.5% Senior Subordinated Notes due 2014 under an indenture among the issuer, the initial guarantors identified therein and U.S. Bank National Association, as trustee. The senior subordinated notes mature on February 15, 2014 and bear interest at a rate of 8.5% per annum. Interest on the senior subordinated notes is payable semi-annually on February 15 and August 15 of every year. We have made all scheduled interest payments to date. As of December 25, 2011, we were in compliance with the covenants included in this indenture.

The obligations of Solo Delaware under the senior subordinated notes are fully and unconditionally guaranteed, jointly and severally, by the existing guarantors under the indenture (SF Holdings Group, Inc., Solo Manufacturing LLC, P.R. Solo Cup, Inc., Solo Cup Owings Mills Holdings, Lily-Canada Holding Corporation, Solo Cup (UK) Limited, Insulpak Holdings Limited, Solo Cup Europe Limited and Solo Cup Finance Limited).

The senior subordinated notes were not redeemable before February 15, 2009. Starting on that date, we have the option to redeem all or a portion of the senior subordinated notes at a redemption price equal to a percentage of the principal amount thereof plus accrued interest. If redeemed during the 12-month period from February 15, 2010, the applicable percentage is 102.833%; from February 15, 2011, the applicable percentage is 101.417%; and from February 15, 2012 and thereafter, the applicable percentage is 100% of the principal amount to be redeemed. The senior subordinated notes provide that upon the occurrence of a change of control, as defined, the holders thereof will have an option to require the redemption of the notes at a redemption price equal to 101% of the principal amount thereof, plus accrued interest. The indenture governing the senior subordinated notes contains various covenants which, subject to specified exceptions, prohibit, or limit, among other things, asset sales, changes of control, dividend payments, equity repurchases or redemptions, the incurrence of additional debt, the issuance of disqualified stock, specified transactions with affiliates, the creation of additional liens and specified other business activities.

Canadian Credit Facility

On December 15, 2010, Solo Cup Canada Inc. (“Solo Canada”), an indirect wholly owned subsidiary of Solo Cup Company, entered into a credit agreement (the “Canadian Credit Agreement”) with GE Canada Finance Holding Company (“GE Capital”), as a lender and agent for all lenders, providing for an asset-based revolving credit financing of up to CA$17.0 million, including a CA$2.0 million sublimit for letters of credit. The Canadian credit facility expires on December 15, 2013. The Canadian Credit Agreement amends and replaces in its entirety the Credit Agreement dated as of September 24, 2004, as amended, between Solo Canada (formerly known as Lily Cups Inc.), as borrower, and GE Capital, as agent and lender, and terminates the availability of borrowings thereunder.

Solo Canada’s ability to borrow under the Canadian credit facility is limited to a borrowing base equal to 85% of eligible accounts receivable; plus the lower of (a) 70% of eligible raw materials and finished goods inventory and (b) 85% of the net orderly liquidation value of eligible raw materials and finished goods inventory; plus the lower of (a) 25% of eligible work-in-process inventory and (b) CA$1.0 million; less availability reserves, and is subject to other conditions, limitations and reserve requirements. As of December 25, 2011, we had available capacity of $13.1 million under our Canadian credit facility after taking into account borrowing base limitations and outstanding letters of credit.

Solo Canada may borrow funds under the Canadian credit facility, at its option, in Canadian or U.S. dollars. Canadian dollar denominated loans bear interest, at Solo Canada’s option, at a variable rate equal to: (1) the Canadian Bankers Acceptance Rate (the “BA Rate”), plus 2.5% per annum; or (2) the Canadian Prime Rate (being the higher of the (a) Canadian Bank Prime Rate and (b) 1.35% over the 30-day BA Rate), plus 1.25% per annum. U.S. dollar denominated loans bear interest, at Solo Canada’s option, at a variable rate equal to: (1) the U.S. Base Rate, plus 0.75% per annum; or (b) LIBOR, plus 2.5% per annum. As of December 25, 2011, we had no outstanding borrowings under the Canadian ABL facility and we were in compliance with the covenants included therein.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details

Solo Cup CO 10-K