## 3. CApABILITY: RESOURCES AND CORE COMpETENCIES 

High Liner has both the financial and operational resources to achieve our objectives. 

## 3.1 LIqUIDITy AND CAPITAL RESOURCES 

Highlights for 2011 are as follows: 

• Increased short-term debt by $78.3 million to finance the Icelandic USA Acquisition; 

• Long-term debt and capital lease obligations, including current portion, of $243.6 million, up from the $52.4 million at the end of 2010 due to the Icelandic USA Acquisition; 

• Cash on hand at year-end of $3.3 million; 

• Net interest-bearing debt that is 70% of total capitalization; 

• US$180.0 million in committed lines of credit (more than US$40 million available at the end of 2011). 

## Debt 

High Liner entered into long-term funded debt agreement late in 2007. All real property and equipment and personal property have been pledged as collateral for this debt. For the first 24 months of the term, only interest was payable. Repayments were based on a 12-year amortization schedule, with the full repayment due on December 20, 2012. This funded debt was repaid as part of the refinancing for the Icelandic USA Acquisition. As a result of the payment, we incurred and paid a prepayment penalty for foregone interest in the amount of $2.4 million. 

High Liner obtained a new US$250.0 million senior secured term loan facility (“Term Loan”) in December 2011. Substantially all tangible and intangible assets of the Company are pledged as collateral for the Term Loan. Minimum repayments of US$2.5 million are required on an annual basis, plus 50% of defined excess, cash beginning in 2013, based on the previous year’s cash flow. The Term Loan bears interest at 5.50% plus LIBOR (floor of 1.5%) with standard covenants, including required interest coverage and leverage ratios. 

The terms of the new long-term debt facility require us to swap 50% of the variable interest rate for a fixed rate for the first two years. This was completed after year-end, and results in 50% of the US$250.0 million facility bearing a fixed effective interest rate of 7%, with the other 50% at variable rates. As such, we expect 1  that there will be fluctuations in interest expense due to changes in interest rates once LIBOR is higher than the floor of 150 BPS in addition to that on our working capital facility as discussed below. 

We entered into a new US$120.0 million asset-based working capital facility in November 2010 with the Royal Bank of Canada as collateral and administrative agent. This facility was amended in December 2011 as part of the Icelandic USA Acquisition. The amended facility is now a US$180.0 million asset-based working capital facility, which expires in 2017, and provides for the following: 

Canadian dollar Prime Rate loans and U.S. Base Rate loans • in U.S. dollars at Prime or Base Rate plus 0.00% to 1.00%; 

Bankers’ Acceptances (BA) loans at BA rates plus 1.75% • to 2.50%; 

LIBOR advances at LIBOR plus 1.75% to 2.50%; and • 

Unused line fees of 0.25% to 0.50%. • 

The above rates/spreads charged are based on Funded Debt to EBITDA ratios. At the end of 2011 we were borrowing at the high end of the rate structure as our leverage increased due to the recent Icelandic USA Acquisition. We expect leverage will decrease to more normal levels over the next few years as we pay-down loans with our cash flow from operations and realize synergies from the Acquisition. 

The asset-based working capital facility will 1  be sufficient to fund all of the Company’s current cash requirements for 2012. 

Full details of the financing arrangements are included in Notes 12 and 13 to the 2011 financial statements. 

Prior to the Icelandic USA Acquisition in December 2011, average short-term borrowings in 2011 were approximately $57 million compared to $18 million in 2010. In 2011, our short-term bank loans increased US$31.5 million as a result of the Viking Acquisition that closed in December 2010, which was funded from our short-term bank loan facility. During 2011, we generated cash that allowed us to pay down current bank loans, while the stronger Canadian dollar reduced the conversion of U.S. denominated debt to Canadian dollars. At December 31, 2011, our bank loans increased by approximately $60 million, due to the Icelandic USA Acquisition, to $121.0 million. Our unused available credit on pre-arranged short-term working capital borrowing facilities was approximately $40 million at year-end, based on margin calculations. We expect 1  available credit in 2012 to be lower than in 2011 due to the additional borrowing and expected higher average loan balances due to projected increases in the cost of inventory. 

The Company’s line of credit of US$180.0 million is a U.S. dollar line, of which US$120.0 million is allocated to our U.S. operations and the remainder is allocated to our Canadian operations. 

On January 1, 2011, we had letters of credit outstanding in the amount of US$3.5 million to secure obligations for the purchase of seafood, US$0.2 million to secure lease obligations with respect to a leased cold storage facility, and CAD$7.5 million to secure certain obligations under the Company’s supplemental executive retirement plan, for a total of CAD$11.2 million. These were extinguished during 

