LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

12 Months Ended

Dec. 31, 2011

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

The Company’s long-term debt and capital leases at December 31, 2011 and December 31, 2010, consisted of the following:

	As of December 31,
	2011			2010

First Street Hospital, L.P.
2008 FSH Note Payable	$	6,519,289		$	6,879,965
2010 Construction Loan		4,322,039			4,439,150
2010 Equipment Loan		1,845,401			1,483,828
Capital Lease Obligations		68,285			286,699
First Street Surgical Center, L.P.
2008 FSSC Note Payable		1,376,859			1,453,032
First Surgical Woodlands, L.P.
2009 FSW Note Payable		-			73,909

		14,131,873			14,616,583
Less: Current Portion		(936,930	)		(916,913	)
Long-Term Portion	$	13,194,943		$	13,699,670

Long-Term Debt

In connection with the FSH Letter Loan Agreement, First Street Hospital, L.P. issued a secured promissory note in the original amount of $7,822,256 on January 8, 2008, to a financial institution (the “2008 FSH Note Payable”). The 2008 FSH Note Payable bears interest at 7.70% per annum and matures on January 8, 2013. The note calls for monthly interest and principal payments of $73,747, with a balloon payment due on January 8, 2013, of $6,162,583. As of December 31, 2011 and 2010, the Company owed $6,519,289 and $6,879,965, respectively on the 2008 FSH Note Payable, and recognized total interest expense of $524,284 and $551,249 during the years ended December 31, 2011 and 2010, respectively.

On May 4, 2010, First Street Hospital, L.P. entered into an unsecured $250,000 promissory note with a financial institution. The note bore interest at 6.50% per annum and matured on February 4, 2011. During 2010, the Company borrowed approximately $110,815 under the note and repaid it in full during 2010 with proceeds from the 2010 Equipment Loan. The Company recognized total interest expense of $3,945 year ended December 31, 2010.

On May 4, 2010, First Street Hospital, L.P. entered into a secured construction loan agreement (the “2010 Construction Loan”) with a financial institution. The loan agreement provides for advances equal to 80% of the “as completed” appraised value of the 2010 expansion of the Company’s First Street Hospital facility. Total advances under the loan agreement were $4,439,150. The loan agreement provides for the 2010 Construction Loan to be secured by real property owned by First Street Hospital, L.P., as well as accounts, inventory, fixtures, equipment and general intangibles. The loan was also guaranteed personally by certain former partners of First Street Hospital, L.P., who are current shareholders of the Company. The note bears interest at 6.50% per annum and matures on May 4, 2013. As of December 31, 2011 and 2010, the Company owed $4,322,039 and $4,439,150, respectively on the 2010 Construction Loan, and recognized total interest expense of $289,124 and $63,839 during the years ended December 31, 2011 and 2010, respectively.

In connection with the issuance of the 2010 Construction Loan facility, on November 30, 2010, First Street Hospital, L.P. entered into a secured promissory note (the “2010 Equipment Loan”) providing for a total principal amount of $1,863,062 with a financial institution. The 2010 Equipment Loan is also secured by real property owned by First Street Hospital, L.P., as well as accounts, inventory, fixtures, equipment and general intangibles. The 2010 Equipment Loan was also guaranteed personally by certain former partners of First Street Hospital, L.P., who are current shareholders of the Company. The note bears interest at 6.50% per annum and matures on November 30, 2013. As of December 31, 2011 and 2010, the Company owed $1,845,401 and $1,483,828, respectively on the 2010 Equipment Loan, and recognized total interest expense of $121,343 and $6,430 during the years ended December 31, 2011 and 2010, respectively.

In connection with the FSSC Letter Loan Agreement, First Street Surgical Center, L.P. issued a secured promissory note in the original amount of $1,652,030 on January 8, 2008, to a financial institution. The note bears interest at 7.70% per annum and matures on January 8, 2013. The note calls for monthly interest and principal payments of $15,502.88, with a balloon payment due on January 8, 2013, of $1,301,513. As of December 31, 2011 and 2010, the Company owed $1,376,859 and$1,453,032, respectively on the note, and recognized total interest expense of $110,728 and $116,425 during the years ended December 31, 2011 and 2010, respectively.

On September 18, 2009, First Surgical Woodlands, L.P. issued a $1,300,000 secured promissory note to a financial institution. The note bore interest at 5.95% per annum and matured on January 18, 2011. The Company repaid the outstanding balance of the note at maturity. The note was secured by all the equipment of First Surgical Woodlands, L.P. As of December 31, 2010, the Company owed $73,909 on the note, and recognized total interest expense of $36,884 during the year ended December 31, 2010.

Capital Lease Obligations

The Company engages in a significant number of leasing transactions including medical equipment, computer equipment and other equipment utilized in operations. Leases meeting certain accounting criteria have been recorded as an asset and liability at the lower of fair value or the net present value of the aggregate future minimum lease payments at the inception of the lease. Interest rates used in computing the net present value of the lease payments generally ranged from 5.914% to 26.814% based on the Company’s incremental borrowing rate at the inception of the lease. The Company’s leasing transactions include arrangements for equipment with major equipment finance companies and manufacturers who retain ownership in the equipment during the term of the lease

Long-Term Debt and Capital Lease Obligation Maturities

The Company’s schedule maturities of long-term debt and capital leases for the next five years and thereafter consisted of the following at December 31, 2011:

Year Ending
December 31,

2012	$	936,930
2013		13,194,943
2014		-
2015		-
2016		-
Thereafter		-
Total	$	14,131,873

The Company was in compliance with all debt covenants as of December 31, 2011.

- 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

First Surgical Partners Inc. 10-K