Annual report pursuant to Section 13 and 15(d)

Debt

v2.4.1.9
Debt
12 Months Ended
Jan. 31, 2015
Debt  
Debt

5. DEBT

 

Debt for The Michaels Companies, Inc. and MSI consisted of the following at the end of fiscal 2014 and fiscal 2013 (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Michaels Companies, Inc.

 

Michaels Stores, Inc.

 

 

 

 

 

 

 

January 31,

 

February 1,

 

January 31,

 

February 1,

 

 

    

Interest Rate

 

2015

 

2014

 

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restated term loan credit facility

 

 

 

Variable

 

$

2,453 

 

$

1,628 

 

$

2,453 

 

$

1,628 

 

Senior notes

 

 

 

7.75 

%

 

 —

 

 

1,006 

 

 

 —

 

 

1,006 

 

Senior subordinated notes

 

 

 

5.875 

%

 

515 

 

 

260 

 

 

515 

 

 

260 

 

PIK notes

 

 

 

7.50 % / 8.25

%

 

181 

 

 

800 

 

 

 —

 

 

 —

 

Total debt

 

 

 

 

 

 

3,149 

 

 

3,694 

 

 

2,968 

 

 

2,894 

 

Less current portion

 

 

 

 

 

 

(25)

 

 

(16)

 

 

(25)

 

 

(16)

 

Long-term debt

 

 

 

 

 

$

3,124 

 

$

3,678 

 

$

2,943 

 

$

2,878 

 

 

The aggregate amount of scheduled maturities of The Michaels Companies, Inc. and MSI debt for the next five years and thereafter is as follows (in millions):

 

 

 

 

 

 

 

 

 

Fiscal Year

 

The Michaels 
Companies, Inc.

 

Michaels
Stores, Inc.

 

2015

 

$

25 

 

$

25 

 

2016

 

 

25 

 

 

25 

 

2017

 

 

25 

 

 

25 

 

2018

 

 

206 

 

 

25 

 

2019

 

 

2,357 

 

 

2,357 

 

Thereafter

 

 

510 

 

 

510 

 

Total debt payments

 

 

3,148 

 

 

2,967 

 

Plus unrealized premium amortization

 

 

 

 

 

Less unrealized discount accretion

 

 

(4)

 

 

(4)

 

Total debt balance as of January 31, 2015

 

$

3,149 

 

$

2,968 

 

 

As of January 31, 2015 and February 1, 2014, the weighted-average interest rate of the variable debt was 3.84% and 3.75%, respectively. Cash paid for interest totaled $234 million, $183 million and $239 million in fiscal 2014, fiscal 2013 and fiscal 2012, respectively.

 

As of January 31, 2015, debt costs for The Michaels Companies, Inc. and MSI totaled $95 million and $91 million, respectively. We amortize deferred financing costs using the straight-line method over the terms of the respective debt agreements (which range from five to ten years). Amortization expense related to deferred financing costs is recorded in interest expense in the accompanying consolidated statements of comprehensive income.  The straight-line method produces results materially consistent with the effective interest method. Our expected amortization expense for The Michaels Companies, Inc. and MSI related to the deferred financing costs for each of the next five fiscal years and thereafter is as follows (in millions):

 

 

 

 

 

 

 

 

 

Fiscal Year

   

The Michaels 
Companies, Inc.

   

Michaels
Stores, Inc.

 

2015

 

$

 

$

 

2016

 

 

 

 

 

2017

 

 

 

 

 

2018

 

 

 

 

 

2019

 

 

 

 

 

Thereafter

 

 

 

 

 

Total amortization expense

 

$

41 

 

$

38 

 

 

Restated Term Loan Credit Facility

 

On October 31, 2006, MSI entered into a $2.4 billion senior secured term loan facility (“Senior Secured Term Loan Facility”) with Deutsche Bank AG New York Branch (“Deutsche Bank”) and other lenders. On January 28, 2013, MSI entered into an amended and restated credit agreement maturing on January 28, 2020 (the “Amended Credit Agreement”) to amend various terms of our Senior Secured Term Loan Facility, as amended. The Amended Credit Agreement, together with the related security, guarantee and other agreements, is referred to as the “Restated Term Loan Credit Facility”.

 

On July 2, 2014, MSI issued an additional $850 million of debt under the Restated Term Loan Credit Facility maturing in 2020 (“Additional Term Loan”). The Additional Term Loan was issued at 99.5% of face value, resulting in an effective interest rate of 4.02%.  The net proceeds from this borrowing and the issuance of an additional $250 million of the 5.875% senior subordinated notes were used to fully redeem the outstanding 7.75% Senior Notes due 2018 (“2018 Senior Notes”) and to pay the applicable make-whole premium and accrued interest.

 

As of January 31, 2015, the Restated Term Loan Credit Facility provides for senior secured financing of $2,490 million.  MSI has the right under the Restated Term Loan Credit Facility to request additional term loans (a) in an aggregate amount of up to $500 million or (b) an amount of term loans requested by MSI so long as MSI’s consolidated secured debt ratio (as defined in the Restated Term Loan Credit Facility) is no more than 3.25 to 1.00 on a pro forma basis as of the last day of the most recently ended four quarter period.  The lenders under the Restated Term Loan Credit Facility will not be under any obligation to provide any such additional term loans and the incurrence of any additional term loans is subject to customary conditions precedent.

 

Borrowings under the Restated Term Loan Credit Facility bear interest at a rate per annum equal to, at MSI’s option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Deutsche Bank, (2) the federal funds effective rate plus 0.5%, subject to a 2% floor in the case of the Additional Term Loan, and (3) London Interbank Offered Rate (“LIBOR”), subject to certain adjustments, plus 1% or (b) LIBOR, subject to certain adjustments and a 1% floor, in each case plus an applicable margin. The applicable margin is 1.75% (2.00% for the Additional Term Loan) with respect to the base rate borrowings and 2.75% (3.00% for the Additional Term Loan) with respect to LIBOR borrowings.  In addition, the applicable margin is subject to a 0.25% decrease based on MSI’s consolidated secured debt ratio.  The decrease does not apply to the Additional Term Loan.

 

The Restated Term Loan Credit Facility requires MSI to prepay outstanding term loans with (a) 100% of the net proceeds of any debt issued by MSI or its subsidiaries (with exceptions for certain permitted debt) and (b) 50% of MSI’s annual excess cash flow, as defined. The 50% threshold will be reduced to 25% if MSI’s consolidated total leverage ratio, as defined, is less than 6.00:1.00 and will be reduced to zero if MSI’s consolidated total leverage ratio is less than 5.00:1.00.

 

MSI must offer to prepay outstanding term loans at 100% of the principal amount, plus any unpaid interest, with the proceeds of certain asset sales or casualty events under certain circumstances.  MSI may voluntarily prepay outstanding loans under the Restated Term Loan Credit Facility at any time without premium or penalty other than customary breakage costs with respect to LIBOR loans.

 

MSI is required to make scheduled quarterly payments equal to 0.25% of the original principal amount of the term loans, subject to adjustments relating to the incurrence of additional term loans for the first six years and three quarters of the Restated Term Loan Credit Facility, with the balance paid on January 28, 2020.

 

All obligations under the Restated Term Loan Credit Facility are unconditionally guaranteed, jointly and severally, by Holdings, and all of MSI’s existing domestic material subsidiaries and are required to be guaranteed by certain of MSI’s future domestic wholly-owned material subsidiaries (“the Subsidiary Guarantors”). All obligations under the Restated Term Loan Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the assets of Holdings, MSI and the Subsidiary Guarantors, including:

 

·

a first-priority pledge of MSI’s capital stock and all of the capital stock held directly by MSI and the Subsidiary Guarantors (which pledge, in the case of any foreign subsidiary, is limited to 65% of the voting stock of such foreign subsidiary and 100% of the non-voting stock of such subsidiary);

 

·

a first-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of Holdings, MSI and each Subsidiary Guarantor, including substantially all of MSI’s and its subsidiaries’ owned real property and equipment, but excluding, among other things, the collateral described below; and

 

·

a second-priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts, all payments received by Holdings, MSI or the Subsidiary Guarantors from credit card clearinghouses and processors or otherwise in respect of all credit card charges and debit card charges for sales of inventory by Holdings, MSI and the Subsidiary Guarantors, and certain related assets and proceeds of the foregoing.

 

The Restated Term Loan Credit Facility contains a number of negative covenants that are substantially similar to, but more restrictive in certain respects than, those governing the 2020 Senior Subordinated Notes (defined below), as well as certain other customary representations and warranties, affirmative and negative covenants and events of default.  As of January 31, 2015, MSI was in compliance with all covenants.

 

In accordance with ASC 470, Debt (“ASC 470”), MSI recorded a $12 million charge related to refinancing costs and capitalized $5 million in debt issuance costs in fiscal 2012 associated with the Restated Term Loan Credit Facility. MSI also recorded a loss on the early extinguishment of debt in fiscal 2012 of approximately $8 million to write-off debt issuance costs associated with the Senior Secured Term Loan Facility, with the remaining $9 million of unamortized debt issuance costs being amortized over the revised life of the Restated Term Loan Credit Facility. In fiscal 2014, MSI capitalized an additional $14 million of debt issuance costs related to the Additional Term Loan. The debt issuance costs are being amortized as interest expense over the life of the Restated Term Loan Credit Facility.

 

 As of January 31, 2015, MSI is amortizing $47 million in debt issuance costs as interest expense over the life of the term loan.

 

Restated Revolving Credit Facility

 

On February 18, 2010, MSI entered into an agreement to amend and restate various terms of the then existing asset-based revolving credit facility dated October 31, 2006 (as amended and restated, the “Senior Secured Asset-Based Revolving Credit Facility”). On September 17, 2012, MSI entered into a second amended and restated credit agreement (the “Restated Credit Agreement”) with Wells Fargo Bank, National Association (“Wells Fargo”) and other lenders to amend various terms of our Senior Secured Asset-Based Revolving Credit Facility. On June 6, 2014, MSI amended its Restated Credit Agreement to, among other things, permit the incurrence of the Additional Term Loan and refinancing of the 2018 Senior Notes with the net proceeds of the 2020 Senior Subordinated Notes and the Additional Term Loan. The Restated Credit Agreement, together with related security, guarantee and other agreements, is referred to as the “Restated Revolving Credit Facility”.

 

The Restated Revolving Credit Facility provides for senior secured financing of up to $650 million, subject to a borrowing base, and matures on September 17, 2017 (“ABL Maturity Date”). The borrowing base under the Restated Revolving Credit Facility equals the sum of (i) 90% of eligible credit card receivables and debit card receivables, plus (ii) 90% of the appraised net orderly liquidation value of eligible inventory, plus (iii) the lesser of (a) 90% of the appraised net orderly liquidation value of inventory supported by eligible letters of credit and (b) 90% of the face amount of eligible letters of credit, minus (iv) certain reserves.

 

The Restated Revolving Credit Facility provides MSI with the right to request up to $200 million of additional commitments. The lenders will not be under any obligation to provide any such additional commitments, and any increase in commitments is subject to customary conditions. If we were to request additional commitments, and the lenders were to agree to provide such commitments, the facility size could be increased up to $850 million, however, MSI’s ability to borrow would still be limited by the borrowing base.

 

Borrowings under the Restated Revolving Credit Facility bear interest at a rate per annum equal to, at our option, either (a) a base rate determined by reference to the highest of (1) the prime rate of Wells Fargo, (2) the federal funds effective rate plus 0.50% and (3) LIBOR subject to certain adjustments plus 1.00% or (b) LIBOR subject to certain adjustments, in each case plus an applicable margin. The initial applicable margin is (a) 0.75% for prime rate borrowings and 1.75% for LIBOR borrowings. The applicable margin is subject to adjustment each fiscal quarter based on the excess availability under the Restated Revolving Credit Facility. Same-day borrowings bear interest at the base rate plus the applicable margin.

 

MSI is required to pay a commitment fee on the unutilized commitments under the Restated Revolving Credit Facility, which initially is 0.375% per annum. The commitment fee is subject to adjustment each fiscal quarter. If average daily excess availability is less than or equal to 50% of the total commitments, the commitment fee will be 0.25% per annum. If average daily excess availability is greater than 50% of the total commitments, the commitment fee will be 0.375%. In addition, MSI must pay customary letter of credit fees and agency fees.

 

All obligations under the Restated Revolving Credit Facility are unconditionally guaranteed, jointly and severally, by Holdings and all of MSI’s existing domestic material subsidiaries and are required to be guaranteed by the Subsidiary Guarantors. All obligations under the Restated Revolving Credit Facility, and the guarantees of those obligations, are secured, subject to certain exceptions, by substantially all of the assets of Holdings, MSI and the Subsidiary Guarantors, including:

 

·

a first-priority security interest in personal property consisting of inventory and related accounts, cash, deposit accounts, all payments received by Holdings, MSI or the Subsidiary Guarantors from credit card clearinghouses and processors or otherwise in respect of all credit card charges and debit card charges for sales of inventory by Holdings, MSI and the Subsidiary Guarantors, and certain related assets and proceeds of the foregoing;

 

·

a second-priority pledge of all of MSI’s capital stock and the capital stock held directly by MSI and the Subsidiary Guarantors (which pledge, in the case of the capital stock of any foreign subsidiary, is limited to 65% of the voting stock of such foreign subsidiary and 100% of the non-voting stock of such subsidiary); and

 

·

a second-priority security interest in, and mortgages on, substantially all other tangible and intangible assets of Holdings, MSI and each Subsidiary Guarantor, including substantially all of MSI’s and its subsidiaries’ owned real property and equipment.

 

If, at any time, the aggregate amount of outstanding loans, unreimbursed letter of credit drawings and undrawn letters of credit under the Restated Revolving Credit Facility exceeds the lesser of (i) the commitment amount and (ii) the borrowing base (the “Loan Cap”), MSI will be required to repay outstanding loans and cash collateralized letters of credit in an aggregate amount equal to such excess, with no reduction of the commitment amount. If excess availability under the Restated Revolving Credit Facility is less than (i) 12.5% of the Loan Cap for five consecutive business days, or (ii) $65 million at any time, or if certain events of default have occurred, MSI will be required to repay outstanding loans and cash collateralized letters of credit with the cash MSI is required to deposit daily in a collection account maintained with the agent under the Restated Revolving Credit Facility. Excess availability under the Restated Revolving Credit Facility means the lesser of the Loan Cap minus the outstanding credit extensions. MSI may voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans at any time without premium or penalty, other than customary breakage costs with respect to LIBOR loans. There is no scheduled amortization under the Restated Revolving Credit Facility. The principal amount of the loans outstanding is due and payable in full on the ABL Maturity Date.

 

The covenants limiting dividends and other restricted payments, investments, loans, advances and acquisitions, and prepayments or redemptions of indebtedness, each permit the restricted actions in an unlimited amount, subject to the satisfaction of certain payment conditions, principally that MSI must meet specified excess availability requirements and minimum consolidated fixed charge coverage ratios, to be tested on a pro forma and six months projected basis. Adjusted EBITDA, as defined in the Restated Revolving Credit Facility, is used in the calculation of the consolidated fixed charge coverage ratios.

 

From the time when MSI has excess availability less than the greater of (a) 10% of the Loan Cap and (b) $50 million, until the time when MSI has excess availability greater than the greater of (a) 10% of the Loan Cap and (b) $50 million for 30 consecutive days, the Restated Revolving Credit Facility will require MSI to maintain a consolidated fixed charge coverage ratio of at least 1.0 to 1.0. The Restated Revolving Credit Facility also contains certain customary representations and warranties, affirmative covenants and provisions relating to events of default (including change of control and cross-default to material indebtedness).

 

The Restated Revolving Credit Facility contains a number of covenants that, among other things and subject to certain exceptions, restrict MSI’s ability, and the ability of its restricted subsidiaries, to:

 

·

incur or guarantee additional indebtedness;

 

·

pay dividends on MSI’s capital stock or redeem, repurchase or retire MSI’s capital stock;

 

·

make investments, loans, advances and acquisitions;

 

·

create restrictions on the payment of dividends or other amounts to MSI from its restricted subsidiaries;

 

·

engage in transactions with MSI’s affiliates;

 

·

sell assets, including capital stock of MSI’s subsidiaries;

 

·

prepay or redeem indebtedness;

 

·

consolidate or merge; and

 

·

create liens.

 

In accordance with ASC 470, MSI recorded a loss on the early extinguishment of debt in fiscal 2012 of approximately $2 million to write-off debt issuance costs related to the execution of the Restated Revolving Credit Facility, with the remaining $7 million of unamortized debt issuance costs being amortized over the life of the Restated Revolving Credit Facility. In addition, MSI capitalized $4 million of debt issuance costs in fiscal 2012 associated with the Restated Revolving Credit Facility.  These debt issuance costs are being amortized as interest expense over the life of the Restated Revolving Credit Facility.

 

As of January 31, 2015 and February 1, 2014, the borrowing base was $650 million, of which MSI had availability of $588 million and $589 million, respectively. Borrowing capacity is available for letters of credit and borrowings on same-day notice. Outstanding standby letters of credit as of January 31, 2015 totaled $62 million.

 

5.875% Senior Subordinated Notes due 2020

 

On December 19, 2013, MSI issued $260 million in principal amount of 5.875% senior subordinated notes maturing in 2020 (“2020 Senior Subordinated Notes”). Interest is payable semi-annually on June 15 and December 15 of each year, commencing on June 15, 2014. MSI used the net proceeds of these notes to redeem the outstanding 11.375% senior subordinated notes due November 1, 2016, to pay the applicable redemption premium and unpaid interest and to pay other related costs. 

 

On June 16, 2014, MSI issued an additional $250 million of the 2020 Senior Subordinated Notes at 102% of face value, resulting in an effective interest rate of 5.76%. The net proceeds from this borrowing, and the $850 million Additional Term Loan, were used to fully redeem the outstanding 2018 Senior Notes and to pay the applicable make-whole premium and accrued interest.

 

The 2020 Senior Subordinated Notes are guaranteed, jointly and severally, fully and unconditionally, on an unsecured senior subordinated basis, by each of MSI’s subsidiaries that guarantee indebtedness under the Restated Revolving Credit Facility and the Restated Term Loan Credit Facility (collectively defined as the “Senior Secured Credit Facilities”).

 

The 2020 Senior Subordinated Notes and the guarantees are MSI’s and the guarantors’ unsecured senior subordinated obligations and are (i) subordinated in right of payment to all of MSI’s and the guarantors’ existing and future senior debt, including the Senior Secured Credit Facilities; (ii) rank equally in right of payment to all of MSI’s and the guarantors’ future senior subordinated debt; (iii) effectively subordinated to all of MSI’s and the guarantors’ existing and future secured debt (including the Senior Secured Credit Facilities) to the extent of the value of the assets securing such debt; (iv) rank senior in right of payment to all of the MSI’s and the guarantors’ existing and future debt and other obligations that are, by their terms, expressly subordinated in right of payment to the 2020 Senior Subordinated Notes; and (v) are structurally subordinated to all obligations of MSI’s subsidiaries that are not guarantors of the 2020 Senior Subordinated Notes.

 

At any time prior to December 15, 2016, MSI may redeem all or a part of the 2020 Senior Subordinated Notes at a redemption price equal to 100% of the principal amount redeemed plus a make-whole premium, as provided in the indenture governing the 2020 Senior Subordinated Notes (“2020 Senior Subordinated Notes Indenture”), and any unpaid interest to the date of redemption, subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date.

 

On and after December 15, 2016, MSI may redeem all or part of the 2020 Senior Subordinated Notes, upon notice, at the redemption prices (expressed as percentages of the principal amount of the 2020 Senior Subordinated Notes to be redeemed) set forth below, plus any unpaid interest thereon to the applicable date of redemption if redeemed during the twelve-month period beginning on December 15 of each of the years indicated below:

 

 

 

 

 

 

Year

 

    

Percentage

 

2016

 

 

102.938 

%  

2017

 

 

101.469 

%  

2018 and thereafter

 

100.000 

%  

 

In addition, until December 15, 2016, MSI may, at its option, on one or more occasions redeem up to 40% of the aggregate principal amount of the 2020 Senior Subordinated Notes with the aggregate principal amount to be redeemed (“Equity Offering Redemption Amount”) not to exceed an amount equal to the aggregate gross proceeds from one or more equity offerings (as defined in the 2020 Senior Subordinated Notes Indenture), at a redemption price equal to 105.875% of the aggregate principal amount, plus any unpaid interest, provided that (i) each such redemption occurs within 120 days of the date of closing of each such equity offering; (ii) proceeds in an amount equal to or exceeding the applicable equity offering redemption amount shall be received by, or contributed to the capital of MSI or any of its restricted subsidiaries and (iii) at least 50% of the sum of the aggregate principal amount of the 2020 Senior Subordinated Notes remains outstanding immediately after the occurrence of each such redemption.

 

Upon a change in control, MSI is required to offer to purchase all of the 2020 Senior Subordinated Notes at a price in cash equal to 101% of the aggregate principal amount, plus any unpaid interest. The 2020 Senior Subordinated Indenture contains covenants limiting MSI’s ability, and the ability of MSI’s restricted subsidiaries, to incur or guarantee additional debt, prepay debt that is subordinated to the 2020 Senior Subordinated Notes, issue stock of subsidiaries, make certain investments, loans, advances and acquisitions, create liens on MSI’s and such subsidiaries’ assets to secure debt, enter into transactions with affiliates, merge or consolidate with another company; and sell or otherwise transfer assets. The covenants also limit MSI’s ability, and the ability of MSI’s restricted subsidiaries, to pay dividends or distributions on MSI’s capital stock or repurchase MSI’s capital stock, subject to certain exceptions, including dividends, distributions and repurchases up to an amount in excess of (i) $100 million plus (ii) a basket that builds based on 50% of MSI’s consolidated net income (as defined in the 2020 Senior Subordinated Indenture) and certain other amounts, in each case, to the extent such payment capacity is not applied as otherwise permitted under the 2020 Senior Subordinated Indenture and subject to certain conditions. As of January 31, 2015, the permitted restricted payment amount was approximately $431 million.  As of January 31, 2015, MSI was in compliance with all covenants.

 

In accordance with ASC 470, MSI is amortizing $14 million in debt issuance costs, including $5 million of costs capitalized in fiscal 2014 and $4 million capitalized in fiscal 2013, as interest expense over the life of the 2020 Senior Subordinated Notes.

 

7.50%/8.25% PIK Toggle Notes

 

On July 29, 2013, FinCo Holdings and FinCo Inc. issued $800 million aggregate principal amount of 7.50%/8.25% PIK Toggle Notes due 2018 (“PIK Notes”) in a private transaction. Interest payments on the PIK Notes are due February 1 and August 1 of each year until maturity on August 1, 2018. The first two interest payments and the last interest payment are required to be paid entirely in cash. All other interest payments must be made in cash, except that all or a portion of the interest on the PIK Notes may be paid by increasing the principal amount of the outstanding PIK Notes or by issuing additional PIK Notes depending on the amount of cash dividends that can be paid by MSI under the credit agreements governing our Senior Secured Credit Facilities, the terms of the indentures governing our outstanding notes and the terms of MSI’s other indebtedness outstanding at the time. If interest on the PIK Notes is paid in-kind by increasing the principal amount of the PIK Notes, or by issuing new PIK Notes, the interest rate is 8.25% per annum, which is the cash interest rate plus 75 basis points. The proceeds from the debt issuance totaled approximately $783 million, after deducting the debt issuance costs. FinCo Holdings distributed the net proceeds to the Company which were used to fund a cash dividend, distribution and other payments to the Company's equity and equity-award holders and to pay related costs.

 

On July 2, 2014, the Company completed an IPO and received net proceeds totaling $446 million.  The net proceeds were used to redeem $439 million of the outstanding PIK Notes and to pay other expenses of the offering. The aggregate redemption price (including redemption premium and any unpaid interest) was $474 million. On December 10, 2014, the Company redeemed $180 million of the PIK Notes for an aggregate redemption price (including the applicable redemption premium and any unpaid interest) of $188 million.

 

In accordance with ASC 470, we recorded a loss on the early extinguishment of debt of $18 million related to the redemption of the PIK Notes in fiscal 2014.  The $18 million loss consisted of a $7 million redemption premium and an $11 million charge to write-off debt issuance costs.

 

The PIK Notes are senior unsecured obligations of FinCo Holdings and FinCo Inc. The PIK Notes are not guaranteed by MSI, Holdings or any of their subsidiaries, however, the indenture governing the PIK Notes contains restrictive covenants that apply to FinCo Holdings and its restricted subsidiaries, including MSI, Holdings and their subsidiaries. A breach of such covenants would cause FinCo Holdings and FinCo Inc. to be in default under the indenture governing the PIK Notes. The indenture also contains restrictive covenants and events of default substantially similar to, but less restrictive than, those of the 2020 Senior Subordinated Notes described above. As of January 31, 2015, we were in compliance with all covenants.

 

The Company may redeem all or part of the PIK Notes, upon notice, at the redemption prices (expressed as percentages of principal amount of the PIK Toggle Notes to be redeemed) set forth below, plus any unpaid interest to the applicable date of redemption if redeemed during the twelve-month period beginning on August 1 of each of the years indicated below:

 

 

 

 

 

 

 

 

 

 

 

Year

 

    

Percentage

 

2014

 

 

102.00 

%  

2015

 

 

101.00 

%  

2016 and thereafter

 

100.00 

%  

 

7.75% Senior Notes due 2018

 

On October 21, 2010, MSI issued $800 million aggregate principal amount of 7.75% senior notes that matured on November 1, 2018 (“Senior Notes”) at a discounted price of 99.262% of face value, resulting in an effective interest rate of 7.875%. Interest was payable semi-annually in arrears on May 1 and November 1 of each year, commencing on May 1, 2011. On September 27, 2012, MSI issued an additional $200 million aggregate principal amount (the “Additional Senior Notes” and, together with the Senior Notes, the “2018 Senior Notes”) of Senior Notes under the indenture (the “2018 Senior Indenture”).  The Additional Senior Notes were issued at a premium of 106.25% of face value, resulting in an effective interest rate of 6.50%.  On July 16, 2014 and August 1, 2014, we redeemed the 2018 Senior Notes in the aggregate principal amounts of $235 million and $765 million, respectively, plus the applicable make-whole premium and accrued interest, and the 2018 Senior Indenture was discharged.

 

In accordance with ASC 470, we recorded a loss on the early extinguishment of debt of $56 million related to the redemption of the 2018 Senior Notes.  The $56 million loss consisted of $51 million of redemption premiums and $10 million to write-off related debt issuance costs.  This loss was partially offset by a $5 million write-off of unamortized net premiums.

 

11.375% Senior Subordinated Notes due 2016

 

On October 31, 2006, MSI issued $400 million in principal amount of 11.375% senior subordinated notes due November 1, 2016 (the “2016 Senior Subordinated Notes”). Interest was payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 2007.

 

On February 27, 2013, MSI redeemed $137 million of the 2016 Senior Subordinated Notes at a redemption price equal to 103.792% for an aggregate redemption price (including the applicable redemption premium and any unpaid interest) of $147 million.  On January 21, 2014, MSI redeemed the remaining $256 million of 2016 Senior Subordinated Notes at a redemption price equal to 101.896%, or a total of $261 million. Accordingly, MSI’s obligations under the 2016 Senior Subordinated Notes Indenture were discharged. In accordance with ASC 470, MSI recorded a loss on the early extinguishment of debt in fiscal 2013 of approximately $14 million related to the redemption of our 2016 Senior Subordinated Notes. The $14 million loss was comprised of an $8 million redemption premium and $6 million to write-off related debt issuance and other costs.

 

13% Subordinated Discount Notes due 2016

 

On October 31, 2006, we issued $469 million in principal amount of 13% subordinated discount notes due on November 1, 2016, ("Subordinated Discount Notes"). Interest was payable semi-annually on May 1 and November 1 of each year, commencing on May 1, 2012.

 

On November 1, 2012, we redeemed a portion of each Subordinated Discount Note equal to the applicable high yield discount obligation (“AHYDO Amount”), as defined in the subordinated discount notes indenture, at a redemption price equal to 100% and the remaining outstanding Subordinated Discount Notes at a redemption price equal to 104.333%. In accordance with ASC 470, we recorded a loss on the early extinguishment of debt of approximately $11 million related to the redemption of our Subordinated Discount Notes. The $11 million loss is comprised of an $8 million redemption premium and $3 million to write-off related debt issuance costs.