CDW 2014 Annual Report Download - page 85

Table of Contents CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CDW LLC is the borrower under the Revolving Loan. All obligations under the Revolving Loan are guaranteed by Parent and each of
CDW LLC's direct and indirect, 100% owned, domestic subsidiaries. Borrowings under the Revolving Loan are collateralized by a first
priority interest in inventory (excluding inventory collateralized under the inventory floorplan arrangements as described in Note 5),
deposits, and accounts receivable, and a second priority interest in substantially all other assets. The Revolving Loan contains negative
covenants that, among other things, place restrictions and limitations on the ability of Parent and each of CDW LLC's direct and
indirect, 100% owned, domestic subsidiaries to dispose of assets, incur additional indebtedness, incur guarantee obligations, prepay
other indebtedness, make distributions or other restricted payments, create liens, make equity or debt investments, make acquisitions,
engage in mergers or consolidations, or engage in certain transactions with affiliates. The Revolving Loan also includes maintenance of
a minimum average daily excess cash availability requirement. Should the Company fall below the minimum average daily excess cash
availability requirement for five consecutive business days, the Company becomes subject to a fixed charge coverage ratio until such
time as the daily excess cash availability requirement is met for 30 consecutive business days.
Senior Secured Term Loan Facility
On April 29, 2013, the Company entered into a seven-year, $1,350.0 million aggregate principal amount senior secured term loan
facility (the "Term Loan"). The Term Loan was issued at a price that was 99.75% of par, which resulted in a discount of $3.4 million .
Substantially all of the proceeds from the Term Loan were used to repay the $1,299.5 million
outstanding aggregate principal amount of
the prior senior secured term loan facility (the "Prior Term Loan Facility"). In connection with this refinancing, the Company recorded a
loss on extinguishment of long-term debt of $10.3 million in the consolidated statement of operations for the year ended December 31,
2013. This loss represented a write-off of the remaining unamortized deferred financing costs related to the Prior Term Loan Facility.
On July 31, 2013, the Company borrowed an additional $190.0 million aggregate principal amount under the Term Loan at a price that
was 99.25% of par, which resulted in a discount of $1.4 million . Such proceeds were used to redeem a portion of outstanding Senior
Subordinated Notes. The discounts are reported on the consolidated balance sheet as a reduction to the face amount of the Term Loan
and are being amortized to interest expense over the term of the related debt. Fees of $6.1 million related to the Term Loan were
capitalized as deferred financing costs and are being amortized over the term of the facility using the effective interest method.
The Company is required to pay quarterly principal installments equal to 0.25%
of the original principal amount of the Term Loan, with
the remaining principal amount payable on the maturity date of April 29, 2020. The quarterly principal installment payments
commenced during the quarter ended June 30, 2013. At December 31, 2014 , the outstanding principal amount of the Term Loan was
$1,513.5 million , excluding $3.7 million in unamortized discount.
Borrowings under the Term Loan bear interest at either (a) the alternate base rate ("ABR") plus a margin or (b) LIBOR plus a margin;
provided that for the purposes of the Term Loan, LIBOR shall not be less than 1.00% per annum at any time ("LIBOR Floor"). The
margin is based upon a net leverage ratio as defined in the agreement governing the Term Loan, ranging from 1.25% to 1.50% for ABR
borrowings and 2.25% to 2.50% for LIBOR borrowings. The total net leverage ratio was 3.1 at December 31, 2014 . An interest rate of
3.25% , LIBOR Floor plus a 2.25% margin, was in effect during the three-month period ended December 31, 2014 .
In order to manage the risk associated with changes in interest rates on borrowings under the Term Loan, the Company has entered into
interest rate cap agreements. The Company had ten interest rate cap agreements in effect through January 14, 2015 with a combined
notional amount of $1,150.0 million which entitled the Company to payments from the counterparty of the amount, if any, by which
three-month LIBOR exceeds a weighted average rate of 2.4% during the agreement period. The fair value of these interest rate cap
agreements was zero at both December 31, 2014 and 2013.
In connection with the expiration of the ten interest rate cap agreements noted above, during the year ended December 31, 2014 , the
Company entered into 14 additional interest rate cap agreements with a combined notional amount of $1,000.0 million . Under these
agreements, the Company made premium payments totaling $2.1 million to the counterparties in exchange for the right to receive
payments equal to the amount, if any, by which three-month LIBOR exceeds 2.0% during the agreement period. These interest rate cap
agreements are effective from January 14, 2015 through January 14, 2017. The fair value of these interest rate cap agreements was $1.7
million at December 31, 2014 .
The Company's interest rate cap agreements have not been designated as cash flow hedges of interest rate risk for GAAP accounting
purposes. The interest rate cap agreements are recorded at fair value on the Company’s
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