Time Magazine 2015 Annual Report Download - page 41

TIME WARNER INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued)
2016 and matures on February 19, 2021. Time Warner has guaranteed CME BV’s obligations under the 2016 Credit
Agreement for a fee equal to a rate based on CME’s net leverage, which initially is 10.5%, less the interest rate on the 2016
Term Loan, to be paid to Time Warner semi-annually. CME BV must pay a portion of the fee in cash and may, at CME BV’s
option, pay the remainder in cash or in kind. In April 2016, CME will use cash on hand and the proceeds of the 2016 Term
Loan to repay in their entirety both its Senior Secured Notes due 2017 (the “Senior Secured Notes”) and the term loan Time
Warner provided CME in 2014 (the “TW Term Loan”), which also is due in 2017. Time Warner expects to receive
approximately $485 million in connection with CME’s repayment of the Senior Secured Notes and the TW Term Loan. As
consideration for assisting CME in refinancing its debt due in 2017, Time Warner will earn a fee equal to 1% of the
aggregate principal amount of the 2016 Term Loan borrowed at funding. Prior to funding, CME BV will enter into unsecured
interest rate hedge arrangements to protect against changes in the interest rate on the 2016 Term Loan during its term, and
Time Warner will guarantee CME BV’s obligations under such arrangements.
In addition, on February 19, 2016, CME entered into an amendment to extend the maturity of its €251 million senior
unsecured term loan obtained in 2014 from third-party financial institutions (the “2014 Term Loan”) from November 1, 2017
to November 1, 2018. Time Warner will continue to guarantee CME’s obligations under the 2014 Term Loan.
Time Warner and CME also agreed on February 19, 2016 to amend and restate the $115 million revolving credit
facility Time Warner provided CME in 2014 to reduce the size of the facility to $50 million as of January 1, 2018 and to
extend its term from 2017 to 2021. Amounts outstanding under the revolving credit facility bear interest at a rate based on
CME’s net leverage. Beginning in April 2016, CME must pay a portion of the interest for each applicable quarterly interest
period in cash and may, at CME’s option, pay the remainder in kind by adding such amount to the outstanding principal
amount of the revolving credit facility. As of February 19, 2016, there were no amounts outstanding under the revolving
credit facility.
The Company expects to record a pretax gain of approximately $90 million in the quarter ended June 30, 2016 based
on the difference between the Company’s carrying value and the net proceeds it will receive in April 2016 in connection with
the repayment of the Senior Secured Notes it holds and the TW Term Loan. Additionally, when recognizing CME’s results
for the quarter ended June 30, 2016 under the equity method of accounting, the Company expects to record a pretax charge of
approximately $150 million related to these transactions.
2015 Transaction
On September 30, 2015, CME entered into a credit agreement (the “2015 Credit Agreement”) with third-party financial
institutions for a €235 million senior unsecured term loan (the “2015 Term Loan”) that was funded in November 2015 and
matures on November 1, 2019. Time Warner has guaranteed CME’s obligations under the 2015 Credit Agreement for an
annual fee equal to 8.5% less the interest rate on the 2015 Term Loan, to be paid to Time Warner semi-annually in cash or in
kind at CME’s option. CME used the proceeds of the 2015 Term Loan to repay the $261 million aggregate principal amount
of its 5.0% Senior Convertible Notes due 2015 (the “2015 Notes”) at maturity on November 15, 2015. As consideration for
assisting CME in refinancing the 2015 Notes, Time Warner also earned a commitment fee of $9 million, which will accrue
interest at a rate of 8.5%. In November 2015, CME entered into unsecured interest rate hedge arrangements to protect against
changes in the interest rate on the 2015 Term Loan during its term. Time Warner has guaranteed CME’s obligations under
the hedge arrangements.
Fandango
On February 17, 2016, Warner Bros. and NBCUniversal Media LLC (“NBCUniversal”) entered into an agreement under
which Warner Bros. agreed to sell its Flixster business in exchange for a 25% interest in Fandango Media, LLC, a subsidiary of
NBCUniversal (“Fandango”). In connection with the transaction, Warner Bros. also agreed to pay Fandango approximately $25
million, reflecting its proportionate share of certain acquisitions completed by Fandango between November 2015 and January
2016. The transaction, which is subject to customary closing conditions, is expected to be completed early in the second quarter
of 2016. Upon the closing of the transaction, Warner Bros. expects to recognize a pre-tax gain of between $85 million and $95
million, based on the estimated carrying value of the net assets transferred to Fandango.
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