Albertsons 2016 Annual Report Download - page 57

55
Long-term loans are extended to certain independent retail customers in the normal course of business through notes
receivable. The notes generally bear fixed interest rates negotiated with each independent retail customer. The market value of
the fixed rate notes is subject to change due to fluctuations in market interest rates.
On February 24, 2015, the Company entered into a forward starting interest rate swap agreement effectively converting $300 of
variable rate debt under the Company's Secured Term Loan Facility to a fixed rate of 5.5075 percent, effective beginning in
February 2016 through the Secured Term Loan Facility's maturity in March 2019. This transaction was entered into to reduce
the Company's exposure to changes in market interest rates associated with its variable rate debt. Changes in market interest
rates affecting the fair value of the financial instrument and unfavorable changes in interest expense, and counterparty credit
risk are some of the risks associated with utilizing interest rate swaps. As of February 27, 2016, a 100 basis point increase in
forward LIBOR interest rates would increase the fair value of the interest rate swap by approximately $6; a 100 basis point
decrease would decrease the fair value by approximately $3.
The table below provides information about the Company’s financial instruments that are sensitive to changes in interest rates,
including debt obligations, notes receivable and interest rate swaps. For debt obligations, the table presents principal payments
and related weighted average interest rates by year of maturity using interest rates as of February 27, 2016, applicable to
variable interest debt instruments and stated fixed rates for all other debt instruments, excluding any original issue discounts
and deferred financing costs. For notes receivable, the table presents the expected collection of principal cash flows and
weighted average interest rates by expected year of maturity. For the interest rate swap agreement, the table presents the
differential between interest payable and interest receivable under the swap agreement utilized to compute the fair value of the
interest rate swaps.
Interest Rate Positions as of February 27, 2016
February 27,
2016 Aggregate Payments by Fiscal Year
Fair
Value Total 2017 2018 2019 2020 2021 Thereafter
(in millions, except rates)
Debt with variable interest rates
Principal payments $ 1,233 $ 1,297 $ 102 $ — $ — $ 1,057 $ 138 $ —
Variable interest rate 4.4% 4.5% —% —% 4.5% 4.0% —%
Debt with fixed interest rates
Principal payments on senior notes $ 588 $ 750 $ — $ — $ — $ — $ — $ 750
Average fixed rate 7.2% —% —% —% —% —% 7.2%
Principal payments on floating rate
debt converted to fixed rate debt(1) $ 284 $ 300 $ — $ — $ — $ 300 $ — $ —
Fixed interest rate 5.5% —% —% —% 5.5% —% —%
Notes receivable
Principal receivable $ 23 $ 22 $ 6 $ 4 $ 4 $ 3 $ 2 $ 3
Average rate receivable 7.3% 7.2% 8.8% 8.1% 7.1% 6.3% 5.1%
Interest rate swap related to debt
with variable interest rates:(1)
Forward starting fixed rate paid 2.0% —% —% —% 2.0% —% —%
Forward starting variable rate
received Rate A(2) —% —% —% Rate A(2) —% —%
(1) Pay fixed-receive variable interest rate swap relates to the $300 of debt with variable interest payments under the Secured Term Loan
Facility. Fixed rate payments began in February 2016 and conclude in March 2019. The fair value of this instrument represents a
liability of $6 as of February 27, 2016.
(2) Rate A - One-month LIBOR, subject to a 1.00 percent floor.