CDW 2015 Annual Report Download - page 78

Table of Contents
CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (“Term Loan”)
On April 29, 2013, the Company entered into the Term Loan, a seven-year, $1,350.0 million aggregate principal amount senior secured term loan facility. 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 12.535% Senior Subordinated Exchange Notes due 2017. 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, 2015 , the outstanding principal amount of the Term Loan was $1,498.1 million , excluding $6.7 million of unamortized discount and deferred
financing costs.
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”), payable quarterly on the last day of each March, June, September,
and December. 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 3.0 at December 31, 2015 . As defined in the Company’s credit agreement,
the total net leverage ratio is calculated, on a consolidated basis, as the ratio of total debt at period-end excluding any unamortized discount and/or premium and
unamortized deferred financing costs, less cash and cash equivalents, to trailing twelve months (“TTM”) adjusted earnings before taxes, interest expense, and
depreciation and amortization (“Adjusted EBITDA”), a non-GAAP measure defined in the Company’s credit agreement. The Term Loan calculates Adjusted
EBITDA on a trailing twelve month basis, which includes twelve months of Kelway’s results on a pro forma basis. An interest rate of 3.25% , LIBOR Floor plus a
2.25% margin, was in effect during the three-month period ended December 31, 2015 .
In order to manage the risk associated with changes in interest rates on borrowings under the Term Loan, the Company maintains interest rate cap agreements.
During the year ended December 31, 2014, the Company entered into fourteen interest rate cap agreements at a rate of 2.0% with a combined notional amount of
$1,000.0 million . Under the 2014 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. During the year ended December 31, 2015 , the
Company entered into six interest rate cap agreements at a rate of 2.0% with a combined notional amount of $400.0 million . Under the 2015 agreements, the
Company made premium payments totaling $0.5 million to the counterparties in exchange for the right to receive payments equal to the amount, if any, by which
the 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 the Company’s interest rate cap agreements was $0.1 million and $1.7 million at December 31, 2015 and 2014, respectively. Previously, the
Company had ten interest rate cap agreements with a combined notional amount of $1,150.0 million that expired on January 14, 2015.
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 Consolidated Balance Sheet in Other Assets each period, with changes in fair value recorded directly to Interest
expense, net in the Consolidated Statements of Operations. The fair value of the Company’s interest rate cap agreements is classified as Level 2 in the fair value
hierarchy. The valuation of the interest rate cap agreements is derived by using a discounted cash flow analysis on the expected cash receipts that would occur if
variable interest rates rise above the strike rates of the caps. This analysis reflects the contractual terms of the interest rate cap agreements, including the period to
maturity, and uses observable
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