NOTE 6—DEBT
The following table summarizes the Company’s outstanding debt as of the dates indicated:
| Successor | ||||||||
| January 29, 2016 |
January 30, 2015 |
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| (in millions) | ||||||||
| Secured Debt |
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| Structured financing debt |
$ | 3,411 | $ | 2,690 | ||||
| 3.75% Floating rate due October 2018 (“Term Loan C Facility”) |
1,003 | 1,284 | ||||||
| 4.00% Floating rate due April 2020 (“Term Loan B Facility”) |
4,329 | 4,602 | ||||||
| 4.00% Floating rate due April 2020 (“Term Loan Euro Facility”) |
891 | 785 | ||||||
| 5.625% due October 2020 (“Senior First Lien Notes”) |
1,400 | 1,400 | ||||||
| Unsecured Notes and Debentures |
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| 2.30% due September 2015 |
— | 700 | ||||||
| 3.10% due April 2016 |
400 | 400 | ||||||
| 5.65% due April 2018 |
500 | 500 | ||||||
| 5.875% due June 2019 |
600 | 600 | ||||||
| 4.625% due April 2021 |
400 | 400 | ||||||
| 7.10% due April 2028 |
300 | 300 | ||||||
| 6.50% due April 2038 |
388 | 388 | ||||||
| 5.40% due September 2040 |
265 | 265 | ||||||
| Other |
93 | 73 | ||||||
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| Total debt, principal amount |
13,980 | 14,387 | ||||||
| Unamortized discount, net of unamortized premium |
(221 | ) | (232 | ) | ||||
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| Total debt, carrying value |
$ | 13,759 | $ | 14,155 | ||||
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| Total short-term debt |
$ | 2,984 | $ | 2,921 | ||||
| Total long-term debt |
$ | 10,775 | $ | 11,234 | ||||
To finance the acquisition of Dell by Denali Holding, the Company issued $13.9 billion in debt, which included borrowings under the Term Loan facilities and the ABL Credit Facility, proceeds from the sale of the Senior First Lien Notes and other notes, as well as borrowings under the structured financing debt programs. During the year ended January 29, 2016, the Company repaid $0.7 billion of maturing Unsecured Notes and Debentures as well as $0.4 billion, net, of Term Loan debt. In addition, during the year ended January 29, 2016, the Company issued $0.7 billion, net, in additional structured financing debt.
Term Loan Facilities—The $1.5 billion Term Loan C Facility was issued on October 29, 2013, and provides for equal quarterly principal amortizations in an annual amount equal to 10% of the original principal amount in the first year of the agreement and increasing annual percentage amounts in subsequent years with the payment of the outstanding balance due at maturity, in October 2018. The annual principal amortization percentage is
- F-30 -
DENALI HOLDING INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
currently 22.5%. The $4.7 billion Term Loan B Facility and the €0.7 billion Term Loan Euro Facility were issued on October 29, 2013, and provide for quarterly principal amortizations in an annual amount equal to 1% of the original principal amount and payment of the outstanding balances due at maturity in April 2020. Borrowings under the Term Loan facilities bear interest, payable quarterly, at a rate per annum equal to an applicable margin, plus, at the borrowers’ option, either (a) a base rate or (b) a LIBOR rate for the applicable currency, in each case, subject to interest rate floors. Under the Term Loan facilities, if the Company has excess cash flows that are not reinvested in working capital, strategic investments, or finance activities on an annual basis and if the Company’s secured leverage ratio falls within certain thresholds, a percentage of the excess cash flows is required to be applied to prepay secured debt. An excess cash flow payment of approximately $38 million was determined to be required for the year ended January 29, 2016, and this amount has been reclassified from long-term debt to short-term debt.
On June 10, 2015, the Company refinanced and amended the Term Loan facilities to reduce interest rate floors and margins and to modify certain covenant requirements. The refinancing increased the outstanding Term Loan Euro Facility from €0.6 billion to €0.8 billion, which was offset by a decrease in the Term Loan B Facility from $4.6 billion to $4.4 billion. The interest rate for both the Term Loan B Facility and Term Loan Euro Facility was reduced to 4%. The refinancing was evaluated in accordance with FASB Accounting Standards Codification 470-50, Debt-Modifications and Extinguishments. The refinancing was accounted for as a debt extinguishment with respect to lenders that exited the syndicate, and as a debt modification with respect to lenders remaining in the syndicate. The Company recognized a resulting $9 million loss on extinguishment of debt during the year ended January 29, 2016, which represented write-offs of debt issuance costs and original issuance discounts. The Company also recognized $3 million of repricing fees under the modification during the year ended January 29, 2016
Senior First Lien Notes—The Senior First Lien Notes were issued on October 7, 2013 in an aggregate principal amount of $1.5 billion and are payable in full at maturity, in October 2020. As of January 29, 2016, the outstanding balance of these notes was $1.4 billion. Interest on the Senior First Lien Notes is payable semiannually.
ABL Credit Facility—On October 29, 2013, the Company entered into a secured ABL Credit Facility to support its working capital needs. The maximum aggregate borrowings under this revolving credit facility are approximately $2.0 billion. Borrowings under the ABL Credit Facility are subject to a borrowing base, which consists of certain receivables and inventory. Available borrowings under the ABL Credit Facility are reduced by draws on the facility as well as letters of credit. As of January 29, 2016, there were no draws on the facility and, after taking into account outstanding letters of credit, available borrowings totaled $1.7 billion. Borrowings under the facility bear interest at a rate per annum equal to an applicable margin, plus, at the borrowers’ option, either (a) a base rate, (b) a LIBOR rate or (c) certain other applicable rates. The applicable margin under the facility is determined based on excess liquidity as a percentage of the maximum borrowing amount under the facility. The ABL Credit Facility will expire in October 2018.
The borrowers under the Term Loan facilities and the ABL Credit Facility and the co-issuers of the Senior First Lien Notes are subsidiaries of Dell Inc. Dell Inc. and substantially all of its domestic subsidiaries guarantee the borrowings under the Term Loan facilities and the obligations under the Senior First Lien Notes. Dell Inc. and certain of its domestic subsidiaries guarantee the borrowings under the ABL Credit Facility. All borrowings and other obligations under the Term Loan facilities and the ABL Credit Facility generally are secured by first-priority or second-priority security interests in substantially all of the assets of Dell Inc., the borrowers under the facilities and the guarantors of the facilities, as well as by pledges of the equity interests of Dell Inc. and certain of its subsidiaries, and a portion of the equity interests of certain first-tier foreign subsidiaries of Dell Inc. All obligations under the Senior First Lien Notes are secured by a first-priority security interest in certain cash flow collateral and a second-priority security interest in other collateral securing the ABL Credit Facility.
- F-31 -
DENALI HOLDING INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Structured Financing Debt—As of January 29, 2016 and January 30, 2015, the Company had $3.4 billion and $2.7 billion, respectively in outstanding structured financing debt, which was primarily related to the fixed-term lease and loan securitization programs and the revolving loan securitization programs. See Note 5 and Note 7 of the Notes to the Audited Consolidated Financial Statements for further discussion of the structured financing debt and the interest rate swap agreements that hedge a portion of that debt.
Unsecured Notes and Debentures—The Company’s Unsecured Notes and Debentures were issued by the Predecessor entity prior to the acquisition of Dell by Denali Holding. Interest on these borrowings is payable semiannually.
The total carrying value and estimated fair value of the outstanding Senior First Lien Notes and Unsecured Notes and Debentures, including the current portion, were $4.1 billion and $4.2 billion, respectively, as of January 29, 2016 and $4.8 billion and $5.1 billion, respectively, as of January 30, 2015. The total carrying value and estimated fair value of the Term Loan facilities, including the current portion, were both $6.2 billion as of January 29, 2016 and were $6.6 billion and $6.7 billion, respectively, as of January 30, 2015. The fair value of the outstanding Senior First Lien Notes, the outstanding Unsecured Notes and Debentures, and the Term Loan facilities was determined based on observable market prices in a less active market and was categorized as Level 2 in the fair value hierarchy. The fair values of the other short-term debt and the structured financing debt approximate their carrying values due to their short-term maturities.
As of January 29, 2016, aggregate future maturities of the Company’s debt were as follows:
| Maturities by Fiscal Year | ||||||||||||||||||||||||||||
| 2017 | 2018 | 2019 | 2020 | 2021 | Thereafter | Total | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||||
| Structured Financing Debt |
$ | 2,088 | $ | 887 | $ | 388 | $ | 43 | $ | 5 | $ | — | $ | 3,411 | ||||||||||||||
| Term Loan Facilities and Senior First Lien Notes |
437 | 428 | 334 | 52 | 6,372 | — | 7,623 | |||||||||||||||||||||
| Unsecured Notes and Debentures |
400 | — | 500 | 600 | — | 1,353 | 2,853 | |||||||||||||||||||||
| Other |
59 | 8 | — | — | — | 26 | 93 | |||||||||||||||||||||
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| Total maturities, principal amount |
2,984 | 1,323 | 1,222 | 695 | 6,377 | 1,379 | 13,980 | |||||||||||||||||||||
| Associated carrying value adjustments |
— | — | 1 | (2 | ) | (43 | ) | (177 | ) | (221 | ) | |||||||||||||||||
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| Total maturities, carrying value amount |
$ | 2,984 | $ | 1,323 | $ | 1,223 | $ | 693 | $ | 6,334 | $ | 1,202 | $ | 13,759 | ||||||||||||||
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Covenants and Restricted Net Assets—The credit agreements for the Term Loan facilities and the ABL Credit Facility and the indenture governing the Senior First Lien Notes contain covenants restricting the ability of the Company and its restricted subsidiaries, subject to specified exceptions, to incur additional debt, create liens on certain assets to secure debt, pay dividends and make other restricted payments, make certain investments, sell or transfer certain assets, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets, and enter into certain transactions with affiliates. As of August 1, 2015, the Company designated certain subsidiaries as unrestricted subsidiaries for all purposes of credit agreements and the indenture, the impact of which was not material to its financial position as of January 29, 2016 or results of operations for the six months ended January 29, 2016. The indentures governing the Unsecured Notes and Debentures contain covenants limiting the Company’s ability to create certain liens, enter into sale-and-lease back transactions, and consolidate or merge with, or convey, transfer, or lease all or substantially all of its assets to, another person. The credit agreements and all such indentures contain customary events of default, including failure to make required
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DENALI HOLDING INC.
NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS
payments, failure to comply with covenants, and the occurrence of certain events of bankruptcy and insolvency. The ABL Credit Facility requires compliance with conditions that must be satisfied prior to any borrowing and maintenance of a minimum fixed charge coverage ratio. The Company was in compliance with all financial covenants as of January 29, 2016.
