QVC Group, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Debt

Debt

12 Months Ended

Dec. 31, 2014

Debt consists of the following (in millions):



	December 31,
	2014			2013
Revolving Credit Facility (a)	$	432.0		$	306.5
Senior Notes, including premium of $2.5 and $3.0 (b)	677.5			678.0
Capital leases (c)	70.0			74.9
Total debt	1,179.5			1,059.4
Less current portion of debt	(5.3		)	(4.9		)
Debt	$	1,174.2		$	1,054.5

(a)

On November 16, 2011, Starz, LLC entered into a credit agreement (“Credit Agreement”) that provides a $1,000 million revolving credit facility (“Revolving Credit Facility”), with a $50 million sub-limit for standby letters of credit, and a $500.0 million term loan. Net proceeds from the 2012 Notes (as defined below in (b)) and cash on hand were used to repay and terminate the term loan in September 2012. Borrowings under the Revolving Credit Facility may be prepaid at any time and from time to time without penalty other than customary breakage costs. Any amounts prepaid on the Revolving Credit Facility may be reborrowed. The Credit Agreement is scheduled to mature on November 16, 2016. As of December 31, 2014, $568.0 million of borrowing capacity was available under the Revolving Credit Facility.

Interest on each loan under the Credit Agreement is payable at either an alternate base rate or LIBOR at Starz, LLC’s election. Borrowings that are alternate base rate loans bear interest at a per annum rate equal to the alternate base rate plus a margin that varies between 0.5% and 1.5% depending on the consolidated leverage ratio of Starz, LLC, as defined in the Credit Agreement. The alternate base rate is the highest of (a) the Prime Rate, (b) the Federal Funds Effective Rate plus ½ of 1% or (c) LIBOR for a one-month interest period plus 1%. Borrowings that are LIBOR loans bear interest at a per annum rate equal to the applicable LIBOR plus a margin that varies between 1.50% and 2.50% depending on the consolidated leverage ratio of Starz, LLC. The Credit Agreement requires Starz, LLC to pay a commitment fee on any unused portion under the Revolving Credit Facility. The commitment fee varies between 0.25% and 0.50%, depending on the consolidated leverage ratio of Starz, LLC.

As of December 31, 2014, the following borrowings and related LIBOR or alternate base rate interest rates were outstanding under the Revolving Credit Facility (dollars in millions):



LIBOR or alternate base rate period:	Interest Rate	Loan Amount
December 2014 - January 2015	1.90775%	$	35.0
December 2014 - January 2015	1.91170%	343.0
December 2014 - January 2015	1.91950%	41.0
December 2014 and forward	4.00000%	13.0
		$	432.0

The Credit Agreement contains certain covenants that include restrictions on, among others, incurring additional debt, paying dividends or making certain distributions, investments and other restricted payments, liens, guarantees and investments. In addition, Starz, LLC must comply with certain financial covenants including a consolidated leverage ratio, as defined in the Credit Agreement. As of December 31, 2014, Starz, LLC was in compliance with all covenants under the Credit Agreement.

(b)

On September 13, 2012, Starz, LLC and Starz Finance Corp. co-issued $500.0 million aggregate principal amount of senior notes, due September 15, 2019 (“2012 Notes”). The 2012 Notes bear interest at a rate of 5.0% payable semi-annually on September 15 and March 15 of each year. Starz Finance Corp. is a wholly-owned subsidiary of Starz, LLC and was formed for the sole purpose of co-issuing the 2012 Notes. Starz Finance Corp. does not have and will not have any operations, assets or subsidiaries of its own. The 2012 Notes are guaranteed by Starz Entertainment. The net proceeds from the issuance of the 2012 Notes and cash on hand were used to repay and terminate the $500.0 million term loan under the Credit Agreement.

On February 8, 2013, Starz, LLC and Starz Finance Corp. completed the issuance of an additional $175.0 million aggregate principal amount of 5.0% senior notes due 2019 (“2013 Notes” and together with the 2012 Notes, “Senior Notes”), which were issued as additional notes under the indenture governing the 2012 Notes. The net proceeds from the issuance of the 2013 Notes were used to repay indebtedness under the Revolving Credit Facility. The 2013 Notes were issued at a price of 102.0% plus accrued interest from September 13, 2012.

The Senior Notes rank equally in right of payment to all existing and future senior obligations and existing and future subordinated obligations. The Senior Notes are effectively subordinated to any existing and future secured obligations and to all the liabilities of the subsidiaries that do not guarantee the Senior Notes.

The Senior Notes contain certain covenants that include restrictions on, among others, incurring additional debt, paying dividends, entering into liens and guarantees, or making certain distributions, investments and other restricted payments. As of December 31, 2014, Starz, LLC was in compliance with all covenants under the Senior Notes.

(c)

On January 11, 2013, Starz, LLC, and, for the limited purposes described therein, Starz Entertainment entered into a lease with LPH for its headquarters building. The term of the lease is ten-years, with successive five-year renewal periods at the option of Starz, LLC. Starz, LLC recorded a $44.8 million capital lease in connection with this lease agreement with an imputed annual interest rate of 6.4%.

Starz Entertainment has entered into capital lease agreements for its transponder capacity. The transponder agreements expire during 2018 to 2021 and have an imputed annual interest rates ranging from 5.5% to 7.0%.

Debt maturities for the next five years and thereafter are as follows (in millions):



2015	$	9.6
2016	441.6
2017	9.6
2018	9.2
2019	684.5
Thereafter	80.1
Total minimum payments	1,234.6
Less: amounts representing interest	(55.1		)
Present value of debt payments	1,179.5
Less: current portion of debt obligations	(5.3		)
Long-term portion of debt obligations	$	1,174.2

At December 31, 2014, the fair value of the Senior Notes was $688.5 million and was based upon quoted prices in active markets. Starz believes the fair value of borrowings under the Revolving Credit Facility approximate their carrying value as of December 31, 2014 due to their variable rate nature and Starz’s stable credit spread.

Interest costs of $4.7 million, $3.6 million and $2.2 million have been capitalized as investment in films and television programs during the years ended December 31, 2014, 2013 and 2012, respectively.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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