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, 2015

Debt consisted of the following (in millions):



	December 31,
	2015			2014
2015 Credit Agreement (a)	$	308.0		$	—
2011 Credit Agreement (b)	—			432.0
Senior Notes, including premium of $1.9 and $2.5 (c)	676.9			677.5
Capital leases (d)	64.8			70.0
Debt issuance costs, net	(11.9		)	(9.9		)
Total debt	1,037.8			1,169.6
Less: current portion	(5.6		)	(5.3		)
	$	1,032.2		$	1,164.3

(a)

On April 20, 2015, Starz, LLC entered into a credit agreement (“2015 Credit Agreement”) that provides for $1,000.0 million in revolving loans with a $50.0 million sub-limit for stand-by letters of credit. Net proceeds from the 2015 Credit Agreement were used to repay and terminate the 2011 Credit Agreement (as defined below). Borrowings may be prepaid at any time and from time to time without penalty other than customary breakage costs. Any amounts prepaid may be reborrowed. The 2015 Credit Agreement is scheduled to mature on April 20, 2020. As of December 31, 2015, $692.0 million of borrowing capacity was available under the 2015 Credit Agreement.

Interest on each loan under the 2015 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 1.25% depending on the consolidated leverage ratio of Starz, LLC, as defined in the 2015 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 1.5% and 2.25% depending on the consolidated leverage ratio of Starz, LLC. The 2015 Credit Agreement requires Starz, LLC to pay a commitment fee on any unused portion. The commitment fee varies between 0.25% and 0.40%, depending on the consolidated leverage ratio of Starz, LLC.

As of December 31, 2015, the following borrowings and related LIBOR or alternate base rate interest rates were outstanding (dollars in millions):



LIBOR or alternate base rate period:	Interest Rate	Loan Amount
December 2015 - January 2016	2.03700%	$	95.0
December 2015 - January 2016	2.09450%	200.0
December 2015 and forward	4.25000%	13.0
		$	308.0

The 2015 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 2015 Credit Agreement. As of December 31, 2015, Starz, LLC was in compliance with all covenants under the 2015 Credit Agreement.


(b)	On November 16, 2011, Starz, LLC entered into a credit agreement (“2011 Credit Agreement”) that provided $1,000 million in revolving loans, a $50 million sub-limit for standby letters of credit and a $500.0 million term loan. On April 20, 2015, Starz LLC repaid and terminated the 2011 Credit Agreement using borrowings under the 2015 Credit Agreement.

Interest on each loan under the 2011 Credit Agreement was payable at either an alternate base rate or LIBOR at Starz, LLC’s election. Borrowings that were alternate base rate loans bore interest at a per annum rate equal to the alternate base rate plus a margin that varied between 0.5% and 1.5% depending on the consolidated leverage ratio of Starz, LLC, as defined in the 2011 Credit Agreement. The alternate base rate was 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 were LIBOR loans bore interest at a per annum rate equal to the applicable LIBOR plus a margin that varied between 1.5% and 2.5% depending on the consolidated leverage ratio of Starz, LLC. The 2011 Credit Agreement required Starz, LLC to pay a commitment fee on any unused portion of the revolving loans under the 2011 Credit Agreement. The commitment fee varied between 0.25% and 0.50%, depending on the consolidated leverage ratio of Starz, LLC.

(c)

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”). 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 2012 Notes and cash on hand were used to repay and terminate the $500.0 million term loan under the 2011 Credit Agreement. The net proceeds from the issuance of the 2013 Notes were used to repay indebtedness under the 2011 Credit Agreement. The 2013 Notes were issued at a price of 102.0% plus accrued interest from September 13, 2012.

The Senior 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 Senior Notes are guaranteed by Starz Entertainment.

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, 2015, Starz, LLC was in compliance with all covenants under the Senior Notes.

(d)

On January 11, 2013, Starz, LLC, and, for the limited purposes described therein, Starz Entertainment entered into a commercial lease with a subsidiary of Starz’s related party, Liberty Media, for its headquarters building. The term of the lease is ten-years, with an additional four 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 imputed annual interest rates ranging from 5.5% to 7.0%.

Debt maturities for the next five years and thereafter at December 31, 2015 were as follows (in millions):



2016	$	10.1
2017	10.1
2018	9.7
2019	682.4
2020	313.8
Thereafter	74.4
Total minimum payments	1,100.5
Less: amounts representing interest	(50.8		)
Present value of debt payments	1,049.7
Less: debt issuance costs	(11.9		)
Less: current portion	(5.6		)
Long-term portion of debt obligations	$	1,032.2

At December 31, 2015, the fair value of the Senior Notes was $687.5 million and was based upon quoted prices in active markets. Starz believes the fair value of borrowings under the 2015 Credit Agreement approximate their carrying value as of December 31, 2015 due to their variable rate nature and Starz’s stable credit spread.

Interest costs of $6.0 million, $4.7 million and $3.6 million have been capitalized as investment in films and television programs during the years ended December 31, 2015, 2014 and 2013, respectively.