Quarterly report pursuant to Section 13 or 15(d)

Debt

v3.5.0.2
Debt
 9 Months Ended
Sep. 30, 2016
Debt Disclosure [Abstract]  
Debt
Debt

Debt consisted of the following (in millions):
 
September 30,
2016
 
December 31,
2015
Credit Agreement (a)
$
268.0

 
$
308.0

Senior Notes, including premium of $1.6 and $1.9 (b)
676.6

 
676.9

Capital leases (c)
60.6

 
64.8

Debt issuance costs, net
(9.6
)
 
(11.9
)
Total debt
995.6

 
1,037.8

Less: current portion
(5.9
)
 
(5.6
)
 
$
989.7

 
$
1,032.2


(a)
On April 20, 2015, Starz, LLC entered into a credit agreement (“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. 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 Credit Agreement is scheduled to mature on April 20, 2020. As of September 30, 2016, $732.0 million of borrowing capacity was available under the Credit Agreement. The Credit Agreement will be repaid and terminated in connection with the closing of the Merger.

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 0.50% and 1.25% 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 2.25% depending on the consolidated leverage ratio of Starz, LLC. The 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 September 30, 2016, the following borrowings and related LIBOR interest rates were outstanding (dollars in millions):

LIBOR period:
Interest Rate
 
Loan Amount
September 2016 to October 2016
2.2682%
 
$
30.0

September 2016 to October 2016
2.2682%
 
73.0

September 2016 to October 2016
2.2753%
 
165.0

 
 
 
$
268.0


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 or guarantees. In addition, Starz, LLC must comply with certain financial covenants, including a consolidated leverage ratio, as defined in the Credit Agreement. As of September 30, 2016, Starz, LLC was in compliance with all covenants under the Credit Agreement.

(b)
Starz, LLC and Starz Finance Corp., a wholly-owned subsidiary, co-issued $675.0 million aggregate principal amount of 5.0% senior notes due September 15, 2019 (“Senior Notes”). The Senior Notes bear interest at a rate of 5.0% payable semi-annually on September 15 and March 15 of each year and are guaranteed by Starz Entertainment. The Senior Notes will be repaid in connection with the closing of the Merger.

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 September 30, 2016, Starz, LLC was in compliance with all covenants under the Senior Notes.

(c)
On January 11, 2013, Starz, LLC entered into a commercial lease with a subsidiary of Starz’s related party, Liberty Media Corporation (“Liberty Media”), for its headquarters building. The term of the lease is ten years, with four successive five-year renewal periods at the option of Starz, LLC. Starz, LLC recorded a 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 agreements expire during 2018 to 2021 and have imputed annual interest rates ranging from 5.5% to 7.0%.

At September 30, 2016, the fair value of the Senior Notes was $685.0 million and was based upon quoted prices in active markets. Starz believes the fair value of borrowings under the Credit Agreement approximate their carrying value as of September 30, 2016 due to their variable rate nature and Starz’s stable credit spread.

Interest costs of $1.1 million, $1.6 million, $3.5 million and $4.9 million have been capitalized as investment in films and television programs during the three months ended September 30, 2016 and 2015 and the nine months ended September 30, 2016 and 2015, respectively.