Debt and Secured Revolving Facility
|3 Months Ended|
Mar. 28, 2020
|Debt Disclosure [Abstract]|
|Debt and Secured Revolving Facility||Debt and Secured Revolving Facility
2.125% Convertible Senior Notes Due 2026
In September 2016, the Company issued $805 million in aggregate principal amount of 2.125% Convertible Senior Notes which mature on September 1, 2026 (2.125% Notes). As of March 28, 2020, the Company had $251 million aggregate principal amount of its 2.125% Notes outstanding.
Pursuant to the indenture governing the 2.125% Notes, holders of the 2.125% Notes may convert them at their option during certain time periods and upon the occurrence of certain events, including; during any calendar quarter commencing after the calendar quarter ending on September 30, 2016 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day (equivalent to an initial conversion price of approximately $8.00 per share of common stock).
The above event was met during the first calendar quarter of 2020 and as a result, the 2.125% Notes are convertible at the option of the holder from April 1, 2020 until June 30, 2020.
The Company may not redeem the 2.125% Notes prior to the maturity date, and no sinking fund is provided for the 2.125% Notes.
The Company’s current intent is to deliver shares of its common stock upon conversion of the 2.125% Notes. The Company continued to classify the carrying value of the liability component of the 2.125% Notes as long-term debt and the equity component of the 2.125% Notes as permanent equity on its condensed consolidated balance sheet as of March 28, 2020.
The 2.125% Notes consisted of the following:
Based on the closing price of the Company’s common stock of $46.58 on March 27, 2020, the last trading day of the three months ended March 28, 2020, the if-converted value of the 2.125% Notes exceeded its principal amount by approximately $1.2 billion.
The effective interest rate of the liability component of the 2.125% Notes is 8%. This interest rate was based on the interest rates of similar liabilities at the time of issuance that did not have associated conversion features.
7.50% Senior Notes Due 2022
On August 15, 2012, the Company issued $500 million of its 7.50% Senior Notes due 2022 (7.50% Notes). As of March 28, 2020, the outstanding aggregate principal amount of the 7.50% Notes was $312 million.
Potential Repurchase of Outstanding Notes
The Company may elect to purchase or otherwise retire the 7.50% Notes and 2.125% Notes with cash, stock or other assets from time to time in open market or privately negotiated transactions, either directly or through intermediaries, or by tender offer when the Company believes the market conditions are favorable to do so.
Secured Revolving Facility
On June 7, 2019, the Company entered into a secured revolving credit facility for up to $500 million (the Secured Revolving Facility) pursuant to a credit agreement by and among the Company, as borrower, the lenders party thereto and Wells Fargo Bank, National Association, as administrative agent (the Credit Agreement). The Secured Revolving Facility consists of a $500 million, five-year secured revolving loan facility, including a $50 million swingline subfacility and a $75 million sublimit for letters of credit. The Company’s obligations under the Credit Agreement are secured by a lien on substantially all the Company’s property, other than intellectual property.
The Credit Agreement also provides the ability to increase the Secured Revolving Facility or incur incremental term loans or other incremental equivalent debt by an amount not to exceed certain amounts as set forth in the Credit Agreement. The Company’s available borrowings under the Secured Revolving Facility are also subject to reduction by an amount equal to the net cash proceeds of (i) any debt issuances not permitted by the Secured Revolving Facility and (ii) any non-ordinary course asset sales, in excess of $250 million, if such net cash proceeds are not reinvested by the Company within twelve months of receipt.
As of March 28, 2020, there were no borrowings outstanding under the Credit Agreement, and the Company was in compliance with all required covenants under the Credit Agreement. As of March 28, 2020, the Company had $14 million of letters of credit outstanding under the Credit Agreement.
As a precautionary measure given the current market environment, on April 6, 2020, the Company borrowed $200 million under the Credit Agreement via the LIBOR rate loan option. The borrowing carries an annual interest rate of 2.37% through the maturity date of July 6, 2020.
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.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef