Financing Arrangements

12 Months Ended

Dec. 31, 2019

Long-term debt consisted of the following (in thousands):



	December 31,
	2019		2018
Term Loan at interest rates ranging from 5.24%-6.0% in 2019 and 4.93%-5.92% in 2018	$	653,850	$	777,150
Line of Credit at interest rates ranging from 5.65%-8.00% in 2019 and 4.93%-8.00% in 2018	—		29,900
Total Principal Debt Outstanding	653,850		807,050
Less: Term Loan Debt Issuance Costs	17,553		21,013
Less: Current Portion	—		7,850
Total Long-Term Debt, net	$	636,297	$	778,187



	2020		2021		2022		2023		2024		Thereafter
Minimum principal payments	$	—	$	—	$	—	$	—	$	653,850	$	—

On December 11, 2017, we entered into a secured credit agreement (the "Credit Agreement"), which provides for a $150.0 million revolving line of credit with a five year maturity and a $785.0 million term loan with a seven year maturity which was funded in full at closing of the FH acquisition. The Credit Agreement replaced and terminated the Company’s prior credit agreement, dated as of May 11, 2017 (the "Prior Credit Agreement"). The Prior Credit Agreement, under which we had borrowings of $273.5 million outstanding, was terminated on December 11, 2017 and replaced by the Credit Agreement.

The term loan requires quarterly principal payments of 0.25% of initial aggregate principal amount beginning March 29, 2018 with the balance due at maturity. During 2019, the Company paid down its term loan by $123.3 million primarily with divestiture-related proceeds thereby satisfying all future amortization obligations (previously $2.0 million per quarter) until 2024 under the Credit Agreement. Additional loans of up to $150.0 million (plus the amount of certain voluntary prepayments) and an unlimited amount subject to compliance with a first lien net leverage ratio of 6.50 to 1.00 may be made available under the Credit Agreement upon request of the Company subject to specified terms and conditions. The Company may repay any borrowings under the Credit Agreement at any time, subject to certain limited and customary restrictions stated in the Credit Agreement; provided, however, that if the Company prepays all or any portion of the term loan in connection with a repricing transaction on or prior to the 6-month anniversary of the origination date, the Company must pay a prepayment premium of 1.0% of the aggregate principal amount of the term loan so prepaid.

The Company incurred $23.9 million of debt issuance costs associated with the term loan which have been recorded as a debt discount within long-term debt, and $5.2 million of fees associated with the revolver which have been recorded in other assets.

As of December 31, 2019, we had borrowings of $653.9 million outstanding under the Credit Agreement and $34.3 million in letters of credit issued under the Credit Agreement. The Company recorded non-cash interest expense of $3.9 million, $3.9 million, and $0.8 million for December 31, 2019, 2018, and 2017, respectively, related to the amortization of its deferred financing costs described above. The Credit Agreement revolving line of credit facility matures on December 11, 2022 whereas the term loan facility matures on December 11, 2024.

The Company's outstanding debt balances are characterized as Level 2 financial instruments. As of December 31, 2019, the fair value of our gross term loan debt (before netting debt issuance costs) was $655.8 million, or $1.9 million above our carrying cost of $653.9 million.

The outstanding principal amounts bear interest at a fluctuating rate (generally the 30 day LIBOR rate) per annum plus an applicable margin of 3.50% with respect to LIBOR loans and 2.50% with respect to base rate loans. The Company entered into a hedging agreement to mitigate the inherent rate risk associated with the variable rate debt, which is accounted for as cash flow hedge. Any gain or loss is recorded within accumulated other comprehensive income.

Effective April 12, 2018, the Company entered into an interest rate swap pursuant to an International Swaps and Derivatives Association ("ISDA") Master Agreement with Citizens Bank, National Association ("interest rate swap"). The four-year interest rate swap has a fixed notional value of $400.0 million with a 1% LIBOR floor and a maturity date of April 12, 2022. The fixed rate of interest paid by the Company is comprised of our current credit spread of 350 basis points plus 2.6475% for a total interest rate of 6.1475%. The ISDA Master Agreement, together with its related schedules, contain customary

representations, warranties and covenants. This hedging agreement was entered into to mitigate the interest rate risk inherent in the Company’s variable rate debt and is not for speculative trading purposes. The Company has designated the interest rate swap as a qualifying hedging instrument and is treating it as a cash flow hedge for accounting purposes pursuant to ASC Topic 815, Derivatives and Hedging.

Effective July 12, 2019, the Company entered into a cross-currency swap agreement to hedge its net investment in non-U.S. subsidiaries against future volatility in exchange rates between the U.S. dollar and the Euro. The cross-currency swap agreement is pursuant to an ISDA Master Agreement with Deutsche Bank AG. The three-year cross-currency swap has a fixed notional value of $100.0 million at an annual rate of 2.4065% and a maturity date of July 12, 2022. At inception, the cross-currency swap was designated as a net investment hedge. The swap was entered into to hedge a portion of CIRCOR International Inc.'s net investment in certain of its Euro functional currency-denominated subsidiaries against the variability of exchange rate translation impacts between the US dollar and the Euro. The net investment hedge was deemed effective as of year end.

The aggregate net fair value of the interest rate swap and cross currency swap as of December 31, 2019 are summarized in the table below:



	Significant Other Observable Inputs
	Level 2
Derivative asset	$	476
Derivative liabilities	$	(9,168	)

These balances are recorded in other long-term liabilities of $(5.1) million, accrued expenses and other current liabilities of $(4.0) million, and other current assets of $0.5 million on our consolidated balance sheet as of December 31, 2019.

The amount of gain (loss) recognized in other comprehensive (loss) income ("OCI") and reclassified from accumulated other comprehensive (loss) income ("AOCI") to income are summarized below:



	Twelve Months Ended
	December 31, 2019			December 31, 2018
Amount of gain (loss) recognized in OCI	$	(8,580	)	$	(2,000	)

Amount of gain (loss) reclassified from AOCI into income	$	(1,583	)	$	(1,600	)
The realized loss was reclassified from OCI to interest expense as interest expense was accrued on the swap during the twelve months ended December 31, 2019 and December 31, 2018. At December 31, 2019, amounts expected to be reclassified from AOCI into interest expense in the next 12 months is a loss of $4.0 million.
The Company recorded a long term deferred tax asset of $2.1 million and $0.5 million on our balance sheet as of December 31, 2019 and December 31, 2018, respectively.

Interest expense related to the portion of the Company's term loan subject to the interest-rate swap agreement was $24.9 million for the twelve months ended December 31, 2019.