Long-term debt and interest expense

12 Months Ended

Dec. 31, 2019

Long-term debt and interest expense

Long-term debt and interest expense

12.  LONG-TERM DEBT AND INTEREST EXPENSE

	December 31,		December 31,
	2019		2018
Syndicated Credit facility:
Revolving credit facility	$	—	$	595
Term Loan A		—		500
Term Loan B		1,960		1,980
2023 Notes		1,000		—
Deferred financing		33		—
Debt discount and issuance costs		(54)		(41)
Obligations under finance leases and other		6		9
Total long-term debt		2,945		3,043
Current portion of long-term debt		(30)		(16)
Non-current portion of long-term debt	$	2,915	$	3,027

Syndicated Credit Facility

As of December 31, 2019, the Company’s senior secured syndicated credit facility (the “Original Syndicated Credit Facility”, as amended prior to December 31, 2019, including as described below, the “Syndicated Credit Facility”) is composed of: (i) a senior secured first lien revolving credit facility maturing in December 2023 (the “Revolving Credit Facility”) and (ii) a senior secured first lien term B facility maturing in October 2024 (the “Term Loan B”).

In October 2017, in connection with the acquisition of DigitalGlobe, the Company entered into the Original Syndicated Credit Facility in the aggregate principal amount of $3.75 billion, which was comprised of: (i) a four-year senior secured first lien revolving credit facility, (ii) a four-year senior secured first lien operating facility, (iii) a senior secured first lien term A facility (“Term Loan A”) and (iv) the Term Loan B. The net proceeds of the Original Syndicated Credit Facility

were used, along with cash on hand, to consummate the acquisition of DigitalGlobe, to refinance all amounts outstanding under the Company’s existing syndicated credit facility and senior term loans, to repay DigitalGlobe’s outstanding indebtedness, to pay transaction fees and expenses, to fund working capital and for general corporate purposes. The Company incurred a loss from early extinguishment of debt of $23 million included as part of Interest expense, net within the Consolidated Statements of Operations. The loss was comprised of a make-whole premium to terminate the previous term notes of $20 million and a write-off of the unamortized balance of capitalized debt issuance costs of $3 million relating to both the syndicated credit facility and the previous term notes.

In December 2018, the Company amended the Original Syndicated Credit Facility (the “Second Amending Agreement”). The Second Amending Agreement provided that, so long as certain conditions were satisfied (the period during which such conditions are satisfied, the “Covenant Relief Period”) the maximum consolidated debt leverage ratios permitted under the Original Syndicated Credit Facility were increased and the interest rate incurred by the Company thereunder at certain consolidated debt leverage ratios were increased. The Second Amending Agreement also adjusted the definition of EBITDA for the purpose of calculating the financial ratios under U.S. GAAP. In addition to the above, during the Covenant Relief Period, the Second Amending Agreement restricted the use of certain asset sale proceeds, limited the type of new debt issuances and limited certain restricted payments and permitted acquisitions under the Syndicated Credit Facility.

In November 2019, the Company further amended the Original Syndicated Credit Facility (the “Third Amending Agreement”), certain portions of which became effective immediately and certain portions of which became effective in December 2019 upon the issuance of the 2023 Notes. The Third Amending Agreement, during the Covenant Relief Period, (i) modified the priority of the application of certain voluntary prepayments resulting from certain asset sales (but which did not affect the prepayments owed to the Term Loan B), and (ii) restricted use of proceeds of future borrowings. In addition, the Third Amending Agreement increased the maximum consolidated debt leverage ratios permitted under the Original Syndicated Credit Facility to 7.25x at the end of the fiscal quarter ended December 31, 2019, 7.50x at the end of the fiscal quarter ending March 31, 2020, 7.75x at the end of each fiscal quarter thereafter until the fiscal quarter ending September 30, 2021, 7.50x at the end of each fiscal quarter thereafter until the quarter ending September 30, 2022, 6.50x at the end of each fiscal quarter thereafter until the fiscal quarter ending March 31, 2023, and 5.75x for each fiscal quarter thereafter (subject to a 0.25x reduction in each maximum level upon a disposition of a business line for greater than $500 million). The Third Amending Agreement also extended the maturity of the Revolving Credit Facility by two years to December 2023, updated the Interest Coverage Ratio to be less than 2.0x at the end of each fiscal quarter, restricted investment capacity in certain permitted investments, restricted future increases in quarterly dividend payment levels and modified certain margin and standby fee terms. In addition, the Company canceled the operating credit facility and reduced committed borrowing capacity under the Revolving Credit Facility from $1.25 billion to $500 million. As of December 31, 2019 and 2018, the Company was in compliance with its debt covenants.

The Syndicated Credit Facility is guaranteed by the Company and certain designated subsidiaries (the “Subsidiary Guarantors”) of the Company. The security for the Syndicated Credit Facility, subject to customary exceptions, includes substantially all the tangible and intangible assets of the Company and its Subsidiary Guarantors. The Company is required to make mandatory prepayments of the outstanding principal and accrued interest of the Syndicated Credit Facility (i) upon the occurrence of certain events and (ii) to the extent of a specified percentage of annual excess cash flow that is not reinvested or used for other specified purposes. The Syndicated Credit Facility is subject to customary affirmative and negative covenants, default provisions, representations and warranties and other terms and conditions.

Term Loan A

The Company used the proceeds from the 2023 Notes and the previously announced closing of its Palo Alto real estate sale leaseback transaction to repay the Original Syndicated Credit Facility borrowings under Term Loan A that were outstanding as of September 30, 2019. This resulted in a loss on debt extinguishment of $22 million for the year ended December 31, 2019, which is included as part of Interest expense, net within the Consolidated Statements of Operations.

Term Loan B

The Term Loan B bears interest at the Company’s option, either (i) U.S. dollar LIBOR plus 275 basis points per annum or (ii) adjusted base rate, plus a margin of 175 basis points per annum. The Company must make equal quarterly installment payments in aggregate annual amounts equal to 1% of the original principal amount of the Term Loan B, with the final balance payable at maturity on October 5, 2024. The Term Loan B may be repaid by the Company, in whole or in part, together with accrued interest, without premium or penalty.

Revolving Credit Facility

The Revolving Credit Facility includes an aggregate $200 million sub limit under which letters of credit can be issued. As of December 31, 2019 and December 31, 2018, the Company had $18 million of issued and undrawn letters of credit outstanding under the Revolving Credit Facility.

Borrowings under the Revolving Credit Facility bear interest at a rate equal to, at the Company’s option, either (i) U.S. dollar LIBOR, plus a margin of 120 - 425 basis points per annum, based on the Company’s total leverage ratio, or (ii) adjusted base rate, plus a margin of 20-325 basis points per annum, based on the Company’s total leverage ratio. The Revolving Credit Facility is payable at maturity on December 10, 2023. The Revolving Credit Facility may be repaid by the Company, in whole or in part, together with accrued interest, without premium or penalty.

Senior Secured Notes due 2023

In December 2019, the Company issued $1.0 billion in principal amount of 9.75% Senior Secured Notes due 2023 (“2023 Notes”) in a private placement to institutional buyers. The 2023 Notes were issued at a price of 98% and bear interest at the rate of 9.75% per year, payable semi-annually in cash in arrears, which interest payments will commence in June 2020. The 2023 Notes are guaranteed on a senior secured basis by each of our existing and future subsidiaries that guarantee the Syndicated Credit Facility.

Leaseback Deferred Financing

In December 2019, the Company completed the sale and subsequent leaseback of company owned properties in Palo Alto, California for proceeds of $291 million. The Company determined that the leaseback terms were off-market. In accordance with ASC 842 – Leases, the Company accounted for the excess of the leaseback payments over the present value of market rental payments as additional financing, separate from the lease liability. This resulted in recognition of a deferred financing liability of $33 million, which is repayable over the 10 year leaseback term. This liability was calculated using a weighted average discount rate of 4.62%. The deferred financing liability is recorded as part of Current portion of long-term debt and Long-term debt within the Consolidated Balance Sheets. Refer to Note 8 and 10 for additional information.

Interest expense, net on long-term debt and other obligations are as follows:

	Year Ended December 31,
	2019		2018			2017
Interest on long-term debt	$	194	$	171	$	57
Interest expense on advance payments from customers		15		26		8
Interest on orbital securitization liability		7		7		8
Imputed interest and other		—		—		1
Capitalized interest		(19)		(7)		—
Loss on debt extinguishment		22		—		23
Interest expense on dissenting stockholder liability		—		3		—
Interest expense, net	$	219	$	200	$	97

Scheduled minimum debt repayments are as follows for the year ending December 31, 2019 are as follows:

		2020		2021		2022		2023		2024		Thereafter		Total
Syndicated credit facility	$	20	$	20	$	20	$	20	$	1,880	$	—	$	1,960
2023 Notes		—		—		—		1,000		—		—		1,000
Deferred financing		6		6		2		2		2		15		33
Finance leases		2		1		—		—		—		—		3
Debt discount and issuance costs		(11)		(12)		(13)		(13)		(5)				(54)
	$	17	$	15	$	9	$	1,009	$	1,877	$	15	$	2,942