Debt and financing arrangements

The Company’s financing structure consists of debentures and senior notes payable along with credit and other facilities.

The Company’s outstanding debentures and senior notes payable as at December 31, 2016 and 2015 were as follows:



	December 31, 2016			December 31, 2015
Deferrable debentures
2006 Junior Subordinated	$	150,000		$	150,000
2007 Junior Subordinated	139,800			139,800
Flagstone 2006 Junior Subordinated	133,676			134,118
Flagstone 2007 Junior Subordinated	113,750			113,750
Total debentures payable	537,226			537,668
2010 Senior notes payable	250,000			250,000
Less: Unamortized debt issuance costs	(4,638		)	(4,839		)
Total senior notes payable	245,362			245,161
Total debentures and senior notes payable	$	782,588		$	782,829

The Company’s outstanding credit and other facilities as at December 31, 2016 and 2015 were as follows:



	December 31, 2016				December 31, 2015
	Commitment		Drawn and outstanding		Commitment		Drawn and outstanding
Credit and other facilities
$85,000 syndicated unsecured letter of credit facility	$	85,000	$	—	$	85,000	$	—
$300,000 syndicated secured letter of credit facility	300,000		90,252		300,000		235,540
$24,000 secured bi-lateral letter of credit facility	24,000		4,553		24,000		10,543
$20,000 AlphaCat Re secured letter of credit facility	20,000		20,000		30,000		30,000
$25,000 IPC bi-lateral facility	25,000		5,842		25,000		9,241
$236,000 Flagstone bi-lateral facility	236,000		144,392		236,000		193,764
Total credit and other facilities	$	690,000	$	265,039	$	700,000	$	479,088


(a)	Senior notes and junior subordinated deferrable debentures

The following table summarizes the key terms of the Company’s senior notes and junior subordinated deferrable debentures:



Description	Issuance date	Amount		Maturity date	Interest Rate as at						Interest payments due
Description	Issuance date	Amount		Maturity date	Issuance Date			December 31, 2016			Interest payments due
2006 Junior Subordinated Deferrable Debentures	June 15, 2006	$	150,000	June 15, 2036	9.069	%	^(a)	5.831	%	^(e)	Quarterly
Flagstone 2006 Junior Subordinated Deferrable Debentures	August 23, 2006	$	133,676	September 15, 2036	3.540	%	^(b)	6.463	%	^(e)	Quarterly
2007 Junior Subordinated Deferrable Debentures	June 21, 2007	$	200,000	June 15, 2037	8.480	%	^(c)	5.180	%	^(e)	Quarterly
Flagstone 2007 Junior Subordinated Deferrable Debentures	June 8, 2007	$	88,750	July 30, 2037	3.000	%	^(b)	5.900	%	^(e)	Quarterly
Flagstone 2007 Junior Subordinated Deferrable Debentures	September 20, 2007	$	25,000	September 15, 2037	3.100	%	^(b)	5.983	%	^(e)	Quarterly
2010 Senior Notes due 2040	January 26, 2010	$	250,000	January 26, 2040	8.875	%	^(d)	8.875	%	^(d)	Semi-annually in arrears


(a)	Fixed interest rate for 5 years, floating interest rate of three-month LIBOR plus 3.550% thereafter, reset quarterly.


(b)	Floating interest rate of three-month LIBOR plus amount stated, reset quarterly.


(c)	Fixed interest rate for 5 years, floating interest rate of three-month LIBOR plus 2.950% thereafter, reset quarterly.


(d)	Fixed interest rate.


(e)	Fixed interest rate as a result of interest rate swap contracts entered into by the Company.

Senior Notes

The 2010 Senior Notes due 2040 (the “2010 Senior Notes”) were part of a registered public offering and mature on January 26, 2040. The Company may redeem the notes, in whole at any time, or in part from time to time, at the Company’s option on not less than 30 nor more than 60 days’ notice, at a make-whole redemption price as described in “Description of the Notes - Optional Redemption” in the 2010 Senior Notes prospectus supplement. In addition, the Company may redeem the notes, in whole, but not in part, at any time upon the occurrence of certain tax events as described in “Description of the Notes - Redemption for Tax Purposes” in the prospectus supplement.

Debt issuance costs are amortized to income over the life of the 2010 Senior Notes and are presented on a net basis within the senior notes payable balance in the Company’s Consolidated Balance Sheets. There were no redemptions made during the year ended December 31, 2016 and 2015.

The 2010 Senior Notes are unsecured and unsubordinated obligations of the Company and rank equally in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness. The 2010 Senior Notes will be effectively junior to all of the Company’s future secured debt, to the extent of the value of the collateral securing such debt, and will rank senior to all our existing and future subordinated debt. The 2010 Senior Notes are structurally subordinated to all obligations of the Company’s subsidiaries.

Future payments of principal of $250,000 on the 2010 Senior Notes are all expected to be after 2021.

Junior subordinated deferrable debentures

The Company participated in private placements of junior subordinated deferrable interest debentures due 2036 and 2037 (respectively, the “2006 Junior Subordinated Deferrable Debentures” and “2007 Junior Subordinated Deferrable Debentures”).

Debt issuance costs for the 2006 and 2007 Junior Subordinated Deferrable Debentures were amortized to income over the five year optional redemption periods. They are redeemable at the Company’s option at par. There were no redemptions made during the year ended December 31, 2016 and 2015.

As part of the acquisition of Flagstone, the Company assumed junior subordinated deferrable debentures due 2036 and 2037 (respectively, the “Flagstone 2006 Junior Subordinated Deferrable Debentures” and “Flagstone 2007 Junior Subordinated Deferrable Debentures”). These debentures are redeemable quarterly at par. There were no redemptions made during the year ended December 31, 2016 and 2015.

Future payments of principal of $537,226 on the debentures discussed above are all expected to be after 2021.


(b)	Credit facilities

(i) $85,000 syndicated unsecured letter of credit facility and $300,000 syndicated secured letter of credit facility

On December 9, 2015, the Company entered into a $85,000 five year unsecured facility with various counterparties as co-documentation agents and the lenders party thereto, which provides for letter of credit (“LOC”) and revolving credit availability for the Company (the “Five Year Unsecured Facility”) (the full $85,000 of which is available for LOC’s and/or revolving loans). The Five Year Unsecured Facility was provided by a syndicate of commercial banks. LOC’s under the Five Year Unsecured Facility are available to support obligations in connection with the reinsurance business of the Company and its subsidiaries. Loans under the Five Year Unsecured Facility are available for the general corporate and working capital purposes of the Company. The Company may request that existing lenders under the Five Year Unsecured Facility or prospective additional lenders agree to make available additional commitments from time to time so long as the aggregate commitments under the Five Year Unsecured Facility do not exceed $150,000.

Also on December 9, 2015, the Company entered into a $300,000 five year secured credit facility, with the same parties, which provides for LOC availability for the Company (the “Five Year Secured Facility” and together with the Five Year Unsecured Facility, the “Credit Facilities”). The Five Year Secured Facility was also provided by a syndicate of commercial banks. LOC’s under the Five Year Secured Facility will be available to support obligations in connection with the reinsurance business of the Company and its subsidiaries. The Company may request that existing lenders under the Five Year Secured Facility or prospective additional lenders agree to make available additional commitments from time to time so long as the aggregate commitments under the Five Year Secured Facility do not exceed $400,000. The obligations of the Company under the Five Year Secured Facility are secured by cash and securities deposited into cash collateral accounts from time to time with The Bank of New York Mellon.

As of December 31, 2016, there was $nil (December 31, 2015: $nil) of outstanding LOC’s under the Five Year Unsecured Facility and $90,252 (December 31, 2015: $235,540) of outstanding LOC’s under the Five Year Secured Facility.

The Credit Facilities contain covenants that include, among other things (i) the requirement that the Company initially maintain a minimum level of consolidated net worth of at least $2,600,000 and, commencing with the end of the fiscal quarter ending June 30, 2015, to be increased quarterly by an amount equal to 25.0% of the Company’s consolidated net income (if positive) for such quarter plus 50.0% of the aggregate increases in the consolidated shareholders’ equity of the Company during such fiscal quarter by reason of the issuance and sale of common equity interests of the Company, including upon any conversion of debt securities of the Company into such equity interests, (ii) the requirement that the Company maintain at all times a consolidated total debt to consolidated total capital ratio not greater than 0.35:1.00, and (iii) the requirement that Validus Reinsurance, Ltd. and any other material insurance subsidiaries maintain a financial strength rating by A.M. Best of not less than “B++” (Fair). In addition, the Credit Facilities contain customary negative covenants applicable to the Company, including limitations on the ability to pay dividends and other payments in respect of equity interests at any time that the Company is otherwise in default with respect to certain provisions under the respective Credit Facilities, limitations on the ability to incur liens, sell assets, merge or consolidate with others, enter into transactions with affiliates, and limitations on the ability of its subsidiaries to incur indebtedness. The Credit Facilities also contain customary affirmative covenants, representations and warranties and events of default for credit facilities of its type. As of December 31, 2016, and throughout the reporting periods presented, the Company was in compliance with all covenants and restrictions under the Credit Facilities.

(ii) $25,000 IPC bi-lateral facility

The Company assumed an existing evergreen LOC facility through the acquisition of IPC Holdings, Ltd. (the “IPC bi-lateral facility”). As of December 31, 2016, there were $5,842 of outstanding LOC’s issued under the IPC bi-lateral facility (December 31, 2015: $9,241). As of December 31, 2016, and throughout the reporting periods presented, the Company was in compliance with all covenants and restrictions under the IPC bi-lateral facility.

(iii) $24,000 secured bi-lateral letter of credit facility

The Company is party to an evergreen secured bi-lateral LOC facility with Citibank Europe plc (the “Secured bi-lateral LOC facility”). As of December 31, 2016, $4,553 (December 31, 2015: $10,543) of LOC’s were outstanding under the Secured bi-lateral LOC facility. The Secured bi-lateral LOC facility has no fixed termination date and as of December 31, 2016, and throughout the reporting periods presented, the Company was in compliance with all covenants and restrictions under the Secured bi-lateral LOC facility.

(iv) $20,000 AlphaCat Re secured letter of credit facility

During 2013, AlphaCat Re entered into a secured evergreen LOC facility with Comerica Bank. This facility provided for LOC’s issued by AlphaCat Re to be used to support its reinsurance obligations. During the second quarter of 2016 the available amount under this facility was reduced to $20,000 from $30,000. As of December 31, 2016, $20,000 (December 31, 2015: $30,000) of LOC’s were outstanding under this facility. As of December 31, 2016, and throughout the reporting periods presented, AlphaCat Re was in compliance with all covenants and restrictions under the AlphaCat Re secured LOC facility.

(v) $236,000 Flagstone bi-lateral facility

As part of the acquisition of Flagstone, the Company assumed an evergreen LOC Master Agreement between Citibank Europe plc and Flagstone Reassurance Suisse, S.A. (the “Flagstone Bi-Lateral Facility”). As of December 31, 2016, the Flagstone Bi-Lateral Facility had $144,392 (December 31, 2015: $193,764) of LOC’s issued and outstanding. As of December 31, 2016, and throughout the reporting periods presented, the Company was in compliance with all covenants and restrictions under the Flagstone Bi-Lateral Facility.

(vi) Investments and cash pledged as collateral

The Company has pledged investments and cash as collateral under the Company’s credit facilities in the total amount of $442,184 (December 31, 2015: $826,535) as detailed in the table below:



	December 31, 2016		December 31, 2015
$300,000 syndicated secured letter of credit facility	$	157,597	$	370,909
$24,000 secured bi-lateral letter of credit facility	48,097		47,607
$20,000 AlphaCat Re secured letter of credit facility	20,032		30,153
$236,000 Flagstone bi-lateral facility	216,458		377,866
Total	$	442,184	$	826,535


(c)	Finance expenses

Finance expenses consist of interest on the junior subordinated deferrable debentures and senior notes, the amortization of debt offering costs, credit facility fees, bank charges, Talbot Funds at Lloyds (“FAL”) facility costs, AlphaCat financing fees and other charges as follows:



	Years Ended December 31,
	2016		2015		2014
2006 Junior Subordinated Deferrable Debentures	$	8,893	$	8,868	$	8,868
2007 Junior Subordinated Deferrable Debentures	7,362		7,341		7,341
Flagstone 2006 Junior Subordinated Deferrable Debentures	9,028		8,989		9,001
Flagstone 2007 Junior Subordinated Deferrable Debentures	7,100		7,123		7,129
2010 Senior Notes due 2040	22,388		22,388		22,388
Credit facilities	2,060		6,006		5,516
Bank charges, Talbot FAL facility and other charges ^(a)	504		4,592		4,536
AlphaCat fees ^(b)	1,185		9,435		3,545
Total finance expenses	$	58,520	$	74,742	$	68,324


(a)	On November 30, 2015, the Company terminated its Talbot FAL Facility provided and arranged by Lloyds Bank plc and ING Bank N.V., London Branch.


(b)	Includes finance expenses incurred by AlphaCat Managers in relation to fund raising for the AlphaCat sidecars, the AlphaCat ILS funds and AlphaCat direct.