Debt

12 Months Ended

Dec. 31, 2019

Debt Disclosure [Abstract]

Debt

Debt

The components of long-term debt at December 31, 2019 and 2018, were as follows:

	Weighted Average Interest Rate		2019			2018
Master note and security agreement	7.24	%	$	70.7		$	96.2
Term loan A	4.52	%	768.3			281.3
Term loan B	7.33	%	—			279.5
Revolving credit facility	4.85	%	—			—
Senior unsecured notes	7.00	%	243.5			243.5
International term loans	1.87	%	16.5			17.8
International revolving credit facilities	1.90	%	5.7			11.8
Other	11.52	%	3.1			2.6
Debt issuance costs			(9.3		)	(7.2		)
Total debt			$	1,098.5		$	925.5
Less: short-term debt and current portion of long-term debt			(40.0		)	(42.9		)
Long-term debt			$	1,058.5		$	882.6

Description of Debt Obligations

Master Note and Security Agreement

On September 1, 1995, and as last amended on November 24, 2014, Quad entered into its Master Note and Security Agreement. As of December 31, 2019, the borrowings outstanding under the Master Note and Security Agreement were $70.7 million. The senior notes under the Master Note and Security Agreement had a weighted average interest rate of 7.24% at December 31, 2019, which is fixed to maturity, with interest payable semiannually. Principal payments commenced September 1997 and extend through April 2031 in various tranches. The notes are collateralized by certain United States land, buildings and press and finishing equipment under the terms of the Master Note and Security Agreement.

Senior Secured Credit Facility

On April 28, 2014, the Company entered into its Senior Secured Credit Facility, which included a revolving credit facility, Term Loan A and Term Loan B. The Company completed the third amendment to the Senior Secured Credit Facility on January 31, 2019. This third amendment was completed to provide Quad with the liquidity and structural flexibility to consummate the proposed, but now terminated, acquisition of LSC and to extend existing maturities by (a) increasing the aggregate amount of the existing revolving credit facility from $725.0 million to $800.0 million with a term of five years, maturing on January 31, 2024; (b) increasing the aggregate amount of the existing Term Loan A from $375.0 million to $825.0 million with a delayed draw feature and term of five years, maturing on January 31, 2024; and (c) increasing the aggregate amount of the existing Term Loan B from $300.0 million to $500.0 million with a term of seven years, maturing on January 31, 2026. The Company intended that the loans available under the amended revolving credit facility would be used to repay, refinance, repurchase, redeem, exchange or otherwise terminate LSC’s existing indebtedness in connection with the consummation of the merger, and to pay transaction expenses. On July 26, 2019, following the termination of the proposed acquisition of LSC, Quad fully funded the $825.0 million delayed draw Term Loan A to retire the entire amount outstanding on the $500.0 million Term Loan B and reduced the borrowings under the revolving credit facility. The third amendment also amended certain of the

quarterly financial covenants to which the Company is subject (all financial terms, numbers and ratios are as defined in the Senior Secured Credit Facility, as amended by the third amendment).

At December 31, 2019, the Company had no outstanding borrowings on the revolving credit facility, and had $35.8 million of issued letters of credit, leaving $764.2 million available for future borrowings. Borrowings under the revolving credit facility and delayed draw Term Loan A made under the Senior Secured Credit Facility at December 31, 2019, bear interest at 2.50% in excess of reserve adjusted LIBOR, or 1.50% in excess of an alternate base rate. The Senior Secured Credit Facility is secured by substantially all of the unencumbered assets of the Company. The Senior Secured Credit Facility also requires the Company to provide additional collateral to the lenders in certain limited circumstances.

Senior Unsecured Notes

The Company issued $300.0 million aggregate principal amount of its Senior Unsecured Notes due May 1, 2022, on April 28, 2014. The Senior Unsecured Notes bear interest at 7.00%, and interest is payable semi-annually. The Senior Unsecured Notes were issued to extend and stagger the Company’s debt maturity profile, further diversify its capital structure and provide more borrowing capacity to better position the Company to execute on its strategic goals. The Company received $294.8 million in net proceeds from the sale of the Senior Unsecured Notes, after deducting the initial purchasers’ discounts and commissions. The proceeds from the Senior Unsecured Notes were used for the same purposes detailed above for the Senior Secured Credit Facility.

Each of the Company’s existing and future domestic subsidiaries that is a borrower or guarantees indebtedness under the Company’s Senior Secured Credit Facility or that guarantees certain of the Company’s other indebtedness or indebtedness of the Company’s restricted subsidiaries (other than intercompany indebtedness) fully and unconditionally guarantee or, in the case of future subsidiaries, will guarantee, on a joint and several basis, the Senior Unsecured Notes (the “Guarantor Subsidiaries”). All of the Guarantor Subsidiaries are 100% owned by the Company. Guarantor Subsidiaries will be automatically released from these guarantees upon the occurrence of certain events. See Note 23, “Separate Financial Information of Subsidiary Guarantors of Indebtedness,” for further details on the Guarantor Subsidiaries.

International Debt Obligations

The Company has two fixed rate, Euro denominated, international term loans for purposes of financing certain capital expenditures and general business needs. The first international term loan in the amount of $19.9 million was entered into on December 28, 2015, was fully funded during 2016 and has a term of six years, maturing December 28, 2021. As of December 31, 2019, $6.0 million remained outstanding on the first international term loan at a weighted average interest rate of 1.72%. The second international term loan in the amount of $11.8 million was entered into on December 21, 2018, bears interest at 1.96% and has a term of five years, maturing on December 31, 2023. As of December 31, 2019, $10.5 million remained outstanding on the second international term loan.

The Company has two multicurrency international revolving credit facilities that are used for financing working capital and general business needs. The Company had $5.7 million of borrowings outstanding at a weighted average interest rate of 1.90% on the international revolving credit facilities as of December 31, 2019, leaving $10.1 million available for future borrowing. The terms of the international revolving credit facilities includes certain financial covenants, a guarantee of the international revolving credit facilities by the Company and a security agreement that includes collateralizing substantially all of the Quad Europe Sp. z.o.o. assets. The first multicurrency international revolving credit facility expires on October 31, 2020, and bears interest at the aggregate of the Warsaw Interbank Offered Rate (“WIBOR”) plus 0.90% for any Polish Zloty denominated borrowings, the aggregate of Euro Interbank Offered Rate (“EURIBOR”) plus 0.95% for any Euro denominated borrowings or the aggregate of British pound sterling LIBOR plus 0.95% for any British pound sterling denominate borrowings. The second multicurrency international revolving credit facility expires on November 20, 2020, and bears interest at the aggregate of WIBOR plus 0.70% for any Polish Zloty denominated borrowings or the aggregate of EURIBOR plus 0.70% for any Euro denominated borrowings.

Fair Value of Debt

Based upon the interest rates available to the Company for borrowings with similar terms and maturities, the fair value of the Company’s total debt was approximately $1.1 billion and $0.9 billion at December 31, 2019 and 2018, respectively. The fair value determination of the Company’s total debt was categorized as Level 2 in the fair value hierarchy (see Note 15, “Financial Instruments and Fair Value Measurements,” for the definition of Level 2 inputs). As of December 31, 2019, approximately $2.0 billion of the Company’s assets were pledged as security under various loans and other agreements.

Debt Issuance Costs and Original Issue Discount

Activity impacting the Company’s capitalized debt issuance costs and original issue discount for the years ended December 31, 2019 and 2018, was as follows:

	Capitalized Debt Issuance Costs			Original Issue Discount
Balance at January 1, 2018	$	10.3		$	1.4
Amortization expense	(3.1		)	(0.4		)
Balance at December 31, 2018	7.2			1.0
Impacts from January 31, 2019 debt financing arrangement	6.0			15.0
Loss on debt extinguishment from February 10, 2017 debt financing arrangement	(0.7		)	(1.0		)
Loss on debt extinguishment from July 26, 2019 delayed draw Term Loan A funding and retirement of Term Loan B	(0.5		)	(14.1		)
Amortization expense	(2.7		)	(0.9		)
Balance at December 31, 2019	$	9.3		$	—

Amortization expense for debt issuance costs was $2.7 million, $3.1 million and $3.1 million for the years ended December 31, 2019, 2018 and 2017, respectively. Amortization expense for original issue discount was $0.9 million, $0.4 million and $0.4 million for the years ended December 31, 2019, 2018 and 2017, respectively. The debt issuance costs and original issue discount are amortized on a straight-line basis over the four, seven and eight year lives of the related debt instruments.

Loss on Debt Extinguishment

2019 Loss on Debt Extinguishment

In conjunction with the third amendment to the Company’s Senior Secured Credit Facility completed on January 31, 2019, the Company incurred $20.2 million in debt issuance costs. In accordance with the accounting guidance for the treatment of debt issuance costs in a debt extinguishment, of the $20.2 million in new debt issuance costs, $6.0 million was classified as a reduction of long-term debt in the consolidated balance sheets and $14.2 million was expensed and was classified as loss on debt extinguishment in the consolidated statements of operations at the time of the refinancing.

The loss on debt extinguishment recorded during the year ended December 31, 2019, was comprised of the following:

	Loss on Debt Extinguishment
Debt issuance costs:
Debt issuance costs from February 10, 2017 debt financing arrangement	$	0.7
Debt issuance costs from January 31, 2019 debt financing arrangement	14.2
Debt issuance costs from July 26, 2019 delayed draw Term Loan A funding and retirement of Term Loan B	0.5
Original issue discount:
Original issue discount from February 10, 2017 debt financing arrangement	1.0
Original issue discount from July 26, 2019 delayed draw Term Loan A funding and retirement of Term Loan B	14.1
Total	$	30.5

2017 Loss on Debt Extinguishment

The Company incurred $4.7 million in debt issuance costs in conjunction with the second amendment to the Company’s Senior Secured Credit Facility. In accordance with the accounting guidance for the treatment of debt issuance costs in a debt extinguishment, of the $4.7 million in new debt issuance costs, $3.2 million is classified as a reduction of long-term debt in the consolidated balance sheets and $1.5 million was expensed and is classified as loss on debt extinguishment in the consolidated statements of operations.

The loss on debt extinguishment recorded in the consolidated statements of operations for the year ended December 31, 2017, was comprised of the following:

	Loss on Debt Extinguishment
Debt issuance costs from April 28, 2014 debt financing arrangement	$	1.1
Debt issuance costs from February 10, 2017 debt financing arrangement	1.5
Total	$	2.6

Covenants and Compliance

The Company’s various lending arrangements include certain financial covenants (all financial terms, numbers and ratios are as defined in the Company’s debt agreements). Among these covenants, the Company was required to maintain the following as of December 31, 2019:

• Total Leverage Ratio. On a rolling twelve-month basis, the Total Leverage Ratio, defined as consolidated total indebtedness to consolidated EBITDA, shall not exceed 3.75 to 1.00 (for the twelve months ended December 31, 2019, the Company’s Total Leverage Ratio was 3.22 to 1.00).

• If there is any amount outstanding on the Revolving Credit Facility or Term Loan A, or if any lender has any revolving credit exposure or Term Loan A credit exposure, the Company is required to maintain the following:

◦ Senior Secured Leverage Ratio. On a rolling twelve-month basis, the Senior Secured Leverage Ratio, defined as consolidated senior secured net indebtedness to consolidated EBITDA, shall not exceed 3.50 to 1.00 (for the twelve months ended December 31, 2019, the Company’s Senior Secured Leverage Ratio was 2.30 to 1.00).

• Interest Coverage Ratio. On a rolling twelve-month basis, the Interest Coverage Ratio, defined as consolidated EBITDA to cash consolidated interest expense, shall not be less than 3.00 to 1.00 (for the twelve months ended December 31, 2019, the Company’s Interest Coverage Ratio was 4.52 to 1.00).

The indenture underlying the Senior Unsecured Notes contains various covenants, including, but not limited to, covenants that, subject to certain exceptions, limit the Company’s and its restricted subsidiaries’ ability to incur and/or guarantee additional debt; pay dividends, repurchase stock or make certain other restricted payments; enter into agreements limiting dividends and certain other restricted payments; prepay, redeem or repurchase subordinated debt; grant liens on assets; enter into sale and leaseback transactions; merge, consolidate, transfer or dispose of substantially all of the Company’s consolidated assets; sell, transfer or otherwise dispose of property and assets; and engage in transactions with affiliates.

In addition to those covenants, the Senior Secured Credit Facility also includes certain limitations on acquisitions, indebtedness, liens, dividends and repurchases of capital stock. The following limitations utilize a Total Net Leverage Ratio calculation, which, on a rolling twelve-month basis, is defined as consolidated net indebtedness to consolidated EBITDA (for the twelve months ended December 31, 2019, the Company’s Total Net Leverage Ratio was 3.01 to 1.00).

• If the Company’s Total Net Leverage Ratio is greater than 2.75 to 1.00, the Company is prohibited from making greater than $120.0 million of annual dividend payments, capital stock repurchases and certain other payments. If the Total Net Leverage Ratio is less than 2.75 to 1.00, there are no such restrictions. As the Company’s Total Net Leverage Ratio as of December 31, 2019, was 3.01 to 1.00, the limitations described above are currently applicable.

• If the Company’s Senior Secured Leverage Ratio is greater than 3.00 to 1.00 or the Company’s Total Net Leverage Ratio is greater than 3.50 to 1.00, the Company is prohibited from voluntarily prepaying any of the Senior Unsecured Notes and from voluntarily prepaying any other unsecured or subordinated indebtedness, with certain exceptions (including any mandatory prepayments on the Senior Unsecured Notes or any other unsecured or subordinated debt). If the Senior Secured Leverage Ratio is less than 3.00 to 1.00 and the Total Net Leverage Ratio is less than 3.50 to 1.00, there are no such restrictions. The limitations described above are currently not applicable, as the Company’s Senior Secured Leverage Ratio was 2.30 to 1.00 and Total Net Leverage Ratio was 3.01 to 1.00, as of December 31, 2019.

Estimated Principal Payments

The approximate annual principal amounts due on long-term debt, excluding $9.3 million for future amortization of debt issuance costs, at December 31, 2019, were as follows:

	Principal Payments
2020	$	40.0
2021	89.5
2022	334.9
2023	90.2
2024	540.4
2025 – 2029	10.8
2030 – 2032	2.0
Total	$	1,107.8