DEBT

Credit Facility

In August 2015, Ancestry.com Inc. (the “Issuer”), a subsidiary of the Parent, entered into a new credit facilities (the “New Credit Facilities”), which consists of a $735.0 million senior secured term loan facility (the “New Term Loan”) that matures August 2022 and an $80.0 million senior secured revolving credit facility (the “Revolving Facility”) that matures August 2020. The New Term Loan was issued at 99.0% of par or an original issue discount of $7.4 million. In addition, the Company incurred $9.2 million in customary fees and expenses as a part of this transaction. On that same date, the Issuer repaid $554.5 million and all outstanding interest under its then existing senior secured credit facilities (the “Prior Credit Facilities”), which as of the date of repayment had outstanding $449.0 million under a Term B-1 Loan (the “Term B-1 Loan”) and $105.5 million outstanding under the Term B-2 Loan (the “Term B-2 Loan”). The Company's indirect parent entity used the net proceeds from the debt transaction and cash-on-hand to pay a return-of-capital distribution of $215.0 million to its shareholders and vested stock-based award holders in September 2015. See Note 9 for additional information about the return-of-capital distribution.

In accordance with ASC 470-50 Debt – Modifications and Extinguishments, the Company performed an analysis on a creditor-by-creditor basis to determine if the debt instruments were substantially different. As a result of this analysis, the Company recorded $10.5 million of additional interest expense, consisting of $3.7 million of original issue discount and deferred financing costs associated with the Prior Credit Facilities and $6.8 million of the $16.6 million of total costs incurred as a part of this transaction. The original issue discount and deferred financing costs associated with new creditors and creditors under both the Prior Credit Facilities and New Credit Facilities, whose debt instruments were not deemed to be substantially different, will be amortized to interest expense over the debt term using the effective-interest method.

Amounts borrowed under the New Term Loan are required to be paid in equal quarterly installments of 0.25% of the original principal amount with the balance payable upon maturity. If the Issuer's 11% senior notes due in December 2020 (the “Notes”) are outstanding 91 days prior to the Notes' maturity date (the “Springing Maturity Date”), the New Credit Facilities will mature on the Springing Maturity Date rather than August 2022. Additionally, subject to certain conditions, a mandatory repayment may be required to be made annually beginning with the fiscal year ended December 31, 2016. The mandatory repayment may be up to 50% of excess cash flow, based on the Company’s first lien leverage ratio (the “First Lien Leverage Ratio”) as defined in the credit agreement and net cash proceeds of certain other transactions as calculated at the end of each fiscal year. The Parent and certain of its subsidiaries guarantee the New Credit Facilities. All obligations under the New Credit Facilities are secured by a perfected first priority lien in substantially all of the Company’s tangible and intangible assets.

The New Term Loan and Revolving Facility bear interest on the outstanding unpaid principal amount at a rate equal to an applicable margin plus, at the Issuer’s option, either: (a) a base rate determined by reference to the highest of (i) the administrative agent's prime rate at such time, (ii) 0.50% in excess of the overnight federal funds rate at such time and (iii) the LIBOR rate that is in effect for a LIBOR loan with an interest period of one month plus 1.00%, provided that the base rate for the New Term Loan is not less than 2.00% per annum; or (b) a LIBOR rate, provided that the LIBOR rate for the New Term Loan is not less than 1.00% per annum. The applicable margin shall mean either: (i) in the case of initial term loans maintained as (a) base-rate loan, 3.00%, or (b) LIBOR loans, 4.00%, (ii) in the case of initial revolving loans maintained as (a) base-rate loans or swingline loans, 2.75% and (b) fixed-rate loans, 3.75%. The applicable margin for the Revolving Facility is subject to step-ups and step-downs based on the Company’s First Lien Leverage Ratio. The Issuer is also required to pay a commitment fee of 0.50% per annum on the unutilized commitments under the Revolving Facility, which fee decreases to 0.375% if the First Lien Leverage Ratio is less than or equal to 1.70 to 1.00. As of December 31, 2015, the interest rate on the New Term Loan was equal to a LIBOR floor of 1.00% plus the applicable margin of 4.00%. The interest rates on the Term B-1 Loan and the Term B-2 Loan under the Prior Credit Facilities were equal to a LIBOR floor of 1.00% plus applicable margins of 3.50% and 3.00%, respectively. Additionally, the effective interest rate of the New Term Loan is approximately 5.7% while the effective interest rates of the Term B-1 Term Loan and the Term B-2 Loan under the Prior Credit Facilities were approximately 5.9%.

As of December 31, 2015, no funds had been drawn against the Revolving Facility. Borrowings under the Revolving Facility may be used for the purpose of general working capital, capital expenditures and other general corporate purposes. The New Credit Facilities also provide for a swingline subfacility of $25.0 million, a letter of credit subfacility of $50.0 million and an uncommitted incremental facility in an amount not to exceed the sum of (i) an unlimited amount if, on the date of issuance the total net secured leverage ratio would be less than or equal to 3.00 to 1.00, (ii) to the extent not funded with the proceeds of long-term indebtedness, all prior voluntary prepayments, and (iii) $100.0 million, subject to certain conditions.

The New Credit Facilities permits restricted payments, including dividends, out of available amounts, as defined in the credit agreement. The available amount formulation includes a starter amount of $75.0 million and is adjusted quarterly based on consolidated net income, as defined in the credit agreement, beginning June 30, 2015 plus other additions as listed in the credit agreement. Separately, the New Credit Facilities have a general basket for restricted payments of the greater of $50 million per annum and 20.5% of the last twelve months of EBITDA as defined by the credit agreement. The New Credit Facilities contain customary affirmative and negative covenants and events of default. The Revolving Facility contains a financial covenant prohibiting the First Lien Leverage Ratio from being greater than 4.00, which is tested quarterly when utilization of the Revolving Facility (excluding letters of credit less than or equal to $10.0 million) is greater than 30% of total commitments under the Revolving Facility. Without the written consent of the required lenders, the Issuer is not permitted to incur loans under the Revolving Facility unless it is in compliance with the Financial Covenant as of the last day of the most recently completed test period. As of December 31, 2015, the Company was in compliance with all covenants of the New Credit Facilities.

The Issuer, at its discretion, has also entered into interest rate cap agreements with the following terms as of December 31, 2015: (i) $190.0 million total notional amount that currently caps the three-month LIBOR rate at 1.50% expiring March 31, 2016 (ii) $200.0 million total notional amount that caps the three-month LIBOR rate at 2.00% commencing March 31, 2016 and expiring December 30, 2016 and (iii) $300.0 million total notional amount that caps the three-month LIBOR rate at 2.00% commencing December 30, 2016 and expiring June 29, 2018. Changes in the fair value of the interest rate caps are recorded to interest expense in the Consolidated Statements of Operations during the period of the change. For the year ended December 31, 2015, the Company recorded interest expense of $1.1 million related to the change in the fair value of the interest rate caps. The change in fair value of the interest rate caps for the year ended December 31, 2014 was immaterial. In addition, the fair value of the interest rate caps as of December 31, 2015 and December 31, 2014 was immaterial.

Senior Notes

The Issuer has outstanding $300.0 million of fixed-rate 11.0% Notes due in December 2020. Interest on the Notes is payable semi-annually in arrears on June 15 and December 15 of each year. The Issuer may redeem all or any portion of the Notes at any time prior to December 15, 2016 at a price equal to 100% of the aggregate principal plus an applicable premium, as defined in the indenture governing the Notes, and accrued interest. The Issuer may redeem any portion or all of the Notes on or after December 15, 2016 at redemption prices as set forth in the indenture, plus accrued and unpaid interest. Upon a change of control, the Issuer is required to make an offer to redeem all of the Notes from the holders at 101% of the principal amount thereof plus accrued interest. The Notes are guaranteed by the Parent and certain of its subsidiaries. The effective interest rate of the Notes is approximately 12.0%.

The indenture governing the Notes generally permits restricted payments, as defined in the indenture, including dividends, out of a cumulative basket, which grows quarterly based on 50% of the Company’s cumulative consolidated net income since October 1, 2012, as defined in the indenture. In addition, as a condition to making such payments, the Company must be in compliance with a pro-forma fixed charge coverage ratio greater than or equal to 2.0 to 1.0.

Outstanding long-term debt consists of the following (in thousands):



	December 31, 2015									December 31, 2014
	Outstanding Principal			Unamortized Discount and Deferred Financing Costs			Net Carrying Amount			Outstanding Principal			Unamortized Discount and Deferred Financing Costs			Net Carrying Amount
New Term Loan	$	733,163		$	(26,222	)	$	706,941		$	—		$	—		$	—
Term B-1 Loan	—			—			—			452,533			(21,763		)	430,770
Term B-2 Loan	—			—			—			132,000			(4,758		)	127,242
Notes	300,000			(10,598		)	289,402			300,000			(12,072		)	287,928
Total debt	1,033,163			(36,820		)	996,343			884,533			(38,593		)	845,940
Less: Current portion	(7,350		)	263			(7,087		)	(48,348		)	1,811			(46,537		)
Long-term debt	$	1,025,813		$	(36,557	)	$	989,256		$	836,185		$	(36,782	)	$	799,403

The following is a schedule by year of future principal payments as of December 31, 2015 (in thousands):



Years Ending December 31,	New Term Loan		Notes		Total
2016	$	7,350	$	—	$	7,350
2017	7,350		—		7,350
2018	7,350		—		7,350
2019	7,350		—		7,350
2020	7,350		300,000		307,350
Thereafter	696,413		—		696,413
Total future principal payments	$	733,163	$	300,000	$	1,033,163

Ancestry.com Holdings LLC Senior Unsecured PIK Notes

The Company’s parent, Holdings LLC, previously issued $400.0 million of PIK Notes due October 15, 2018. In March 2015, Holdings LLC repurchased $9.8 million of the PIK Notes plus accumulated interest. To fund this repurchase, the Company issued a $10.0 million note receivable to Holdings LLC at 5% interest payable annually with a maturity date of December 31, 2017, which is subordinated to the PIK Notes. This note is recorded as a related-party note receivable in Other assets in the Consolidated Balance Sheet.

Interest on the PIK Notes is payable semi-annually in arrears on April 15 and October 15 each year through maturity. The first and last interest payments on the PIK Notes are required to be payable entirely in cash. All other interest payments are required to be paid in cash, subject to cash availability and restricted payment capacity, as defined in the indenture. If interest payments are not required to be paid in cash, Holdings LLC will be entitled to pay all or a portion of the interest payment by increasing the principal amount of the PIK Notes or issuing new PIK Notes in an amount equal to the interest payment for the applicable interest period (“PIK Interest”). Cash interest on the PIK Notes will accrue at the rate of 9.625% per annum; PIK Interest will accrue at the rate of 10.375% per annum. Holdings LLC may redeem all or any portion of the PIK Notes at any time prior to October 15, 2016 at a price equal to 102% of the aggregate principal plus accrued interest; subsequent to October 15, 2016 but before October 15, 2017, the PIK Notes may be redeemed at a price equal to 101% of the aggregate principal plus accrued interest. The PIK Notes may be redeemed at par plus accrued interest subsequent to October 15, 2017.

The PIK Notes are senior unsecured obligations of Holdings LLC and are structurally subordinated to all the Company’s existing and future indebtedness. Additionally, the Company did not guarantee the PIK Notes, nor were any of its assets pledged as collateral for the PIK Notes. As the Company is not an obligor or a guarantor on the PIK Notes, the debt is recorded only in the financial statements of Holdings LLC and is not reflected in the Consolidated Financial Statements of the Company. While not required, the Company has made and intends to make future payments to Holdings LLC in order to fund payments related to the PIK Notes, provided that such payments are permitted under the covenants of the New Credit Facilities and the Notes. For the years ended December 31, 2015 and December 31, 2014, the Company declared and paid its parent, Holdings LLC, return-of-capital distributions of $38.4 million and $37.6 million, respectively, related to the PIK Notes.