11. DEBT AND FINANCING OBLIGATIONS

At November 27, 2016 and May 29, 2016, our debt, including financing obligations was as follows (dollars in millions):


	November 27,		May 29,
	2016		2016
Debt:
Term loan facility, due 2021	$	675.0	$	—
4.625% senior notes, due 2024		833.0		—
4.875% senior notes, due 2026		833.0		—
6.25% installment notes, due 2017		9.8		10.1
LIBOR plus a margin (1.90% to 2.30%) and 4.34%, installment notes due on various dates through June 2031		30.0		30.0
		2,380.8		40.1
Financing obligations:
4.35% lease financing obligation due May 2030		68.9		69.7
2.00% to 3.32% lease financing obligations due on various dates through 2040		8.3		8.3
		77.2		78.0

Long-term debt, including current portion		2,458.0		118.1
Debt issuance costs		(37.0)		—
Current portion of long-term debt		(39.0)		(13.5)
Long-term debt, excluding current portion	$	2,382.0	$	104.6

In November 2016, as part of the Separation, Lamb Weston, as borrower, issued $2,341.0 million of debt, which included $1,666.0 million of aggregate principal amount of 4.625% and 4.875% senior notes (together, the “Senior Notes”) and $675.0 million of borrowings under a five-year senior secured credit agreement (the “Credit Agreement”) with a syndicate of lenders. The Credit Agreement consists of a five-year amortizing $675.0 million term loan facility (the “Term Loan Facility”) and a five-year non-amortizing $500.0 million revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Credit Facilities”). The Credit Agreement is secured as long as Lamb Weston remains below investment grade by both Moody’s and Standard & Poor’s. Of the $1,666.0 million of Senior Notes, $1,542.9 million aggregate principal amount of Senior Notes were distributed directly to Conagra and we used the proceeds of $123.1 million of Senior Notes, together with $700.4 million of borrowings under the Credit Facilities, to fund an $823.5 million cash payment to Conagra at the time of the Separation. The $1,542.9 million of Senior Notes distributed directly to Conagra is a noncash financing activity for Lamb Weston.

Debt issuances as of November 27, 2016 consisted of the following:

Revolving Credit Facility: A five-year nonamortizing $500.0 million revolving credit facility with variable annual interest, under which $80 million is outstanding on November 27, 2016. In addition to paying interest, we pay an annual commitment fee for undrawn amounts at a rate of 0.25% to 0.40% depending on our consolidated net leverage ratio.

Term Loan Facility: A five-year $675.0 million term loan amortizing in equal quarterly installments for a total of 5% annually commencing in March 2017 with the balance payable in November 2021.

4.625% Senior Notes: An eight-year $833.0 million senior debt obligation with fixed annual interest.

4.875% Senior Notes: A ten-year $833.0 million senior debt obligation with fixed annual interest.

Credit Facilities

Borrowings under the Credit Facilities bear interest at a floating rate per annum based upon the Base Rate or the Eurocurrency rate, in each case plus an applicable margin which varies based upon our consolidated net leverage ratio. Margins range from 0.500% to 1.250% for Base Rate loans and from 1.500% to 2.250% for Eurocurrency Rate loans. The Base Rate is defined as the highest of (a) Bank of America’s prime rate, (b) the federal funds rate plus 0.500% and (c) the Eurocurrency Rate with a term of one month plus 1.0%.

Additionally, the Revolving Credit Facility is available for the issuance of letters of credit and swingline advances not to exceed $100.0 million and $35.0 million, respectively. Swingline advances will accrue interest at a rate equal to the Base Rate plus the applicable margin. Letters of credit and swingline advances will reduce, on a dollar for dollar basis, the amount available under the Revolving Credit Facility.

Upon the occurrence of an event of default, among other things, amounts outstanding under the Credit Agreement may be accelerated and the commitments may be terminated. Our obligations under the Credit Agreement are guaranteed by certain of our direct and indirect domestic subsidiaries on the terms set forth in the Credit Agreement. The Credit Agreement has a maturity date of November 9, 2021.

At November 27, 2016, we had $80.0 million of borrowings outstanding under our Revolving Credit Facility. At November 27, 2016, we had $420.0 million of availability and no outstanding letters of credit. For the period of November 9, 2016 through November 27, 2016, the average interest rate for our borrowings under the Revolving Credit Facility was 2.5%.

We are required to maintain the following financial covenant ratios under the Credit Agreement:

Total net leverage ratio of 5.50 to 1.00, decreasing ratably to 4.50 to 1.00 on August 25, 2019 through maturity

Interest coverage ratio of 2.75 to 1.00

The obligations of Lamb Weston under our Credit Facilities are guaranteed jointly and severally on a senior secured basis by each of our existing and subsequently acquired or organized direct or indirect wholly owned domestic restricted subsidiaries subject to the exclusion of immaterial subsidiaries.

The Credit Agreement and the indentures governing the Senior Notes contain covenants that, subject to exceptions, limit our ability and the ability of our subsidiaries to, among other things, incur, assume or guarantee additional indebtedness, pay distributions on, redeem or repurchase capital stock or redeem or repurchase subordinated debt, make loans and investments, incur or suffer to exist liens, sell, transfer or otherwise dispose of assets, enter into agreements that restrict distributions or other payments from restricted subsidiaries to us, engage in transactions with affiliates, designate subsidiaries as unrestricted or restricted, and consolidate merge, amalgamate or transfer all or substantially all of our assets.

4.625% and 4.875% Senior Notes

The Senior Notes are senior unsecured obligations and rank equally with all of our present and future senior indebtedness, senior to all our future subordinated indebtedness and effectively subordinated to all of our present and future senior secured indebtedness (including all borrowings with respect to the Credit Facilities to the extent of the value of the assets securing such indebtedness). Interest on the Senior Notes is due semiannually. Upon a change of control, we must offer to repurchase the Senior Notes at 101% of the principal amount, plus accrued and unpaid interest.

We may redeem all or a portion of the 4.625% Senior Notes at any time on or after November 1, 2021, at declining prices starting at 102.313%, plus accrued and unpaid interest. We may redeem all or a portion of the 4.875% Senior Notes at any time on or after November 1, 2021, at declining prices starting at 102.438%, plus accrued and unpaid interest. Prior to November 1, 2021, we may redeem Senior Notes of either series, in whole at any time or in part, from time to time, at a price equal to 100% of the principal amount thereof, plus a make-whole premium, plus accrued and unpaid interest. We may also redeem up to 35% of the aggregate principal amount of either series of Senior Notes on or prior to November 1, 2019 in an aggregate amount equal to the net proceeds from certain equity offerings at redemption prices equal to 104.625% for the 4.625% Senior Notes and 104.875% for the 4.875% Senior Notes, plus, in each case, accrued and unpaid interest.

The Senior Notes are jointly and severally guaranteed on a senior unsecured basis by Lamb Weston’s domestic subsidiaries that guarantee its obligations under the Credit Agreement.

Other

The aggregate minimum principal maturities of our long-term debt, including current portion, for the next five fiscal years and thereafter, are as follows (dollars in millions):


	Financing
	Obligations (a)		Debt		Total
2017 remainder	$	3.8	$	18.7	$	22.5
2018		5.6		35.3		40.9
2019		5.4		35.4		40.8
2020		5.0		35.4		40.4
2021		4.9		35.5		40.4
2022		5.2		533.4		538.6
Thereafter		47.3		1,687.1		1,734.4
	$	77.2	$	2,380.8	$	2,458.0

(a)

Payments for our lease financing obligations for the next five fiscal years and thereafter include $35.5 million of payments representing interest.

In November 2016, we recorded $37.3 million of debt issuance costs incurred in connection with the debt issuances described above as a reduction of long-term debt. Conagra paid $25.4 million of the debt issuance costs, we paid $9.6 million and have accrued $2.3 million. We amortize the $37.3 million of costs in interest expense using the effective interest method over the life of the loans. For the thirteen and twenty-six weeks ended November 27, 2016, we recorded $0.3 million of amortization expense in “Interest expense” in our Condensed Combined and Consolidated Statements of Earnings.

Since the Separation, we have paid $0.9 million of interest on debt.

Notes Payable

In 2016, our Tai Mei Potato (Tai Mei Potato Industry Limited) subsidiary increased its credit facility $20.0 million to approximately $58.0 million. The facility consists of an overdraft line, a fixed asset commitment and a working capital facility. Borrowings under the facilities bear interest at either 85%, 95% or 105% of the Peoples Bank of China rate (4.35% at November 27, 2016) and may be prepaid without penalty. We guarantee the full amount of our subsidiary’s obligations to the financial institution up to the maximum amount of the credit facility. As of November 27, 2016, $25.2 million was drawn on the facility and recorded in “Notes payable” in our Condensed Combined and Consolidated Balance Sheet.

For more information on our debt and interest rates on that debt, see Note 5, Notes Payable and Long-Term Debt, of the Notes to Combined Financial Statements included in the Form 10.