Long-Term Debt

9 Months Ended

Sep. 30, 2020

Long-term debt consists of the following as of:


	September 30,		December 31,
	2020		2019
	(in thousands)
Senior Unsecured Notes Due 2028	$	600,000	$	—
Term Loan Facility	400,000		585,000
Revolving Credit Facility	—		170,000
Long-term debt, gross	1,000,000		755,000
Less: unamortized debt issuance costs and original issue discount	(9,179)		(3,628)
	990,821		751,372
Less: long-term debt, current	(6,000)		(6,000)
Long-term debt, net	$	984,821	$	745,372

Credit Agreement

In June 2017, Switch, Ltd. entered into an amended and restated credit agreement (“Credit Agreement”) with Wells Fargo Bank, National Association, as administrative agent, and certain other lenders, consisting of a $600.0 million term loan facility (the “Term Loan Facility”), maturing on June 27, 2024, and a $500.0 million revolving credit facility (the “Revolving Credit Facility,” and, together with the Term Loan Facility, the “Credit Facilities”), maturing on June 27, 2022. In September 2020, Switch, Ltd. entered into a second amendment to the Credit Agreement (“Amended Credit Agreement”) to, among other things, extend the maturity of the Revolving Credit Facility to June 27, 2023, modify the ratio used for the financial covenant and certain basket availability tests from a consolidated total leverage ratio to a consolidated secured leverage ratio, and refresh or increase certain baskets for restricted payments, investments, and junior debt payments. In connection with this amendment, certain lenders exited the Revolving Credit Facility and a partial repayment was applied to the Term Loan Facility to reduce its principal amount to $400.0 million. As a result, the Company recorded a $0.2 million loss on extinguishment of debt during the three and nine months ended September 30, 2020.

The Term Loan Facility continues to be subject to quarterly amortization payments of $1.5 million, followed by a final payment of $379.0 million in June 2024.

The Amended Credit Agreement contains affirmative and negative covenants customary for such financings, including, but not limited to, limitations on incurring additional debt, incurring additional liens, encumbrances or contingent liabilities, and paying distributions or making certain other restricted payments (with certain exceptions and baskets, including a restricted payment basket of $50.0 million per fiscal year). The Amended Credit Agreement also requires Switch, Ltd. to maintain compliance with the consolidated secured leverage ratio (as defined in the Amended Credit Agreement) of 4.00 to 1.00 for each fiscal quarter.

Senior Unsecured Notes Due 2028

In September 2020, Switch, Ltd. (the “Issuer”) issued $600.0 million aggregate principal amount of its 3.75% senior unsecured notes due 2028 (the “Notes”), pursuant to an indenture (the “Indenture”) by and among the Issuer, the guarantors named therein and U.S. Bank National Association, as trustee. A portion of the net proceeds was used to repay outstanding borrowings on the Revolving Credit Facility and reduce the principal amount of the Term Loan Facility.

The Notes bear interest at the rate of 3.75% per annum, payable in cash semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2021. The Notes mature on September 15, 2028 and are fully and unconditionally guaranteed on a senior unsecured basis by each of the Issuer’s current and future domestic restricted subsidiaries that guarantee its obligations under its Credit Facilities.

Prior to September 15, 2023, the Issuer may redeem the Notes, in whole or in part, at a redemption price of 100% of the principal amount thereof, plus a “make-whole” premium set forth in the Indenture, plus accrued and unpaid interest. In addition, prior to September 15, 2023, the Issuer may redeem up to 40% of the aggregate principal amount of the Notes at a redemption price equal to 103.75% of the principal amount thereof, plus accrued and unpaid interest, with the net cash proceeds from one or more equity offerings. On or after September 15, 2023, the Issuer may redeem some or all of the Notes at a redemption price decreasing annually from 101.875% of the principal amount to 100% of the principal amount, plus accrued and unpaid interest.

In the event of a change of control triggering event (as defined in the Indenture), the Issuer will be required to offer to repurchase the Notes at a price equal to 101% of the principal amount thereof, plus any accrued and unpaid interest. If holders of not less than 90.0% in aggregate principal amount of the outstanding Notes validly tender in connection with any tender offer or other offer to purchase the Notes (including pursuant to a change of control offer, an alternate offer, or an offer to purchase with the proceeds from any asset disposition, all as described in the indenture), the Issuer will have the right to redeem the remaining Notes outstanding following such purchase at a cash redemption price equal to the applicable price paid to holders in such purchase, plus accrued and unpaid interest.

The Notes are general unsecured obligations of the Issuer and the guarantors. Under the terms of the Indenture, the Notes rank equally in right of payment with all of the Issuer’s and the guarantors’ existing and future senior indebtedness, and rank contractually senior in right of payment to the Issuer’s and the guarantors’ future indebtedness and other obligations that are expressly subordinated in right of payment to the Notes. The Notes are effectively subordinated to the Issuer’s and the guarantors’ existing and future secured indebtedness, including secured indebtedness under the Credit Facilities, to the extent of the value of the assets securing such indebtedness. The Notes and guarantees are structurally subordinated to all existing and future indebtedness and liabilities of the Issuer’s subsidiaries that do not guarantee the Notes.

The Indenture contains covenants that, subject to exceptions and qualifications, among other things, limit the Issuer’s ability and the ability of its Restricted Subsidiaries (as defined in the Indenture) to incur additional indebtedness and guarantee indebtedness, pay dividends or make other distributions or repurchase or redeem Switch, Inc.’s capital stock, prepay, redeem or repurchase certain indebtedness, issue certain preferred stock or similar equity securities, make loans and investments, dispose of assets, incur liens, enter into transactions with affiliates, enter into agreements restricting the ability to pay dividends, and consolidate, merge or sell all or substantially all assets.

The Indenture contains customary events of default including, without limitation, failure to make required payments, failure to comply with certain agreements or covenants, cross-acceleration to certain other indebtedness in excess of specified amounts, certain events of bankruptcy and insolvency, and failure to pay certain judgments. An event of default under the notes will allow either the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes to accelerate, or in certain cases, will automatically cause the acceleration of the maturity of all outstanding Notes.

Fair Value

The estimated fair value of the Company’s long-term debt as of September 30, 2020 and December 31, 2019 was approximately $1.01 billion and $755.0 million, respectively, compared to its carrying value, excluding debt issuance costs and original issue discount, of $1.00 billion and $755.0 million, respectively. The estimated fair value of the Company’s long-term debt was based on Level 2 inputs using quoted market prices on or about September 30, 2020 and December 31, 2019, respectively.