Financing Arrangements	3 Months Ended
Dec. 31, 2020
Financing Arrangements
Financing Arrangements	Note 8 — Financing Arrangements On March 27, 2020, we executed a Fifth Amended and Restated Credit Agreement (the “Credit Facility”) with a group of financial institutions. The Credit Facility provided for a new term loan in the aggregate amount of $450.0 million (the “Term Loan”) and increased our existing revolving line of credit limit (the “Revolving Line of Credit”) from $800.0 million to $850.0 million. The commitments under the Credit Facility will mature on March 27, 2025 and bear interest generally at the LIBOR rate plus a margin that ranges between 1.00% and 2.00%. At December 31, 2020, the weighted average interest rate on outstanding borrowings under the Credit Facility was 1.95%. The Credit Facility is unsecured, but it is guaranteed by certain significant domestic subsidiaries of Cubic. On April 1, 2020, we entered into interest rate swaps with a group of financial institutions to mitigate the variable interest rate risk associated with the Credit Facility. The interest rate swaps contain forward starting notional principal amounts which align with our fixed repayment schedules under the Credit Facility and as of December 31, 2020 have an interest rate of approximately 2.49% and outstanding notional principal amounts of $500.0 million. See Note 7 for a description of the measurement of fair value of our derivative financial instruments. Debt issuance and modification costs of $3.4 million were incurred in connection with the execution of the Credit Facility and are classified as a reduction to the related liability on our Condensed Consolidated Balance Sheets and are being amortized as interest expense using the effective interest method over the stated term of the Credit Facility. At December 31, 2020, our total debt issuance costs for our Term Loan and Revolving Line of Credit had an unamortized balance of $5.2 million. The available credit under our Revolving Line of Credit is reduced by any letters of credit issued under the Credit Facility. As of December 31, 2020, there were $441.6 million of borrowings under the Term Loan and $207.0 million of borrowings under the Revolving Line of Credit. Letters of credit outstanding under the Credit Facility totaled $94.6 million at December 31, 2020, which reduced our available line of credit to $548.4 million. The $94.6 million of letters of credit includes both financial letters of credit and performance guarantees. As of December 31, 2020, we had letters of credit and bank guarantees outstanding totaling $101.2 million, which includes the $94.6 million of letters of credit issued under the Revolving Line of Credit and $6.6 million of letters of credit issued under other facilities. The $101.2 million of letters of credit and bank guarantees includes $97.5 million that guarantees either our performance or customer advances under certain contracts and $3.7 million of financial letters of credit that primarily guarantees our payment of certain self-insured liabilities. We have never had a drawing on a letter of credit instrument, nor are any anticipated; therefore, we estimate the fair value of these instruments to be zero. We also use surety bonds as an alternative to letters of credit. We have entered into a short-term borrowing arrangement in the United Kingdom for up to £15.0 million British Pounds (equivalent to approximately $20.5 million at December 31, 2020) to help meet the short-term working capital requirements of our subsidiary located in the United Kingdom. At December 31, 2020, no amounts were outstanding under this borrowing arrangement. We maintain a cash account with a bank in the United Kingdom for which the funds are restricted as to use. The account is required to secure the customer’s interest in cash deposited in the account to fund our activities related to our performance under a fare collection services contract in the United Kingdom. The balance in the account as of December 31, 2020 was $29.6 million and is classified as restricted cash in our Condensed Consolidated Balance Sheets. The terms of the Credit Facility contain financial covenants setting a maximum total ratio of debt to adjusted earnings before interest, taxes, depreciation and amortization and a minimum interest coverage ratio. In addition, the terms contain covenants that restrict, among other things, our ability to sell assets, incur indebtedness, make investments, grant liens, pay dividends and make other restricted payments. As of December 31, 2020, we were in compliance with all covenants under the Credit Facility. Our self-insurance arrangements are limited to certain workers’ compensation plans, automobile liability and product liability claims. Under these arrangements, we self-insure only up to the amount of a specified deductible for each claim. Self-insurance liabilities included in accrued compensation and current liabilities in our Condensed Consolidated Balance Sheets amounted to $5.1 million at December 31, 2020 and September 30, 2020.

Financing Arrangements

3 Months Ended

Dec. 31, 2020

Note 8 — Financing Arrangements

On March 27, 2020, we executed a Fifth Amended and Restated Credit Agreement (the “Credit Facility”) with a group of financial institutions. The Credit Facility provided for a new term loan in the aggregate amount of $450.0 million (the “Term Loan”) and increased our existing revolving line of credit limit (the “Revolving Line of Credit”) from $800.0 million to $850.0 million. The commitments under the Credit Facility will mature on March 27, 2025 and bear interest generally at the LIBOR rate plus a margin that ranges between 1.00% and 2.00%. At December 31, 2020, the weighted average interest rate on outstanding borrowings under the Credit Facility was 1.95%. The Credit Facility is unsecured, but it is guaranteed by certain significant domestic subsidiaries of Cubic.

On April 1, 2020, we entered into interest rate swaps with a group of financial institutions to mitigate the variable interest rate risk associated with the Credit Facility. The interest rate swaps contain forward starting notional principal amounts which align with our fixed repayment schedules under the Credit Facility and as of December 31, 2020 have an interest rate of approximately 2.49% and outstanding notional principal amounts of $500.0 million. See Note 7 for a description of the measurement of fair value of our derivative financial instruments.

Debt issuance and modification costs of $3.4 million were incurred in connection with the execution of the Credit Facility and are classified as a reduction to the related liability on our Condensed Consolidated Balance Sheets and are being amortized as interest expense using the effective interest method over the stated term of the Credit Facility. At December 31, 2020, our total debt issuance costs for our Term Loan and Revolving Line of Credit had an unamortized balance of $5.2 million.

The available credit under our Revolving Line of Credit is reduced by any letters of credit issued under the Credit Facility. As of December 31, 2020, there were $441.6 million of borrowings under the Term Loan and $207.0 million of borrowings under the Revolving Line of Credit. Letters of credit outstanding under the Credit Facility totaled $94.6 million at December 31, 2020, which reduced our available line of credit to $548.4 million. The $94.6 million of letters of credit includes both financial letters of credit and performance guarantees.

As of December 31, 2020, we had letters of credit and bank guarantees outstanding totaling $101.2 million, which includes the $94.6 million of letters of credit issued under the Revolving Line of Credit and $6.6 million of letters of credit issued under other facilities. The $101.2 million of letters of credit and bank guarantees includes $97.5 million that guarantees either our performance or customer advances under certain contracts and $3.7 million of financial letters of credit that primarily guarantees our payment of certain self-insured liabilities. We have never had a drawing on a letter of credit instrument, nor are any anticipated; therefore, we estimate the fair value of these instruments to be zero. We also use surety bonds as an alternative to letters of credit.

We have entered into a short-term borrowing arrangement in the United Kingdom for up to £15.0 million British Pounds (equivalent to approximately $20.5 million at December 31, 2020) to help meet the short-term working capital requirements of our subsidiary located in the United Kingdom. At December 31, 2020, no amounts were outstanding under this borrowing arrangement.

We maintain a cash account with a bank in the United Kingdom for which the funds are restricted as to use. The account is required to secure the customer’s interest in cash deposited in the account to fund our activities related to our performance under a fare collection services contract in the United Kingdom. The balance in the account as of December 31, 2020 was $29.6 million and is classified as restricted cash in our Condensed Consolidated Balance Sheets.

The terms of the Credit Facility contain financial covenants setting a maximum total ratio of debt to adjusted earnings before interest, taxes, depreciation and amortization and a minimum interest coverage ratio. In addition, the terms contain covenants that restrict, among other things, our ability to sell assets, incur indebtedness, make investments, grant liens, pay dividends and make other restricted payments. As of December 31, 2020, we were in compliance with all covenants under the Credit Facility.

Our self-insurance arrangements are limited to certain workers’ compensation plans, automobile liability and product liability claims. Under these arrangements, we self-insure only up to the amount of a specified deductible for each claim. Self-insurance liabilities included in accrued compensation and current liabilities in our Condensed Consolidated Balance Sheets amounted to $5.1 million at December 31, 2020 and September 30, 2020.