Credit Agreement

On January 15, 2016, we entered into a Credit Agreement (the “Credit Agreement”) with Morgan Stanley Senior Funding, Inc. (“MSSF”), as administrative agent and collateral agent, the other agents party thereto and the lenders referred to therein (collectively, the “Lenders”). The Lenders have provided $2.5 billion senior secured first lien credit facilities (collectively, the “Credit Facilities”), consisting of a term A loan facility (the “Term Loan A Facility”) in an aggregate principal amount of $450.0 million, a term B loan facility (the “Term Loan B Facility”) in an aggregate principal amount of $1.7 billion and a revolving credit facility (the “Revolving Facility”) with commitments in an aggregate principal amount of $325.0 million. The Credit Facilities financed a portion of the acquisition of PMC and fees and expenses related thereto. The Revolving Facility is also available for working capital requirements and other general corporate purposes.

The Credit Facilities bear interest, at our option, at Base Rate or LIBOR, plus a margin. Starting after the next full fiscal quarter, the margin for borrowings under the Term Loan A Facility and Revolving Facility will vary depending upon Microsemi’s consolidated net leverage ratio. At April 3, 2016, the principal amounts outstanding were Eurodollar Rate loans and interest rate information as of April 3, 2016 were as follows:



	Principal Outstanding		Base Rate		Base Rate Margin		Eurodollar Rate Margin		Eurodollar Floor		Applicable Rate
Revolving facility	$	225.0	3.50	%	1.50	%	2.50	%	—	%	2.94	%
Term A loan	$	450.0	3.50	%	1.50	%	2.50	%	—	%	2.94	%
Term B loan	$	1,520.0	3.50	%	3.50	%	4.50	%	0.75	%	5.25	%

As of April 3, 2016, the fair value of principal outstanding on the Credit Agreement was $2.2 billion. We classify this valuation as a Level 2 fair value measurement.

The Credit Agreement also requires the Company to pay a commitment fee for the unused portion of the Revolving Facility, which will be a minimum of 0.25% and a maximum of 0.35%, depending on the Company’s consolidated net leverage ratio. Interest for Base Rate-based loans is calculated on the basis of a 365/366-day year and interest for LIBOR-based loans is calculated on the basis of a 360-day year.

The obligations under the Credit Facilities are collateralized by a lien on substantially all of our personal property and material real property assets (collectively, the “Collateral”).

The Term Loan A Facility matures January 15, 2021. The Term Loan A Facility requires quarterly principal payments of 1.25% of the original principal amount for the first two years following the closing date and 2.5% of the original principal amount for the remaining three years. The Term Loan B Facility matures on January 15, 2023. The Term Loan B Facility requires quarterly principal payments equal to 0.25% of the original principal amount of the Term Loan B Facility. We have made optional principal payments on our Term Loan B Facility such that there are no scheduled principal payments until maturity.

The Credit Facilities include financial maintenance covenants including a maximum consolidated net leverage ratio and minimum fixed charge coverage ratio and also contain other customary affirmative and negative covenants and events of default. We were in compliance with our covenants as of April 3, 2016.

During the quarter, we made $100.0 million and $180.0 million principal payments on the Revolving Facility and Term Loan B Facility, respectively.

Senior Unsecured Notes

On January 15, 2016, we completed the sale of $450.0 million of our 9.125% senior unsecured notes due April 2023 (the “Notes”) to qualified institutional buyers and pursuant to Regulation S in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended. The Notes were issued under an indenture, dated January 15, 2016, among Microsemi, the subsidiaries of Microsemi party thereto as note guarantors, and U.S. Bank National Association, as trustee (the “Indenture”).

As of April 3, 2016, the fair value of principal outstanding on the Senior Unsecured Notes was $496.1 million. We classify this valuation as a Level 1 fair value measurement.

The Notes accrue cash interest at a rate of 9.125% per year, payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2016. The Notes mature on April 15, 2023. We may redeem the Notes, and the holders of the Notes may require us to repurchase the Notes, prior to this date of maturity in certain circumstances pursuant to the terms and conditions of the Indenture. The Indenture contains customary affirmative and negative covenants and events of default.

Debt Extinguishment and Debt Issuance Costs

On January 15, 2016, concurrent with entering into the Credit Agreement, we terminated our senior secured credit agreement with Bank of America, N.A., which included a term loan A facility and a revolving facility maturing on August 19, 2019 and a term loan B facility maturing on February 19, 2020. During the quarter ended April 3, 2016, we recorded debt extinguishment charges of $72.3 million consisting of $61.3 million we paid during Q2 2016 in connection with the Credit Agreement and reported in net cash provided by operating activities and $11.0 million related to prior deferred financing fees we expensed in connection with the termination of our prior senior secured credit agreement.

Debt issuance costs recorded as a reduction to principal outstanding in the condensed consolidated balance sheets were $50.2 million as of April 3, 2016 and $11.7 million as of September 27, 2015.