Note 8 Debt

Credit Agreement

On January 15, 2016, we entered into a Credit Agreement (as amended, 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 provided $2.5 billion senior secured first lien credit facilities (collectively, as amended, the "Credit Facilities"), consisting of a term A loan facility (as amended, the "Term Loan A Facility") in an aggregate principal amount of $450.0 million, a term B loan facility (as amended, 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.

Refinancing of Credit Agreement

On June 29, 2016, we entered into an Increase Term Joinder to the Credit Agreement with respect to an incremental Term Loan A Facility in an aggregate principal amount of $364.3 million under our existing Credit Agreement. We used the total proceeds to pay down a portion of our Term Loan B Facility. In addition, on June 29, 2016, we entered into Amendment No. 1 to our existing Credit Agreement (together with the Increase Term Joinder, the "First Amendment"). The First Amendment provided for, among other things, (i) new pricing terms for the outstanding Term B Loan Facility in the aggregate original principal amount, (ii) certain modifications to the repricing event prepayment provisions and (iii) certain other modifications to facilitate restructuring of our subsidiaries.

The Credit Facilities bear interest, at our option, at Base Rate or LIBOR, plus a margin. The margin for borrowings under the Term Loan A Facility and Revolving Facility vary depending upon our consolidated net leverage ratio. At October 2, 2016, all principal amounts outstanding were Eurodollar Rate loans and interest rate information were as follows:



	Principal Outstanding		Base Rate		Base Rate Margin		Eurodollar Rate Margin		Eurodollar Floor		Applicable Rate
Revolving and swingline loans	$	275.0	3.50	%	1.25	%	2.25	%	—	%	2.77	%
Term A loan	$	798.5	3.50	%	1.25	%	2.25	%	—	%	2.77	%
Term B loan	$	699.7	3.50	%	2.00	%	3.00	%	0.75	%	3.75	%

The Credit Agreement also requires us 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 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.

Subject to certain customary exceptions, all of our obligations under the Credit Facilities are unconditionally guaranteed by each of our existing and subsequently acquired or organized direct and indirect wholly-owned domestic subsidiaries whose assets or revenues exceed 5% of the consolidated assets or revenues, as the case may be, of Microsemi and its subsidiaries (the "Guarantors"). Other domestic subsidiaries will be required to become a Guarantor to the extent that domestic subsidiaries excluded from such guarantee obligation represent, in the aggregate, more than 15% of the consolidated assets and more than 15% of the consolidated gross revenues of Microsemi.

The obligations under the Credit Facilities are our and the Guarantors’ senior secured obligations collateralized by a lien on substantially all of our personal property and material real property assets, subject in each case to certain customary exceptions (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 amended principal amount for the first two years following the closing date and 2.5% of the amended principal amount for the remaining term. 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.

Additionally, the Credit Agreement stipulates an annual principal payment of a percentage of Excess Cash Flow ("ECF") (as defined in the Credit Agreement) to repay the Term Loan B Facility. The first ECF application date will be measured as of the end of fiscal year 2017 and the ECF percentage is expected to be 50% if the consolidated net leverage ratio as of the last day of the fiscal year is greater than 3.00 to 1.00, 25% if the consolidated net leverage ratio as of the last day of the fiscal year is less than or equal to 3.00 to 1.00 but greater than 2.50 to 1.00 and 0% otherwise.

Our Credit Agreement contains financial covenants including a maximum consolidated net leverage ratio and minimum fixed charge coverage ratio and also contains other customary affirmative and negative covenants and events of default. We were in compliance with our covenants as of October 2, 2016.

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 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 (the "Note Guarantors"), and U.S. Bank National Association, as trustee (the "Indenture").

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. 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.

The Notes are our general senior unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured obligations, are senior in right of payment to all of our future subordinated indebtedness, if any, are structurally subordinated to all of our existing and future obligations, claims of holders of preferred stock and other liabilities of our subsidiaries that do not guarantee the Notes and are effectively subordinated in right of payment to all of our senior secured indebtedness (including our obligations under the Credit Facilities) to the extent of the value of the assets securing such obligations. The Notes are unconditionally guaranteed, jointly and severally, on a senior unsecured basis by all of our subsidiaries that guarantee the Credit Agreement. Each guarantee of the Notes is the general senior unsecured obligation of the Note Guarantors and is effectively subordinated to the senior secured obligations of the Note Guarantors (including the Note Guarantors’ obligations under the Credit Facilities) to the extent of the value of the assets securing such obligations, are equal in right of payment to all existing and future unsecured obligations of the Note Guarantors that are not, by their terms, expressly subordinated in right of payment to the Notes and rank senior in right of payment to all future obligations, if any, of the Note Guarantors that are by their terms, expressly subordinated in right of payment to the guarantees.

Fair Value of Debt

As of October 2, 2016, the fair value of principal outstanding on the Credit Facilities and Senior Unsecured Notes were as follows (amounts in millions):



	Principal outstanding		Fair value
Credit Facilities	$	1,773.2	$	1,772.1
Senior Unsecured Notes	450.0		513.0
Total debt	$	2,223.2	$	2,285.1

Debt Extinguishment, Modification, and 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 (the "2011 Credit Agreement"). We accounted for this termination as debt extinguishment. In addition, we accounted for the refinancing of our Term Loan A Facility and Term Loan B Facility pursuant to the First Amendment as a debt modification with respect to amounts that remained in the syndicate and debt extinguishment with respect to the amounts that exited the syndicate.

During the second quarter of 2016, we paid financing fees related to the Credit Agreement of $112.2 million which was recorded in cash flows from financing activities. We recorded a debt extinguishment charge of $72.3 million consisting of $61.3 million in fees paid during the second quarter which was recorded in cash flows from financing activities and $11.0 million of deferred financing fees from the 2011 Credit Agreement. During the third quarter of 2016, we paid financing fees related to the First Amendment of $19.1 million, of which $16.1 million was accounted for as debt modification fees was recorded in cash flow from operating activities and $3.0 million was accounted for as debt extinguishment fees was recorded in cash flows from financing activities. We recorded a debt extinguishment charge of $4.5 million as an allocation of credit facility fees to parties exiting the Credit Agreement. We reported debt extinguishment charges in other expense, net in our Consolidated Statement of Operations and Comprehensive Income (Loss). Debt issuance costs recorded as a reduction to principal outstanding in the condensed consolidated balance sheets were $44.0 million as of October 2, 2016 and $11.7 million as of September 27, 2015.