Note 7 Debt

Credit Agreement

On April 25, 2017, we entered into Amendment No. 3 ("Amendment No. 3") to our Credit Agreement dated as of January 15, 2016 (as amended and supplemented, 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. Amendment No. 3 provided for, among other things (i) new pricing terms for any revolving loans that may be outstanding from time to time under the Credit Agreement and (ii) new pricing terms for the term loan A facility. The new pricing terms do not vary depending on our consolidated net leverage ratio or any other financial maintenance covenant. Amendment No. 3 also fixed the commitment fee for the unused portion of the revolving credit facility at 0.25%.

On May 17, 2017, we entered into an Increase Revolving Joinder No. 1 to Credit Agreement (the ''Increase Revolving Joinder") with respect to an increase in revolving commitments under the Credit Agreement. The Increase Revolving Joinder provided for, among other things, a $50.0 million increase in total revolving commitments (the "Incremental Revolving Commitments") under the Credit Agreement. After giving effect to the Increase Revolving Joinder, the Incremental Revolving Commitments are a part of the revolving credit facility under the Credit Agreement with total commitments in the amount of $375.0 million.

The Credit Facilities bear interest, at our option, at Base Rate or LIBOR, plus a margin. At October 1, 2017, 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		Applicable Rate
Revolving and swingline loans	$	—	3.75	%	0.75	%	1.75	%	2.98	%
Term loan A	$	757.8	3.75	%	0.75	%	1.75	%	3.05	%
Term loan B	$	794.7	3.75	%	1.25	%	2.25	%	3.55	%

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 principal amount for the first two years following January 15, 2016 and 2.5% of the 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. The ECF percentage is 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. The ECF percentage for 2017 is 25%.

During 2017, we incurred financing fees related to the amendments to our Credit Agreement of $2.5 million, of which $0.8 million was accounted for as debt modification fees which was recorded in cash flow from operating activities and $1.7 million was accounted for as debt extinguishment fees which was recorded in cash flows from financing activities. During 2016, we incurred financing fees related to the amendments to our Credit Facility 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 $35.1 million as of October 1, 2017 and $44.0 million as of October 2, 2016.

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 1, 2017.

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.

On May 25, 2017, we repurchased a portion of our Notes with an aggregate principal amount of $170.8 million for a purchase price of $201.7 million, including accrued interest. This resulted in a loss on extinguishment of debt of $32.5 million, including the associated unamortized financing costs.

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 1, 2017, the fair value of principal outstanding on the credit facilities and Notes were as follows (amounts in millions):



	Principal outstanding		Fair value
Credit facilities	$	1,552.5	$	1,552.6
Notes	279.2		319.0
Total debt	$	1,831.7	$	1,871.6