11. Debt

ESND is a holding company and, as a result, its primary sources of funds are cash generated from operating activities of its direct operating subsidiary, ECO, and from borrowings by ECO. The 2017 Credit Agreement, 2013 Credit Agreement, the 2013 Note Purchase Agreement, and the Receivables Securitization Program (each of which are defined below) contain restrictions on the use of cash transferred from ECO to ESND.

On February 22, 2017, ESND, ECO, ECO’s United States subsidiaries (ESND, ECO and the subsidiaries collectively referred to as the “Loan Parties”), JPMorgan Chase Bank, National Association, as Administrative Agent, and certain lenders entered into a Fifth Amended and Restated Revolving Credit Agreement (“2017 Credit Agreement”). The 2017 Credit Agreement amended and restated the Fourth Amended and Restated Five-Year Revolving Credit Agreement dated as of July 9, 2013 (as amended prior to February 22, 2017, the “2013 Credit Agreement”). Also on February 22, 2017, ESND, ECO and the holders of ECO’s 3.75% senior secured notes due January 15, 2012, (the “Notes”) entered into Amendment No. 4 (“Amendment No. 4”) to the Note Purchase Agreement dated as of November 25, 2013, (as amended prior to February 22, 2017, the “2013 Note Purchase Agreement”).

The 2017 Credit Agreement and Amendment No. 4 eliminated covenants in the 2013 Credit Agreement and the 2013 Note Purchase Agreement that prohibited the Company from exceeding a debt-to-EBITDA ratio of 3.5 to 1.0 (or 4.0 to 1.0 following certain permitted acquisitions) and restricted the Company’s ability to pay dividends and repurchase stock when the ratio was 3.0 to 1.0 or more. As a result, the Company is no longer subject to a debt-to-EBITDA ratio.

Proceeds from the 2017 Credit Facility were used to repay the balances of the 2013 Credit Agreement and the Receivables Securitization Program (as defined below).

The 2017 Credit Agreement provides for a revolving credit facility (with an aggregated committed principal amount of $1.0 billion), a first-in-last-out (“FILO”) revolving credit facility (with an aggregated committed principal amount of $100 million), and a term loan (with an aggregated committed principal amount of $77.6 million). The term loan may be funded in a single funding on or prior to April 21, 2017, but was not funded at closing. Loans under the 2017 Credit Agreement must be extended to the Company first through the FILO facility. Based on the Company’s applicable asset balances, at closing the total availability under the 2017 Credit Agreement was approximately $1.0 billion. The 2017 Credit Agreement also provides for the issuance of letters of credit, up to $25.0 million, plus an additional $165.0 million as collateral for the Company’s obligations under the 2013 Note Purchase Agreement.

Borrowings under the 2017 Credit Agreement bear interest at LIBOR for specified interest periods, at the REVLIBOR30 Rate (as defined in the 2017 Credit Agreement) or at the Alternate Base Rate (as defined in the 2017 Credit Agreement), plus, in each case, a margin determined based on the Company’s average quarterly revolving availability. Depending on the Company’s average quarterly revolving availability, the margin on LIBOR-based loans and REVLIBOR30 Rate-based loans ranges from 1.25% to 1.75% for revolving and term loans and 2.00% to 2.50% for FILO loans, and on Alternate Base Rate loans ranges from 0.25% to 0.75% for revolving and term loans and 1.00% to 1.50% for FILO loans. As of closing to June 30, 2017, the applicable margin for LIBOR-based loans and REVLIBOR30 Rate-based loans is 1.50% for revolving and term loans and 2.25% for FILO loans, and for Alternate Base Rate loans is 0.50% for revolving and term loans and 1.25% for FILO loans. In addition, ECO is required to pay the lenders a commitment fee on the unutilized portion of the revolving and FILO commitments under the 2017 Credit Agreement at a rate per annum equal to 0.25%. The Company can borrow up to $100.0 million of swingline revolving loans on a revolving basis; swingline loans are considered to be unutilized for purposes of the commitment fee. Letters of credit issued pursuant to the 2017 Credit Agreement incur interest based on the applicable margin rate for LIBOR-based Loans, plus 0.125%. Utilization of the 2017 Credit Agreement, consisting of borrowings and letters of credit as of the February 22, 2017 closing of the agreement were approximately $672.5 million and applicable deferred financing fees associated with the transaction will be amortized over the life of the 2017 Credit Agreement.

Obligations of ECO under the 2017 Credit Agreement are guaranteed by ESND and ECO’s domestic subsidiaries. ECO’s obligations under these agreements and the guarantors’ obligations under the guaranty are secured by liens on substantially all Company assets. Availability of credit under the revolving facility will be subject to a revolving borrowing base calculation comprised of a certain percentage of the eligible accounts receivable, plus a certain percentage of the eligible inventory, less reserves. Similarly, availability under the FILO revolving credit facility is subject to a FILO borrowing base comprised primarily of 10% of the eligible accounts receivable, plus 10% multiplied by the net orderly liquidation value percentages of the eligible inventory, less reserves. The amount of the term loan will be determined based on the value of the Company’s owned real estate and certain equipment.

The 2017 Credit Agreement contains representations and warranties, covenants and events of default that are customary for facilities of this type, including covenants to deliver periodic certifications setting forth the revolving borrowing base and FILO borrowing base. So long as the Payment Conditions (as defined in the Credit Agreement) are satisfied, the Loan Parties may pay dividends, repurchase stock and engage in certain permitted acquisitions, investments and dispositions, in each case subject to the other terms and conditions of the Credit Agreement and the other loan documents.

Prior to the closing of the 2017 Credit Agreement noted above, debt consisted of the following amounts (in millions):

	As of			As of
	December 31, 2016			December 31, 2015

2013 Credit Agreement	$	260.4		$	368.4
2013 Note Purchase Agreement		150.0			150.0
Receivables Securitization Program		200.0			200.0
Capital Lease		0.1			0.1
Transaction Costs		(1.5	)		(2.2	)
Total	$	609.0		$	716.3

As of December 31, 2016, 75.4% of the Company’s outstanding debt, excluding capital leases and transaction costs, was priced at variable interest rates based primarily on the applicable bank prime rate or London InterBank Offered Rate (“LIBOR”). As of December 31, 2016, the overall weighted average effective borrowing rate, excluding the impact of commitment fees, of the Company’s debt was 2.5%. At December 31, 2016, 50.9% of the Company’s debt was unhedged and variable rate and a 50 basis point movement in interest rates would result in a $1.5 million change in annualized interest expense, on a pre-tax basis, and upon cash flows from operations.

Receivables Securitization Program

The Company’s accounts receivable securitization program (“Receivables Securitization Program” or the “Program”) was terminated when the Company entered into the 2017 Credit Agreement. The Program provided maximum financing of up to $200 million secured by all the customer accounts receivable and related rights originated by ECO.

The receivables sold to investors under the Program remained on ESND’s Consolidated Balance Sheets, and amounts advanced to ESR by Investors were recorded as debt on ESND’s Consolidated Balance Sheets. The cost of such debt is recorded as interest expense on ESND’s Consolidated Statements of Operations. As of December 31, 2016 and 2015, $500.3 million and $448.6 million, respectively, of receivables had been sold to Investors. As of December 31, 2016, the Company had $200.0 million outstanding under the Program.

Credit Agreement and Other Debt

On November 25, 2013, ESND and ECO, entered into a Note Purchase Agreement (the “2013 Note Purchase Agreement”) with the note purchasers identified therein (collectively, the “Note Purchasers”). Pursuant to the 2013 Note Purchase Agreement, on January 15, 2014, ECO issued and the Note Purchasers purchased an aggregate of $150 million of senior secured notes due January 15, 2021 (the “2014 Notes”). Interest on the 2014 Notes is payable semi-annually at a rate per annum equal to 3.75%. At the time ECO priced the 2014 Notes, ECO terminated the June 2013 Swap Transaction. After giving effect to the impact of terminating the June 2013 Swap Transaction, the effective per annum interest rate on the 2014 Notes is 3.66%. The effective interest rate on the 2014 Notes increased to 4.285% from July 1, 2016 to September 30, 2016 because the Company’s Leverage Ratio (as defined in the 2013 Note Purchase Agreement) as of June 30, 2016, exceeded a specified threshold. In connection with the 2017 Credit Agreement, the 2013 Note Purchase Agreement was amended to remove provisions related to the Company’s Leverage Ratio. If ECO elects, or is required, to prepay some or all of the 2014 Notes prior to January 15, 2021, ECO will be obligated to pay a make-whole amount calculated as set forth in the Agreement. The Company’s obligations under the 2013 Note Purchase Agreement are secured by a $165.0 million letter of credit issued under the 2017 Credit Agreement.

On July 8, 2013, the Company and ECO entered into a Fourth Amended and Restated Five-Year Revolving Credit Agreement (the “2013 Credit Agreement”) with JPMorgan Chase Bank, National Association, as Agent, and the lenders identified therein. As noted above, the 2013 Credit Agreement was terminated in February 2017.

The 2013 Credit Agreement provided for a revolving credit facility with an aggregate committed principal amount of $700 million. The 2013 Credit Agreement also provided for the issuance of letters of credit. The Company had outstanding letters of credit of $12.5 million under the 2013 Credit Agreement as of December 31, 2016.

Borrowings under the 2013 Credit Agreement bore interest at LIBOR for specified interest periods or at the Alternate Base Rate (as defined in the 2013 Credit Agreement), plus, in each case, a margin determined based on the Company’s Leverage Ratio (as defined in the 2013 Credit Agreement). Depending on the Company’s Leverage Ratio, the margin on LIBOR-based loans ranged from 1.00% to 2.00% and on Alternate Base Rate loans ranged from 0.00% to 1.00%.

As of December 31, 2016, the applicable margin under the 2013 Credit Agreement was 1.50% for LIBOR-based loans and was 0.5% for Alternate Base Rate loans.

ECO has entered into several interest rate swap transactions to mitigate its floating rate risk on a portion of its total long-term debt. See Note 2, “Summary of Significant Accounting policies”, for further details on these swap transactions and their accounting treatment.

Obligations of ECO under the 2014 Notes are guaranteed by ESND and certain of ECO’s domestic subsidiaries.

The 2017 Credit Agreement and the 2013 Note Purchase Agreement contain additional representations and warranties, covenants and events of default that were customary for these types of agreements. The 2017 Credit Agreement and the 2013 Note Purchase Agreement contain cross-default provisions. As a result, if a termination event occurs under either of those agreements, the lenders under the 2017 Credit Agreement may cease to make additional loans and the lenders under both agreements may accelerate any loans then outstanding and/or terminate the agreements to which they are party.

Debt maturities as of December 31, 2016, were as follows (in millions):

Year	Amount
2018⁽¹⁾	$	460.4
2021		150.0
Total	$	610.4

(1)

The debt maturity in 2018 was effectively repaid in February 2017 with borrowings under the 2017 Credit Agreement totaling $522.5 million due 2022.