NOTE 5—DEBT AND REDEEMABLE PREFERRED STOCK

The following table presents the Company’s long-term debt as of March 31, 2017 and December 31, 2016:

	March 31,			December 31,
(In millions)	2017			2016
Senior Secured Notes:
Principal amount outstanding	$	305.0		$	305.0
Unamortized original issue discount and debt issuance costs		(9.0	)		(10.1	)
Senior Secured Notes, net		296.0			294.9
Revolving credit facilities:
Principal amount outstanding		78.2			57.0
Unamortized debt issuance costs		(1.0	)		(1.5	)
Revolving credit facilities, net		77.2			55.5
Term Loan		—			1.5
Capital leases		7.0			4.6
Current portion of long-term debt		(2.9	)		(2.3	)
Long-term debt, net	$	377.3		$	354.2

Long-term debt

Senior Secured Notes

In connection with the Real Alloy Acquisition, we issued $305.0 million of senior secured 10.0% notes (the “Senior Secured Notes”) in January 2015. The Senior Secured Notes are due January 15, 2019, with interest payable on January 15 and July 15 of each year through the date of maturity. For the three months ended March 31, 2017 and 2016, interest expense associated with the Senior Secured Notes was $8.8 million and $8.6 million, respectively, including $1.1 million and $1.0 million, respectively, of amortization of debt discount and issuance costs. As of March 31, 2017, Real Alloy was in compliance with all applicable covenants under the Indenture of the Senior Secured Notes.

Revolving credit facilities

On March 14, 2017, Real Alloy entered into a Revolving Credit Agreement with Bank of America, N.A. (“Bank of America”) for a $110.0 million senior secured revolving asset-based credit facility (the “ABL Facility”). A portion of the proceeds of the ABL Facility were used to repay the outstanding Asset-Based Facility with Wells Fargo. The borrowers under the ABL Facility are Real Alloy and certain of its direct and indirect wholly owned U.S. subsidiaries and its wholly owned Canadian subsidiary. Certain obligations of the borrowers are guaranteed by Real Alloy’s direct parent, Real Alloy Intermediate Holding, LLC (“Real Alloy Parent”), and certain obligations of the Canadian Borrower will be guaranteed by a Real Alloy indirect, wholly owned subsidiary.

The ABL Facility expires on March 14, 2022, however, if the maturity date for the Senior Secured Notes is not extended at least 120 days prior to its current January 15, 2019 maturity date, or the redemption date for the Company’s Redeemable Preferred Stock is not extended at least 181 days prior to its current August 27, 2020 maturity date, the ABL Facility will expire 90 days prior to such current maturity date for the Senior Secured Notes or Redeemable Preferred Stock.

The ABL Facility is divided into two sub-facilities, a U.S. sub-facility (the “U.S. Sub-facility”), and a Canadian sub-facility (the “Canadian Sub-facility”). The ABL Facility includes an $11.0 million swingline sub-facility, which can be used by the U.S. borrowers or the Canadian borrower subject to the U.S. Sub-facility and Canadian Sub-facility limits. The ABL Facility also includes a $25.0 million letter of credit sub-facility, of which up to $20.0 million can be used for letters of credit for the U.S. borrowers and up to $5.0 million can be used for letters of credit for the Canadian borrower. The borrowing base under the U.S. Sub-facility is determined based on eligible accounts receivable and eligible inventory of the U.S. borrowers, and the borrowing base under the Canadian Sub-facility is determined based on eligible accounts receivable and eligible inventory of the Canadian borrower and eligible accounts receivable of Real Alloy’s wholly owned Mexican subsidiary.

U.S. dollar denominated revolving loans under the U.S. Sub-facility bear interest, at the U.S. Borrowers’ option, either (i) at 1-, 2-, 3- or 6-month interest periods at LIBOR, or (ii) the Base Rate (as defined below), in each case plus a margin based on the amount of the excess availability under the ABL Facility. The “Base Rate” is equal to the greater of (a) the prime rate announced by Bank of America from time to time, (b) the U.S. Federal Funds Rate plus 0.50%, and (c) the 30-day interest period LIBOR. Canadian dollar denominated loans under the Canadian Sub-facility bear interest, at the Canadian Borrowers’ option, either (i) the CDOR rate for a term comparable to the loan, or (ii) floating at the greater of (x) the prime rate announced by Bank of America (Canada) from time to time or (y) the 1-month CDOR plus 1.0% (this clause (ii), “Canadian Index Rate”), plus in each case a margin based on the amount of the excess availability under the ABL Facility. U.S. dollar denominated U.S. or Canadian swingline loans bear interest in the same way as U.S. Base Rate revolving loans, and Canadian dollar denominated Canadian swingline loans bear interest in the same way as Canadian Index Rate revolving loans. Events of default will trigger an increase of 2.0% in all interest rates. Interest is payable monthly in arrears, except for LIBOR or CDOR loans, for which interest will be payable at the end of each relevant interest period. Additionally, upon closing, the U.S. and Canadian Borrowers paid a $0.3 million closing fee, as well as reimbursed Bank of America’s costs, including U.S. and international attorneys’ fees.

In the three months ended March 31, 2017 and 2016, interest expense under the revolving credit facilities was $2.2 million and $0.4 million, respectively, including the write-off of $1.4 million of unamortized debt issuance costs associated with the Asset-Based Facility in 2017 and $0.2 million of scheduled amortization of debt issuance costs in each of the three months ended March 31, 2017 and 2016. As of March 31, 2017, the borrowers were in compliance with the debt covenants of the ABL Facility.

Capital leases

In the normal course of operations, Real Alloy enters into capital leases to finance office, mobile and other equipment for its operations. As of March 31, 2017, $2.9 million of the $7.0 million in capital lease obligations are due within the next twelve months.

Redeemable Preferred Stock

The Redeemable Preferred Stock was issued to Aleris on February 27, 2015 as a portion of the purchase price for the Real Alloy Acquisition and has a liquidation preference of $28.5 million as of March 31, 2017. The Redeemable Preferred Stock paid quarterly dividends at a rate of 7% for the first eighteen months after the date of issuance, 8% in the following twelve months, and 9% thereafter. As of March 31, 2017, dividends are accrued and paid at 8% of the liquidation preference. Dividends were paid in-kind for the first two years, and thereafter will be paid in cash. All accrued and accumulated dividends on the Redeemable Preferred Stock will be prior and in preference to any dividend on any of the Company’s common stock or other junior securities.

The Company may generally redeem the shares of Redeemable Preferred Stock at any time at the liquidation preference, and the holders may require the Company to redeem their shares of Redeemable Preferred Stock at the liquidation preference upon a change of control as defined in the Indenture of the Senior Secured Notes (or any debt facility that replaces or redeems the Senior Secured Notes) to the extent that the change of control does not provide for such redemption at the liquidation preference. A holder of Redeemable Preferred Stock may require the Company to redeem all, but not less than all, of such holder’s Redeemable Preferred Stock sixty-six months after the issuance date. In addition, the Company will redeem shares of Redeemable Preferred Stock to the extent Aleris is required to indemnify the Company under the Real Alloy Purchase Agreement for the Real Alloy Acquisition. The Redeemable Preferred Stock is not transferrable (other than to another subsidiary of Aleris) for eighteen months following issuance (or such longer period in connection with any ongoing indemnity claims under the Real Alloy Purchase Agreement).

The carrying value of Redeemable Preferred Stock is based on the estimated fair value of the instrument as of the issuance date plus dividends paid in-kind and accretion of the fair value adjustment to the Redeemable Preferred Stock. The difference between the liquidation preference and the estimated fair value as of the issuance date is accreted over the period preceding the holder’s right to redeem the instrument, or sixty-six months from the issue date.

The following table presents activity related to the carrying value of Redeemable Preferred Stock during the year ended December 31, 2016 and the three months ended March 31, 2017:

(In millions)
Balance, December 31, 2015	$	21.9
Dividends on Redeemable Preferred Stock, in-kind		2.0
Accretion of fair value adjustment to Redeemable Preferred Stock		1.0
Balance, December 31, 2016		24.9
Accretion of fair value adjustment to Redeemable Preferred Stock		0.2
Balance, March 31, 2017	$	25.1