Seasonal Financing and Debt

Seasonal Financing

Mattel maintains and periodically amends or replaces its domestic unsecured committed revolving credit facility ("Credit Facility") with a commercial bank group. The facility is used as a back-up to Mattel’s commercial paper program, which is used as the primary source of financing for the seasonal working capital requirements of its domestic subsidiaries. The agreement governing the Credit Facility was amended and restated on June 8, 2015 to, among other things, (i) extend the maturity date of the Credit Facility to June 9, 2020, (ii) amend the definition of consolidated earnings before interest, taxes, depreciation, and amortization (“Consolidated EBITDA”) used in calculating Mattel’s financial ratio covenants, and (iii) increase the maximum allowed consolidated debt-to-Consolidated EBITDA ratio to 3.50 to 1. The aggregate commitments under the Credit Facility remain at $1.60 billion, with an “accordion feature,” which allows Mattel to increase the aggregate availability under the Credit Facility to $1.85 billion under certain circumstances. In addition, applicable interest rate margins remain within a range of 0.00% to 0.75% above the applicable base rate for base rate loans and 0.88% to 1.75% above the applicable LIBOR for Eurodollar rate loans, and the commitment fees range from 0.08% to 0.25% of the unused commitments under the Credit Facility, in each case depending on Mattel’s senior unsecured long-term debt rating.

The proportion of unamortized debt issuance costs from the prior facility renewal related to creditors involved in both the prior facility and amended facility and borrowing costs incurred as a result of the amendment were deferred, and such costs will be amortized over the term of the amended facility.

Mattel is required to meet financial ratio covenants at the end of each quarter and fiscal year, using the formulae specified in the credit agreement to calculate the ratios. Mattel was in compliance with such covenants at the end of each fiscal quarter and fiscal year in 2016. As of December 31, 2016, Mattel’s consolidated debt-to-EBITDA ratio, as calculated per the terms of the credit agreement, was 2.86 to 1 (compared to a maximum allowed of 3.50 to 1), and Mattel’s interest coverage ratio was 8.62 to 1 (compared to a minimum required of 3.50 to 1).

The credit agreement is a material agreement, and failure to comply with the financial ratio covenants may result in an event of default under the terms of the Credit Facility. If Mattel were to default under the terms of the Credit Facility, its ability to meet its seasonal financing requirements could be adversely affected.

Mattel believes its cash on hand, amounts available under its Credit Facility, and its foreign credit lines will be adequate to meet its seasonal financing requirements in 2017.

To finance seasonal working capital requirements of certain foreign subsidiaries, Mattel avails itself of individual short-term credit lines with a number of banks. As of December 31, 2016, foreign credit lines totaled approximately $366 million. Mattel expects to extend the majority of these credit lines throughout 2017.

Additionally, sales of foreign receivables occur periodically to finance seasonal working capital requirements. The outstanding amounts of accounts receivable that have been sold under international factoring arrangements were $18.1 million and $19.5 million at December 31, 2016 and 2015, respectively. These amounts have been excluded from Mattel’s consolidated balance sheets.

In January 2017, a major credit rating agency placed Mattel’s Senior Unsecured Debt rating of Baa1 on negative watch. Another major credit rating agency changed Mattel's outlook from stable to negative. In January 2016, a major credit rating agency changed Mattel's long-term credit rating from A- to BBB+, maintained its short-term credit rating of F2, and changed its outlook from negative to stable. In January 2015, a major credit rating agency changed Mattel’s long-term credit rating from BBB+ to BBB and maintained its short-term credit rating of A-2 and outlook at stable. Another major credit rating agency maintained Mattel’s long-term credit rating of Baa1 and short-term credit rating of P-2 and changed its outlook from stable to negative. A third major credit rating agency maintained Mattel’s long-term credit rating of A- and short-term credit rating of F2 and changed its outlook from stable to negative. A reduction in Mattel’s credit ratings could increase the cost of obtaining financing.

Short-Term Borrowings

As of December 31, 2016 and 2015, Mattel had foreign short-term bank loans outstanding of $47.2 million and $16.9 million, respectively. As of December 31, 2016 and 2015, Mattel had no borrowings outstanding under the Credit Facility. As of December 31, 2016 and 2015, Mattel had $145.0 million and $0, respectively, of commercial paper outstanding.

During 2016 and 2015, Mattel had average borrowings of $2.0 million and $2.9 million, respectively, under its foreign short-term bank loans, and $728.4 million and $374.3 million, respectively, under the Credit Facility and other short-term borrowings, to help finance its seasonal working capital requirements. The weighted average interest rate on foreign short-term bank loans during 2016 and 2015 was 12.5% and 13.7%, respectively. The weighted average interest rate on the Credit Facility and other short-term borrowings during 2016 and 2015 was 0.6% and 0.3%, respectively.

Long-Term Debt

In August 2016, Mattel issued $350.0 million aggregate principal amount of 2.35% senior unsecured notes due August 15, 2021 (“2016 Senior Notes”). Interest on the 2016 Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2017. Mattel may redeem all or part of the 2016 Senior Notes at any time or from time to time prior to July 15, 2021 (one month prior to the maturity date of the 2016 Senior Notes) (the “Par Call Date”), at its option, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2016 Senior Notes being redeemed or (2) a “make-whole” amount based on the yield of a comparable US Treasury security plus 20 basis points, plus, in each case, accrued and unpaid interest on the 2016 Senior Notes being redeemed to, but excluding, the redemption date. Mattel may redeem all or part of the 2016 Senior Notes at any time or from time to time on or after the Par Call Date, at its option, at a redemption price equal to 100% of the principal amount of the 2016 Senior Notes to be redeemed, plus accrued and unpaid interest on the 2016 Senior Notes being redeemed to, but excluding, the redemption date.

In May 2014, Mattel issued $500.0 million aggregate principal amount of 2.35% senior unsecured notes due May 6, 2019 (“2014 Senior Notes”). Interest on the 2014 Senior Notes is payable semi-annually on May 6 and November 6 of each year, beginning November 6, 2014. Mattel may redeem all or part of the 2014 Senior Notes at any time or from time to time at its option, at a redemption price equal to the greater of (i) 100% of the principal amount of the notes being redeemed plus accrued and unpaid interest to, but excluding, the redemption date, and (ii) a “make-whole” amount based on the yield of a comparable US Treasury security plus 12.5 basis points.

Mattel’s 2010 Senior Notes bear interest at fixed rates ranging from 4.35% to 6.20%, with a weighted average interest rate of 5.28% as of December 31, 2016 and 2015. Mattel’s 2011 Senior Notes bear interest at fixed rates ranging from 2.50% to 5.45%, with a weighted average interest rate of 5.45% and 3.98% as of December 31, 2016 and 2015, respectively. Mattel’s 2013 Senior Notes bear interest at fixed rates ranging from 1.70% to 3.15%, with a weighted average interest rate of 2.43% as of December 31, 2016 and 2015. Mattel’s 2014 Senior Notes bear interest at a fixed rate of 2.35% as of December 31, 2016 and 2015. Mattel’s 2016 Senior Notes bear interest at a fixed rate of 2.35% as of December 31, 2016.

On November 1, 2016, Mattel repaid $300.0 million of its 2.50% Senior Notes in connection with the scheduled maturity. During 2014, Mattel repaid $44.6 million of long-term borrowings assumed through the acquisition of MEGA Brands.

During the first quarter of 2016, Mattel retrospectively adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. As such, prior periods were restated to present debt issuance costs as a deduction from long-term debt.

Mattel’s long-term debt consists of the following:



	December 31, 2016			December 31, 2015
	(In thousands)
2010 Senior Notes due October 2020 and October 2040	$	500,000		$	500,000
2011 Senior Notes due November 2016 and November 2041	300,000			600,000
2013 Senior Notes due March 2018 and March 2023	500,000			500,000
2014 Senior Notes due May 2019	500,000			500,000
2016 Senior Notes due August 2021	350,000			—
Debt issuance costs	(15,729		)	(15,279		)
	2,134,271			2,084,721
Less: current portion	—			(300,000		)
Total long-term debt	$	2,134,271		$	1,784,721

The aggregate principal amount of long-term debt maturing in the next five years and thereafter is as follows:



	2010 Senior Notes		2011 Senior Notes		2013 Senior Notes		2014 Senior Notes		2016 Senior Notes		Total
	(In thousands)
2017	$	—	$	—	$	—	$	—	$	—	$	—
2018	—		—		250,000		—		—		250,000
2019	—		—		—		500,000		—		500,000
2020	250,000		—		—		—		—		250,000
2021	—		—		—		—		350,000		350,000
Thereafter	250,000		300,000		250,000		—		—		800,000
	$	500,000	$	300,000	$	500,000	$	500,000	$	350,000	$	2,150,000