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Seasonal Financing
 9 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
Seasonal Financing Seasonal Financing
On September 15, 2022, Mattel entered into a revolving credit agreement (the “Credit Agreement”) as the borrower with Bank of America, N.A., as administrative agent, and the other lenders and financial institutions party thereto, providing for $1.40 billion in aggregate principal amount of senior secured revolving credit facility (the “new senior secured revolving credit facility”). The new senior secured revolving credit facility will mature on September 15, 2025.
In connection with the entry into the Credit Agreement, the Company terminated the commitments and satisfied all outstanding obligations under the previous credit agreement, dated December 20, 2017 (as amended), by and among Mattel, certain domestic and foreign subsidiaries of Mattel, as additional borrowers, certain other domestic and foreign subsidiaries of Mattel, as guarantors thereunder, Bank of America, N.A., as global administrative agent, collateral agent, and Australian security trustee, and the other lenders and financial institutions party thereto.
Borrowings under the new senior secured revolving credit facility will bear interest at a floating rate, which can be either, at Mattel’s option, (a) adjusted Term Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 1.125% to 2.000% per annum or (b) an alternate base rate plus an applicable margin ranging from 0.125% to 1.000% per annum, in each case, such applicable margins to be determined based on Mattel’s credit ratings.
In addition to paying interest on the outstanding principal under the new senior secured revolving credit facility, Mattel will be required to pay (i) an unused line fee per annum of the average daily unused portion of the new senior secured revolving credit facility, (ii) a letter of credit fronting fee based on a percentage of the aggregate face amount of outstanding letters of credit, and (iii) certain other customary fees and expenses of the lenders and agents.
The obligations of Mattel under the new senior secured revolving credit facility are guaranteed by each domestic subsidiary of Mattel that guarantees any of Mattel’s senior unsecured notes (collectively, the “Guarantors”). If Mattel achieves a debt rating of BBB-, Baa3, and/or BBB- (or higher) from any two of S&P, Moody’s, and Fitch, respectively, and no event of default has occurred or is continuing at such time and Mattel provides a certification regarding the foregoing to the administrative agent (a “Fall-Away Event”), the obligations of Mattel under the new senior secured revolving credit facility will instead be required to be guaranteed by each existing and future direct and indirect domestic subsidiary of Mattel only to the extent such subsidiary guarantees other indebtedness of Mattel in an aggregate principal or committed amount in excess of $50 million.
The new senior secured revolving credit facility is secured by liens on substantially all of Mattel’s and the Guarantors’ present and after-acquired assets (subject to certain exceptions), including domestic accounts receivable, inventory, certain trademarks and patents, and certain equity interests in direct material subsidiaries of Mattel and the Guarantors. If a Fall-Away Event occurs, all collateral securing the new senior secured revolving credit facility shall be permanently released.
The Credit Agreement contains customary covenants, including, but not limited to, restrictions on Mattel’s and its subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances, or investments, pay dividends, sell or otherwise dispose of assets, amend organizational documents, change accounting policies or reporting practices, or enter into negative pledges with respect to assets that constitute collateral. The restrictive covenants also contain customary exceptions, including the uncapped ability to make investments and pay dividends if, in each case, the pro forma total leverage ratio after giving effect to such investment or dividend will be at least 0.25 to 1.00 inside the then-applicable total leverage ratio financial covenant level. Further, if a Fall-Away Event occurs, the restrictive covenants governing investments, dividends, negative pledges, and changes in accounting policies or reporting practices will no longer apply.
The Credit Agreement requires the maintenance of (a) an interest coverage ratio of not less than 2.75 to 1.00 as of the end of each fiscal quarter and (b) a total leverage ratio as of the end of each fiscal quarter, not to exceed 4.50 to 1.00 as of the end of the fiscal quarter ending September 30, 2022, with certain specified step-downs to occur thereafter with respect to subsequent fiscal quarters.
As of September 30, 2022, Mattel had no borrowings outstanding under the new senior secured revolving credit facility and no other short-term borrowings outstanding. As of September 30, 2021, Mattel had $128.0 million in borrowings outstanding under the previous senior secured revolving credit facilities and no other short-term borrowings outstanding. As of December 31, 2021, Mattel had no borrowings outstanding under the previous senior secured revolving credit facilities and no other short-term borrowings outstanding. Outstanding letters of credit under the new senior secured revolving credit facility totaled approximately $9 million as of September 30, 2022. Outstanding letters of credit under the previous senior secured revolving credit facilities totaled approximately $10 million as of September 30, 2021, and December 31, 2021, respectively.
As of September 30, 2022, Mattel was in compliance with all covenants contained in the Credit Agreement. The Credit Agreement is a material agreement, and failure to comply with its covenants may result in an event of default under the terms of the new senior secured revolving credit facility. If Mattel were to default under the terms of the new senior secured revolving credit facility, its ability to meet its seasonal financing requirements could be adversely affected.