Debt, Derivatives and Hedging Activities

3 Months Ended

Aug. 31, 2023

Debt, Derivatives and Hedging Activities

Cintas' outstanding debt is summarized as follows:


(In thousands)	Interest Rate		Fiscal Year Issued	Fiscal Year Maturity	August 31, 2023		May 31, 2023







Debt due after one year
Senior notes (1)	3.11	%	2015	2025	$	50,546	$	50,630
Senior notes	3.45	%	2022	2025	400,000		400,000
Senior notes	3.70	%	2017	2027	1,000,000		1,000,000
Senior notes	4.00	%	2022	2032	800,000		800,000
Senior notes	6.15	%	2007	2037	240,000		250,000

Debt issuance costs					(13,453)		(14,225)
Total debt due after one year					$	2,477,093	$	2,486,405

(1) Cintas assumed these senior notes with the acquisition of G&K Services, Inc. (G&K) in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.88%.

Cintas' senior notes, excluding the G&K senior notes assumed with the acquisition of G&K in fiscal 2017, are recorded at cost, net of debt issuance costs. The fair value of the long-term debt is estimated using Level 2 inputs based on general market prices. The carrying value and fair value of Cintas' debt as of August 31, 2023 were $2,490.0 million and $2,396.5 million, respectively, and as of May 31, 2023 were $2,500.0 million and $2,443.8 million, respectively. During the three months ended August 31, 2023, Cintas repurchased, and subsequently retired, $10.0 million of its 6.15%, 30-year senior notes. In conjunction with this transaction, Cintas recognized a loss of $0.8 million during the three months ended August 31, 2023, which is recorded in interest expense on the consolidated condensed statement of income. During the three months ended August 31, 2022, Cintas issued $196.0 million, net of commercial paper.

The credit agreement that supports our commercial paper program has capacity under the revolving credit facility of $2.0 billion. The credit agreement has an accordion feature that provides Cintas the ability to request increases to the borrowing commitments under the revolving credit facility of up to $500.0 million in the aggregate, subject to customary conditions. The maturity date of the revolving credit facility is March 23, 2027. As of both August 31, 2023 and May 31, 2023, there was no commercial paper outstanding and no borrowings on our revolving credit facility.

Cintas uses interest rate locks to manage its overall interest expense as interest rate locks effectively change the interest rate of specific debt issuances. The interest rate locks are entered into to protect against unfavorable movements in the benchmark treasury rate related to forecasted debt issuances. Cintas used interest rate locks, which represent cash flow hedges, to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal 2007, fiscal 2017 and fiscal 2022. The amortization of the interest rate locks resulted in a decrease to other comprehensive income (loss) of $1.4 million and $1.5 million for the three months ended August 31, 2023 and 2022, respectively.

During fiscal 2022 and fiscal 2020, Cintas entered into interest rate lock agreements for forecasted debt issuances. The aggregate notional value of outstanding cash flow hedges was $500.0 million at both August 31, 2023 and May 31, 2023. The fair values of the outstanding interest rate locks, for forecasted debt issuances, are summarized as follows:


	August 31, 2023			May 31, 2023
Fiscal Year of Issuance (In thousands)		Other assets, net			Other assets, net

2022		$	50,009		$	44,803
2020		$	31,446		$	25,646

The changes in fair value of the interest rate locks are recorded in other comprehensive income (loss), net of tax. These interest rate locks had no impact on net income or cash flows for the three months ended August 31, 2023 or 2022.

Cintas has certain covenants related to debt agreements. These covenants limit Cintas' ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas' assets. These covenants also require Cintas to maintain certain debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. Cintas was in compliance with all of the debt covenants for all periods presented.