Debt

3 Months Ended

Mar. 31, 2022

The following table presents White Mountains’s debt outstanding as of March 31, 2022 and December 31, 2021:


$ in Millions	March 31, 2022		Effective Rate	(1)	December 31, 2021		Effective Rate	(1)

Ark 2007 Subordinated Notes, carrying value	$	30.0			$	30.0


Ark 2021 Notes Tranche 1	42.9				44.2
Ark 2021 Notes Tranche 2	47.0				47.0
Ark 2021 Notes Tranche 3	70.0				70.0
Unamortized issuance cost	(5.1)				(5.3)
Ark 2021 Subordinated Notes, carrying value	154.8				155.9
Total Ark Subordinated Notes, carrying value	184.8		6.6%		185.9		6.9%
NSM Bank Facility	275.9		7.0%	(2)	277.6		7.3%	(2)
Unamortized issuance cost	(5.9)				(6.4)
NSM Bank Facility, carrying value	270.0				271.2
Other NSM debt	.6		5.8%		.9		2.9%
Kudu Credit Facility	225.4		5.0%		225.4		4.3%
Unamortized issuance cost	(7.2)				(7.2)
Kudu Credit Facility, carrying value	218.2				218.2






Other Operations debt	17.8		7.3%		17.1		7.5%
Unamortized issuance cost	(.5)				(.3)
Other Operations debt, carrying value	17.3				16.8
Total debt	$	690.9			$	693.0

(1) Effective rate includes the effect of the amortization of debt issuance costs.

(2) NSM’s effective rate excludes the effect of the interest rate swap and the interest rate cap on the debt. See Note 9 — “Derivatives”. The weighted average interest rate for the quarter ended March 31, 2022 and December 31, 2021, excluding the effect of amortization of debt issuance costs, was 6.1% and 6.5%. The weighted average interest rate for the quarter ended March 31, 2022 and December 31, 2021 on the total NSM Bank Facility including both the effect of the amortization of debt issuance costs and the effect of the interest rate swap and the interest rate cap was 2.9% and 8.2%.

Ark Subordinated Notes

In March 2007, GAIL issued $30.0 million face value of floating rate unsecured junior subordinated deferrable interest notes to Alesco Preferred Funding XII Ltd., Alesco Preferred Funding XIII Ltd. and Alesco Preferred Funding XIV Ltd (the “Ark 2007 Subordinated Notes”). The Ark 2007 Subordinated Notes, which mature in June 2037, accrue interest at a floating rate equal to the three-month U.S. LIBOR plus 4.6%. As of March 31, 2022, the Ark 2007 Subordinated Notes had an outstanding balance of $30.0 million.

In the third quarter of 2021, GAIL issued $163.3 million face value floating rate subordinated notes at par in three separate transactions for proceeds of $157.8 million, net of debt issuance costs. The unsecured subordinated notes (the “Ark 2021 Subordinated Notes”) were issued in private placement offerings that were exempt from the registration requirements of the Securities Act of 1933. On July 13, 2021, Ark issued €39.1 million ($46.3 million based upon the foreign exchange spot rate as of the date of the transaction) face value floating rate unsecured subordinated notes (“Ark 2021 Notes Tranche 1”). The Ark 2021 Notes Tranche 1, which mature in July 2041, accrue interest at a floating rate equal to the three-month EURIBOR plus 5.75%. On August 11, 2021, Ark issued $47.0 million face value floating rate unsecured subordinated notes (“Ark 2021 Notes Tranche 2”). The Ark 2021 Notes Tranche 2, which mature in August 2041, accrue interest at a floating rate equal to the three-month U.S. LIBOR plus 5.75%. On September 8, 2021, Ark issued $70.0 million face value floating rate unsecured subordinated notes (“Ark 2021 Notes Tranche 3”). The Ark 2021 Notes Tranche 3, which mature in September 2041, accrue interest at a floating rate equal to the three-month U.S. LIBOR plus 6.1%. On the ten-year anniversary of the issue dates, the interest rate for the Ark 2021 Subordinated Notes will increase by 1.0% per annum. Ark has the option to redeem, in whole or in part, the Ark 2021 Subordinated Notes ahead of contractual maturity at the outstanding principal amounts plus accrued interest at the ten-year anniversary or any subsequent interest payment date.

All payments of principal and interest under the Ark 2021 Subordinated Notes are conditional upon GAIL’s solvency and compliance with the enhanced capital requirements of the Bermuda Monetary Authority (“BMA”). The deferral of payments of principal and interest under these conditions does not constitute a default by Ark and does not give the noteholders any rights to accelerate repayment of the Ark 2021 Subordinated Notes or take any enforcement action under the Ark 2021 Subordinated Notes.

If the payments of principal and interest under the Ark 2021 Subordinated Notes become subject to tax withholding on behalf of Bermuda or any political subdivision there, the Ark 2021 Subordinated Notes require the payment of additional amounts such that the amount received by the noteholders is the same as would have been received absent the tax withholding being imposed. The Ark 2021 Notes Tranche 3 require the payment of additional interest of 1.0% per annum upon the occurrence of a Premium Load Event until such event is remedied. Premium Load Events include the failure to meet payment obligations of the Ark 2021 Notes Tranche 3 when due, failure of GAIL to maintain an investment grade credit rating, failure to maintain 120% of GAIL’s Bermuda solvency capital requirement, failure of GAIL to maintain a debt to capital ratio below 40%, late filing of GAIL’s or Ark’s financial information, and making a restricted payment or distribution on GAIL’s common stock or other securities that rank junior or pari passu with the Ark 2021 Notes Tranche 3 when a different Premium Load Event exists or will be caused by the restricted payment.

As of March 31, 2022, the Ark 2021 Notes Tranche 1 had an outstanding balance of €39.1 million ($42.9 million based upon the foreign exchange spot rate as of March 31, 2022), the Ark 2021 Notes Tranche 2 had an outstanding balance of $47.0 million, and the Ark 2021 Notes Tranche 3 had an outstanding balance of $70.0 million.

The Ark Subordinated Notes contain various affirmative and negative covenants that White Mountains considers to be customary for such borrowings.

Ark Standby Letter of Credit Facilities

In December 2021, Ark entered into two uncommitted secured standby letter of credit facility agreements to support the continued growth and expansion of its GAIL insurance and reinsurance operations. The standby letter of credit facility agreements were executed with ING Bank N.V., London Branch (the “ING LOC Facility”) with capacity of $50.0 million on an uncollateralized basis and with Citibank Europe Plc (the “Citibank LOC Facility”) with capacity of $100.0 million on a collateralized basis. As of March 31, 2022, the ING LOC Facility was undrawn. As of March 31, 2022, the Citibank LOC Facility had an outstanding balance of $36.2 million. As of March 31, 2022, $50.0 million of short-term investments were pledged as collateral under the Citibank LOC Facility. Ark’s uncommitted secured standby letter of credit facility agreements contain various representations, warranties and covenants that White Mountains considers to be customary for such borrowings.

NSM Bank Facility

NSM maintains a secured credit facility (the “NSM Bank Facility”) with Ares Capital Corporation. On June 2, 2021, NSM amended the NSM Bank Facility to reduce the margin over the reference interest rate for USD LIBOR loans from a range of 5.50% to 6.00% to a range of 4.50% to 5.00% and reduce the margin over the reference rate for GBP loans from a range of 6.00% to 6.50% to a range of 5.00% to 5.50%. The amendment also increased the revolving credit loan commitment to $40.0 million and added a $50.0 million delayed-draw term loan commitment. The amendment also changed the reference interest rate for the GBP loan from GBP-LIBOR to SONIA. The maturity dates of the term loans and the revolving credit loans were not changed as part of the amendment. The term loans under the NSM Bank Facility mature on May 11, 2026, and the revolving loan matures on November 11, 2025. The reference interest rates under the NSM Bank Facility are generally subject to a 1.25% rate floor.

Under GAAP, if the terms of a debt instrument are amended, unless there is greater than 10% change in the expected discounted future cash flows of such instrument, the instrument’s carrying value does not change. White Mountains has determined that the impact of the 2021 amendment to the NSM Bank Facility was less than 10% on the expected discounted future cash flows.

The following table presents the change in debt under the NSM Bank Facility for the three months ended March 31, 2022 and 2021:


Millions	Three Months Ended March 31,
NSM Bank Facility		2022		2021
Beginning balance		$	277.6	$	277.4
Term loans
Borrowings		—		—
Repayments		(.7)		(.7)
Foreign currency translation		(1.5)		.6
Revolving credit loan
Borrowings		13.0		—
Repayments		(12.5)		—
Ending balance		$	275.9	$	277.3

As of March 31, 2022, the term loans had an outstanding balance of $271.9 million, including £41.8 million ($55.1 million based upon the foreign exchange spot rate as of March 31, 2022) in a GBP term loan, and the revolving credit loan had an outstanding balance of $4.0 million.

On June 15, 2018, NSM entered into an interest rate swap agreement to hedge its exposure to interest rate risk on $151.0 million of its USD denominated variable rate term loans. As of March 31, 2022, the swap no longer qualified for hedge accounting. As a result, the previously hedged term loans are classified as unhedged term loans. During the three months ended March 31, 2022, NSM recognized interest income of $2.4 million from the effect of the interest rate swap.

The following table presents the NSM weighted average interest rate for the three months ended March 31, 2022 and 2021:


$ in Millions	Three Months Ended March 31,
	2022						2021
NSM Weighted Average Interest Rate	Weighted Average		Interest Expense (1)		Weighted Average Interest rate		Weighted Average		Interest Expense (2)		Weighted Average Interest rate
Term loan - hedged	$	—	$	—	—	%	$	147.6	$	3.4	9.2	%
Term loan - unhedged	273.5		2.0		2.9	%	129.8		2.5		7.7	%
Total NSM Bank Facility	$	273.5	$	2.0	2.9	%	$	277.4	$	5.9	8.5	%

(1) For the three months ended March 31, 2022, interest expense includes the amortization of debt issuance costs of $0.5 and the effect of the interest rate swap and interest rate cap of $(2.7). For the three months ended March 31, 2022, interest expense excludes $0.1 related to the revolving credit loan.

(2) For the three months ended March 31, 2021, interest expense includes the amortization of debt issuance costs of $0.3 and the effect of the interest rate swap and interest rate cap of $0.6.

The NSM Bank Facility is secured by all property of the loan parties and contains various affirmative, negative and financial covenants that White Mountains considers to be customary for such borrowings, including a maximum consolidated total leverage ratio covenant.

Other NSM Debt

NSM also has a secured term loan related to its U.K. vertical. As of March 31, 2022, the secured term loan had an outstanding balance of $0.6 million and a maturity date of December 31, 2022.

Kudu Credit Facility and Kudu Bank Facility

On December 23, 2019, Kudu entered into a secured credit facility with Monroe Capital Management Advisors, LLC (the “Kudu Bank Facility”). On March 23, 2021, Kudu replaced the Kudu Bank Facility and entered into a secured revolving credit facility (the “Kudu Credit Facility”) with Massachusetts Mutual Life Insurance Company to repay the Kudu Bank Facility, and to fund new investments and related transaction expenses. The maximum borrowing capacity of the Kudu Credit Facility is $300.0 million. The Kudu Credit Facility matures on March 23, 2036. In connection with the replacement of the Kudu Bank Facility, Kudu recognized a total loss of $4.1 million, representing debt issuance costs and prepayment fees, which are included within interest expense for the three months ended March 31, 2021.

The Kudu Credit Facility requires Kudu to maintain an interest reserve account, which is included in restricted cash. As of March 31, 2022, the interest reserve account is $4.5 million. The Kudu Credit Facility requires Kudu to maintain a ratio of the outstanding balance to the sum of the fair market value of the participation contracts and cash held in certain accounts (the “LTV Percentage”) of less than 50% in years 0-3, 40% in years 4-6, 25% in years 7-8, 15% in years 9-10, and 0% thereafter. As of March 31, 2022, Kudu has a 33% LTV Percentage.

Kudu may borrow undrawn balances within the initial three-year availability period, subject to customary terms and conditions, to the extent the amount borrowed under the Kudu Credit Facility does not exceed the borrowing base, which is equal to 35% of the fair value of qualifying Kudu Participation Contracts. When considering White Mountains’s remaining equity commitment to Kudu and the fair value of Kudu’s qualifying participation contracts as of March 31, 2022, the available undrawn balance was $34.2 million.

The following table presents the change in debt under the Kudu Bank Facility and Kudu Credit Facility for the three months ended March 31, 2022 and 2021:


	Three Months Ended March 31,
Millions	2022		2021
Kudu Bank Facility
Beginning balance	$	—	$	89.2
Term loans
Borrowings	—		3.0
Repayments	—		(92.2)
Ending balance	$	—	$	—

Kudu Credit Facility
Beginning balance	$	225.4	$	—
Term loans
Borrowings	—		102.0
Repayments	—		—
Ending balance	$	225.4	$	102.0

The Kudu Credit Facility is secured by all property of the loan parties and contains various affirmative and negative covenants that White Mountains considers to be customary for such borrowings.

Other Operations Debt

As of March 31, 2022, debt in White Mountains’s Other Operations segment consisted of three secured credit facilities (collectively, “Other Operations debt”).

The first credit facility has a maximum borrowing capacity of $16.3 million, which is comprised of a term loan of $11.3 million, a delayed-draw term loan of $3.0 million and a revolving credit loan commitment of $2.0 million, all with a maturity date of March 12, 2024. The second credit facility has a maximum borrowing capacity of $15.0 million, which is comprised of a term loan of $9.0 million, a delayed-draw term loan of $4.0 million and a revolving credit loan commitment of $2.0 million, all with a maturity date of July 2, 2025. The third credit facility has a maximum borrowing capacity of $8.0 million, which is comprised of a revolving credit loan commitment, with a maturity date of October 26, 2021.

During the three months ended March 31, 2022 and 2021, White Mountains’s Other Operations segment borrowed $2.0 million and $0.9 million. During the three months ended March 31, 2022 and 2021, White Mountains’s Other Operations segment made repayments of $1.3 million and $0.2 million. As of March 31, 2022 and 2021, the Other Operations debt had an outstanding balance of $17.8 million and $17.5 million.

Compliance

At March 31, 2022, White Mountains was in compliance in all material respects with the covenants under all of its debt instruments.