10. Debt

The components of long-term debt and a reconciliation to the carrying amount of long-term debt are presented in the table below.


	December 31,
	2014		2013
	(in millions)
L-3 Communications:
Borrowings under Amended and Restated Revolving Credit Facility⁽¹⁾	$	—	$	—
3.95% Senior Notes due 2016		500		500
1.50% Senior Notes due 2017		350		—
5.20% Senior Notes due 2019		1,000		1,000
4.75% Senior Notes due 2020		800		800
4.95% Senior Notes due 2021		650		650
3.95% Senior Notes due 2024		650		—

Subtotal		3,950		2,950

L-3 Holdings:
3% Convertible Contingent Debt Securities due 2035		—		689

Principal amount of long-term debt		3,950		3,639
Unamortized discounts		(11)		(9)

Carrying amount of long-term debt	$	3,939	$	3,630

⁽¹⁾

During 2014, L-3 Communications’ aggregate borrowings and repayments under the Credit Facility were $1,367 million. L-3 Communications had the full availability of its $1 billion Credit Facility at December 31, 2014 and had the availability of substantially all of its $1 billion Credit Facility at December 31, 2013.

L-3 Communications Amended and Restated Revolving Credit Facility

On February 3, 2012, L-3 Communications amended and restated its $1 billion Revolving Credit Facility, which extended the expiration date to February 3, 2017. The terms of the Credit Facility are substantially consistent with the terms of this facility prior to its amendment and restatement except that: (1) provisions that previously limited the ability of L-3 Communications to pay dividends, repurchase L-3 Holdings’ common stock and make other distributions with respect to any capital stock were eliminated, (2) a provision that previously limited the ability of L-3 Communications to make investments in L-3 Holdings was made less restrictive and (3) the cost of borrowings, loan commitment fees and letter of credit fees were reduced. In addition, the Credit Facility provides for uncommitted incremental revolving facilities and additional term loan facilities in an aggregate principal amount of up to $500 million. Borrowings under the Credit Facility bear interest, at L-3 Communications’ option, at either (1) the “base rate” equal to the highest of (a) 0.50% per annum above the latest federal funds rate, (b) the Bank of America “prime rate” (as defined in the Credit Facility), and (c) 1.00% per annum above a “Eurodollar Rate” (as defined in the Credit Facility), plus a spread ranging from 0.25% to 1.00% per annum, or (2) a “Eurodollar Rate” (as defined in the Credit Facility) plus a spread ranging from 1.25% to 2.00% per annum. L-3 Communications pays: (1) commitment fees calculated on the daily amounts of the available unused commitments at a rate ranging from 0.15% to 0.325% per annum, (2) letter of credit fees ranging from 0.675% to 1.20% per annum for commercial and performance letters of credit and (3) letter of credit fees ranging from 1.25% to 2.00% for financial letters of credit. The interest rate spread and the commitment fee rate, in all cases, depend on L-3 Communications’ debt rating at the time of determination. The debt rating is based on the credit ratings as determined by Standard & Poor’s Rating Services, Moody’s Investors Service, Inc. and Fitch Ratings of L-3 Communications’ non-credit enhanced senior, unsecured long-term debt.

L-3 Communications Senior Notes

The Senior Notes are unsecured senior obligations of L-3 Communications. The terms of each outstanding Senior Note are presented in the table below.


Note	Date of Issuance		Amount Issued		Discount⁽¹⁾		Net Cash Proceeds			Effective Interest Rate			Redemption at Treasury Rate⁽²⁾⁽³⁾
			(in millions)
3.95% Senior Notes due November 15, 2016		November 22, 2011	$	500	$	4	$	491			4.11	%		50 bps
1.50% Senior Notes due May 28, 2017		May 28, 2014	$	350	$	1	$	347	⁽⁴⁾		1.55	%		10 bps
5.20% Senior Notes due October 15, 2019		October 2, 2009	$	1,000	$	4	$	987			5.25	%		30 bps
4.75% Senior Notes due July 15, 2020		May 21, 2010	$	800	$	3	$	790			4.79	%		25 bps
4.95% Senior Notes due February 15, 2021		February 7, 2011	$	650	$	4	$	639			5.02	%		25 bps
3.95% Senior Notes due May 28, 2024		May 28, 2014	$	650	$	3	$	641	⁽⁴⁾		4.02	%		20 bps

⁽¹⁾

Bond discounts are recorded as a reduction to the principal amount of the notes and are amortized as interest expense over the term of the notes.

⁽²⁾

The Senior Notes maturing in 2016, 2017, 2019, 2020 and 2021 may be redeemed at any time prior to their maturity and the Senior Notes maturing in 2024 may be redeemed at any time prior to February 28, 2024 (three months prior to their maturity) at the option of L-3 Communications, in whole or in part, at a redemption price equal to the greater of (1) 100% of the principal amount, or (2) the present value of the remaining principal and interest payments discounted to the date of redemption, on a semi-annual basis, at the Treasury Rate (as defined in the indentures governing the Senior Notes), plus the spread indicated in the table above. In addition, if the Senior Notes maturing in 2024 are redeemed at any time on or after February 28, 2024, the redemption price would be equal to 100% of the principal amount.

⁽³⁾

Upon the occurrence of a change in control (as defined in the indentures governing the Senior Notes), each holder of the notes will have the right to require L-3 Communications to repurchase all or any part of such holder’s notes at an offer price in cash equal to 101% of the aggregate principal amount plus accrued and unpaid interest, if any, to the date of purchase.

⁽⁴⁾

The net cash proceeds of $988 million (after deduction of the bond discount, underwriting expenses and commissions and other related expenses) were used primarily to fund the CODES retirement as discussed below. The remaining net proceeds were used for general corporate purposes.

Information on the Senior Subordinated Notes redeemed by the Company during the year ended December 31, 2012 is presented in the table below. There were no redemptions of L-3 Communications Senior Subordinated Notes during the years ended December 31, 2014 and 2013.


Note	Redemption Date		Principal Amount Redeemed		Debt Retirement Charge		Redemption Price % of Principal
			(in millions)
6³⁄₈% Senior Subordinated Notes due October 15, 2015		October 15, 2012	$	250	$	5		101.063%
6³⁄₈% Senior Subordinated Notes due October 15, 2015⁽¹⁾		July 26, 2012	$	250	$	8		102.125%

⁽¹⁾

In connection with the spin-off, Engility made a cash distribution of $335 million to L-3, a portion of which was used to redeem $250 million of the 6 ³⁄₈% 2015 Notes.

L-3 Holdings

In 2005, L-3 Holdings sold $700 million of 3% Convertible Contingent Debt Securities (CODES) due August 1, 2035. On February 2, 2011, L-3 Holdings repurchased approximately $11 million of the CODES as a result of the exercise by the holders of their contractual right to require L-3 Holdings to repurchase their CODES. At December 31, 2013, the remaining $689 million principal amount of CODES was classified as long-term debt.

Interest expense recognized for the CODES was $2 million for the year ended December 31, 2014 and $21 million for each of the years ended December 31, 2013 and 2012, a portion of which was allocated to discontinued operations in 2012 as a result of the spin-off of Engility.

On May 13, 2014, L-3 Holdings called for the full redemption of all of its outstanding CODES effective on June 2, 2014 (the Redemption Date). The redemption price for the CODES was $1,000 per $1,000 principal amount of the CODES, plus accrued and unpaid interest to, but excluding, the Redemption Date. Holders of the CODES were entitled to convert all or a portion thereof (in integral multiples of $1,000) at any time prior to the close of business on the business day immediately preceding the Redemption Date. The conversion value of CODES of $935 million was calculated in accordance with the indenture governing the CODES. L-3 Holdings settled the entire conversion value with respect to converted CODES in cash. As of June 20, 2014, the CODES have been retired. As a result of the conversion, the Company recorded a reduction to shareholders’ equity of $161 million, related to the excess conversion value over the fair value of the debt component of the CODES, net of deferred tax liability.

Guarantees

The borrowings under the Credit Facility are fully and unconditionally guaranteed by L-3 Holdings and by substantially all of the material 100% owned domestic subsidiaries of L-3 Communications on an unsecured senior basis. The payment of principal and premium, if any, and interest on the Senior Notes is fully and unconditionally guaranteed, on an unsecured senior basis, jointly and severally, by L-3 Communications’ material 100% owned domestic subsidiaries that guarantee any of its other indebtedness.

Subordination

The guarantees of the Credit Facility and the Senior Notes rank pari passu with each other.

Covenants

Financial and other restrictive covenants. The Credit Facility contains financial and other restrictive covenants that limit, among other things, the ability of the subsidiaries of L-3 Communications to borrow additional funds, and the ability of L-3 Communications and its subsidiaries to incur liens, make investments, merge or consolidate or dispose of assets. The Company’s Credit Facility contains covenants that require that (1) the Company’s consolidated leverage ratio be less than or equal to 4.0 to 1.0, (2) the Company’s consolidated interest coverage ratio be greater than or equal to 3.0 to 1.0, and (3) the Company’s consolidated senior leverage ratio be less than or equal to 3.5 to 1.0, in each case, as of the end of any fiscal quarter. Calculations of the financial covenants are to exclude, among other things, certain items such as impairment losses on goodwill or other intangible assets, non-cash gains or losses from discontinued operations, gains or losses in connection with asset dispositions, and gains or losses with respect to judgments or settlements in connection with litigation matters. As of December 31, 2014, the Company was in compliance with its financial and other restrictive covenants.

The indentures governing the Senior Notes (Senior Indentures) contain covenants customary for investment grade notes, including covenants that restrict the ability of L-3 Communications and its 100% owned domestic subsidiaries to create, incur, assume or permit to exist any lien, except permitted liens (as defined in the Senior Indentures) and restrict the ability of L-3 Communications and its subsidiaries to enter into certain sale and leaseback transactions (as defined in the Senior Indentures).

Cross default provisions. The Credit Facility contains cross default provisions that are triggered when a payment default occurs or certain other defaults occur that would allow the acceleration of indebtedness, swap contracts or guarantees of L-3 Holdings, L-3 Communications or its subsidiaries, so long as the aggregate amount of such indebtedness, swap contracts or guarantees is at least $50 million and such defaults (other than payment defaults and defaults that have resulted in acceleration) have not been cured within 10 days. The Senior Notes indenture contains a cross acceleration provision that is triggered when a default or acceleration occurs under any indenture or instrument of L-3 Communications or its subsidiaries or the payment of which is guaranteed by L-3 Communications or its subsidiaries in an aggregate amount of at least $100 million.