Debt

Long-term debt, including the current portion and bank overdrafts, is analyzed as follows:



(dollars in millions)	As of March 31, 2018			As of December 30, 2017
Secured debt:
—Dollar Term Loan	$	1,725.0		$	1,729.4
—Euro Term Loan	801.3			785.6
Unsecured debt:
—Dollar Senior Notes	568.0			1,190.0
—Euro Senior Notes	—			282.5
—Other loans	0.3			0.4
Total principal of debt	3,094.6			3,987.9
Deferred issuance costs	(55.5		)	(73.2		)
Accrued interest	8.2			41.0
Total carrying value of debt	3,047.3			3,955.7
Debt, current portion	33.7			66.4
Debt, less current portion	$	3,013.6		$	3,889.3

Gates’ secured debt is jointly and severally, irrevocably and fully and unconditionally guaranteed by certain of its subsidiaries and are secured by liens on substantially all of their assets.

Gates is subject to covenants, representations and warranties under certain of its debt facilities. During the periods covered by these condensed consolidated financial statements, we were in compliance with the applicable financial covenants. Also under the agreements governing our debt facilities, our ability to engage in activities such as incurring certain additional indebtedness, making certain investments and paying certain dividends is dependent, in part, on our ability to satisfy tests based on measures determined under those agreements.

Debt redemptions

During the first three months of 2018, Gates redeemed in full its outstanding €235.0 million Euro Senior Notes, plus interest accrued up to and including January 31, 2018 of $0.7 million. The Euro Senior Notes were redeemed at a price of 102.875% and a redemption premium of $8.4 million was therefore paid in addition to the principal of $291.7 million.

In addition, on February 8 and February 9, 2018, Gates made partial redemptions of the Dollar Senior Notes with a principal of $522.0 million and $100.0 million, respectively. Both of these calls were made at a price of 103.0%, incurring redemption premiums of $15.6 million and $3.0 million, respectively. Interest accrued of $2.0 million and $0.4 million, respectively, was also paid on these dates.

All of the above prepayments, totaling $913.7 million in principal, $27.0 million in redemption premium and $3.1 million in accrued interest, were funded primarily by the net proceeds from our initial public offering of $799.1 million, with the remainder of the funds coming from excess cash on hand. As a result of these redemptions, the recognition of $15.4 million of deferred financing costs was accelerated and recognized in interest expense in the first three months of 2018.

In addition, in connection with the reorganization transactions completed in connection with to our initial public offering, a wholly-owned U.S. subsidiary of Gates Global LLC, entered into an intercompany agreement pursuant to which it became an obligor under the notes for U.S. federal income tax purposes and agreed to make future payments due on the Dollar Senior Notes. As a result, interest on the Dollar Senior Notes is U.S. source income.

Dollar and Euro Term Loans

Gates’ secured credit facilities include a Dollar Term Loan credit facility and a Euro Term Loan credit facility that were drawn on July 3, 2014. The maturity date for each of the term loan facilities is March 31, 2024, with a springing maturity of April 15, 2022 if more than $500.0 million of the Dollar Senior Notes remain in issue at that time. These term loan facilities bear interest at a floating rate, which for U.S. dollar debt can be either a base rate as defined in the credit agreement plus an applicable margin, or at Gates’ option, LIBOR plus an applicable margin.

On January 29, 2018, the applicable margin on each of the term loans was lowered by 0.25% following the successful completion of our initial public offering. The Dollar Term Loan interest rate is currently LIBOR, subject to a floor of 1.00%, plus a margin of 2.75% and as of March 31, 2018, borrowings under this facility bore interest at a rate of 5.05% per annum. As of March 31, 2018, the Euro Term Loan bears interest at Euro LIBOR, which is currently below 0%, subject to a floor of 0%, plus a margin of 3.00%. The next term loan interest rate re-set date is on June 29, 2018.

Both term loans are subject to quarterly amortization payments of 0.25%, based on the original principal amount less certain prepayments with the balance payable on maturity. During the first three months of 2018, Gates made quarterly amortization payments against the Dollar Term Loan and the Euro Term Loan of $4.3 million and $2.0 million, respectively.

Under the terms of the credit agreement, Gates is obliged to offer annually to the term loan lenders an “excess cash flow” amount as defined under the agreement, based on the preceding year’s final results. Based on our 2017 results, the leverage ratio as defined under the credit agreement was below the threshold above which payments are required, and therefore no excess cash flow payment was required to be made in 2018.

During the first three months of 2018, a transactional foreign exchange loss of $17.7 million, compared with a $5.4 million loss for the prior year period, was recognized in respect of the Euro Term Loan. Of these losses, $7.5 million, compared with $0 for the prior year period, was recognized in other expense and a $10.2 million loss, compared with a $5.4 million loss for the prior year period, was recognized in OCI as part of this facility is designated as a net investment hedge of certain of Gates’ Euro investments. In the first three months of 2018, this loss recognized in other expense was substantially offset by a gain on Euro-denominated intercompany loans.

As of March 31, 2018, the principal amount outstanding under the Dollar Term Loan was $1,725.0 million and the Euro Term Loan was $801.3 million (€651.9 million).

Unsecured Senior Notes

As of March 31, 2018, there were $568.0 million of Dollar Senior Notes outstanding. These notes are scheduled to mature on July 15, 2022 and bear interest at an annual fixed rate of 6.00% with semi-annual interest payments. As noted above, during the first three months of 2018, Gates redeemed in full its outstanding €235.0 million Euro Senior Notes and made partial redemptions of the Dollar Senior Notes totaling $622.0 million.

Up to the date of their redemption, a transactional foreign exchange loss of $9.2 million, compared with a $6.6 million loss in the prior year period, was recognized in respect of the Euro Senior Notes. Of these losses, $4.2 million, compared with $0 for the prior year period, was recognized in other expense and $5.0 million, compared with $6.6 million for the prior year period, was recognized in OCI for the period during which this facility was designated as a net investment hedge of certain of Gates’ Euro investments.

Gates may redeem the Dollar Senior Notes, at its option, in whole at any time or in part from time to time, at the following redemption prices (expressed as a percentage of the principal amount), plus accrued and unpaid interest to the redemption date:



	Dollar Senior Note Redemption price
During the year commencing:
—July 15, 2018	101.500	%
—July 15, 2019 and thereafter	100.000	%

In the event of a change of control over the Company, each holder will have the right to require Gates to repurchase all of such holder’s notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of repurchase, except to the extent that Gates has previously elected to redeem the notes.

Revolving credit facility

Gates also has a secured revolving credit facility, maturing on January 29, 2023, that provides for multi-currency revolving loans up to an aggregate principal amount of $185.0 million, with a letter of credit sub-facility of $20.0 million. In January 2018, the maturity date of this facility was extended to January 29, 2023, with a springing maturity of April 15, 2022 if more than $500.0 million of the Dollar Senior Notes remain in issue at that time. In addition, as part of this amendment, the facility size was increased from $125.0 million to $185.0 million.

As of both March 31, 2018 and December 30, 2017, there were $0 drawings for cash under the revolving credit facility and there were no letters of credit outstanding.

Debt under the revolving credit facility bears interest at a floating rate, which can be either a base rate as defined in the credit agreement plus an applicable margin or, at Gates’ option LIBOR, plus an applicable margin.

Asset-backed revolver

Gates has a revolving credit facility backed by certain of its assets in North America. The facility allows for loans of up to a maximum of $325.0 million ($322.0 million as of March 31, 2018, compared with $293.7 million as of December 30, 2017, based on values of the secured assets on those dates) with a letter of credit sub-facility of $150.0 million within this maximum. In January 2018, the maturity date of this facility was extended to January 29, 2023, with a springing maturity of April 15, 2022 if more than $500.0 million of the Dollar Senior Notes remain in issue at that time.

As of both March 31, 2018 and December 30, 2017, there were $0 drawings for cash under the asset-backed revolver. Debt under the facility bears interest at a floating rate, which can be either a base rate as defined in the credit agreement plus an applicable margin or, at Gates’ option, LIBOR, plus an applicable margin. The letters of credit outstanding under the asset-backed revolver as of March 31, 2018 amounted to $58.4 million, compared with $58.0 million as of December 30, 2017.