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Seasonal Financing
 3 Months Ended
Mar. 31, 2023
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 a senior secured revolving credit facility in an aggregate principal amount of $1.40 billion (the "Revolving Credit Facility"). The Revolving Credit Facility will mature on September 15, 2025. In connection with the entry into the Credit Agreement, Mattel terminated the commitments and satisfied all outstanding obligations under the previous credit agreement, dated December 20, 2017 (as amended).
Borrowings under the Revolving Credit Facility bear interest at a floating rate, which can be either, at Mattel's option, (i) adjusted Term Secured Overnight Financing Rate ("SOFR") plus an applicable margin ranging from 1.125% to 2.000% per annum or (ii) 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 debt ratings.
In addition to paying interest on the outstanding principal under the Revolving Credit Facility, Mattel is required to pay (i) an unused line fee per annum of the average daily unused portion of the 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 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 and 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 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 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 Revolving Credit Facility will 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 4.25 to 1.00 as of the end of the fiscal quarter ending March 31, 2023, with an additional step down to 3.75 to 1.00 to occur as of the end of the fiscal quarter ending June 30, 2023, as described below.
As of March 31, 2023, Mattel had no borrowings outstanding under the Revolving Credit Facility and no other short-term borrowings outstanding. As of March 31, 2022, Mattel had no borrowings outstanding under the previous senior secured revolving credit facilities and no other short-term borrowings outstanding. As of December 31, 2022, Mattel had no borrowings outstanding under the Revolving Credit Facility and no other short-term borrowings outstanding. Outstanding letters of credit under the Revolving Credit Facility totaled approximately $8 million as of March 31, 2023. Outstanding letters of credit under the previous senior secured revolving credit facilities totaled approximately $10 million as of March 31, 2022. Outstanding letters of credit under the Revolving Credit Facility totaled approximately $8 million as of December 31, 2022.
As of March 31, 2023, 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 Revolving Credit Facility. If Mattel were to default under the terms of the Revolving Credit Facility, its ability to meet its seasonal financing requirements could be adversely affected.
In April 2023, S&P upgraded Mattel’s debt rating from BB+ to BBB- and maintained a positive outlook, and in November 2022, Moody’s previously upgraded Mattel’s debt rating from Ba1 to Baa3. On April 27, 2023, Mattel provided a certification of the foregoing to the administrative agent under the Credit Agreement, which resulted in the occurrence of a Fall-Away Event.
As a result of the Fall-Away Event, all guarantee obligations of the Guarantors under the Revolving Credit Facility were released, and the obligations of Mattel under the Revolving Credit Facility will 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. Additionally, all collateral securing the Revolving Credit Facility was permanently released; the restrictive covenants governing investments, dividends, negative pledges, and changes in accounting policies or reporting practices no longer apply; and the total leverage ratio financial covenant will require maintenance of a total leverage ratio as of the end of each fiscal quarter not to exceed 3.75 to 1.00.