7. Short-Term Borrowings and Long-Term Debt

Short-term borrowings

In May 2016, Legg Mason borrowed $460,000 under its revolving credit facility to finance the acquisition of EnTrust and to replenish cash used to complete the acquisitions of Clarion Partners in April 2016 and RARE Infrastructure in October 2015, as further discussed in Note 3. As further discussed below, in August 2016, Legg Mason issued $500,000 of 5.45% Junior Subordinated Notes due 2056 (the "5.45% 2056 Notes"), the net proceeds of which, together with existing cash resources, were used to repay the $500,000 of then outstanding borrowings under the revolving credit facility. Legg Mason had no outstanding borrowings under the credit facility as of September 30, 2016, and had total outstanding borrowings of $40,000 as of March 31, 2016.

Interest Rate Swap - Revolving Credit Facility

On April 29, 2016, Legg Mason entered into a forward starting, amortizing interest rate swap agreement with a financial intermediary, which was designated as a cash flow hedge. The interest rate swap was used to convert outstanding borrowings under the revolving credit facility from floating rate to fixed rate debt. Under the terms of the interest rate swap agreement, Legg Mason paid a fixed interest rate of 2.3% on a notional amount of $500,000. The swap had a 4.67-year term, with scheduled reductions in notional amount and was to expire on December 29, 2020. In August 2016, in connection with the repayment of the outstanding borrowings under the revolving credit facility, the interest rate swap was terminated for a cash payment of $3,662. As a result, Legg Mason reclassified a loss of $2,249 (net of deferred income taxes of $1,413), representing the fair value of the cash flow hedge, from Accumulated other comprehensive loss, net, to Other non-operating income (expense), net.

Prior to its termination in August 2016, the swap settled monthly and during the three and six months ended September 30, 2016, $237 and $764 was reclassified from Accumulated other comprehensive loss, net, to Interest expense. Until the swap was terminated, the original terms and conditions of the hedged instruments were unchanged and the swap was an effective cash flow hedge.

Long-term debt

Long-term debt consists of the following:



	September 30, 2016												March 31, 2016
	Carrying Value		Fair Value Hedge Adjustment			Unamortized Discount (Premium)			Debt Issuance Costs		Maturity Amount		Carrying Value
2.7% Senior Notes due July 2019	$	253,650	$	(4,962	)	$	305		$	1,007	$	250,000	$	256,055
3.95% Senior Notes due July 2024	248,147		—			354			1,499		250,000		248,028
4.75% Senior Notes due March 2026	446,635		—			—			3,365		450,000		447,030
5.625% Senior Notes due January 2044	547,821		—			(3,335		)	5,514		550,000		547,781
6.375% Junior Notes due March 2056	241,952		—			—			8,048		250,000		242,091
5.45% Junior Notes due September 2056	483,691		—			—			16,309		500,000		—
Total	$	2,221,896	$	(4,962	)	$	(2,676	)	$	35,742	$	2,250,000	$	1,740,985

5.45% Junior Subordinated Notes due September 2056

In August 2016, Legg Mason issued an aggregate principal amount of $500,000 of 5.45% 2056 Notes. The 5.45% 2056 Notes rank junior and subordinate in right of payment to all of Legg Mason's current and future senior indebtedness. Prior to September 15, 2021, the 5.45% 2056 Notes can be redeemed in aggregate, but not in part, at 100% of the principal amount, plus any accrued and unpaid interest, if called for a tax event (as defined in the prospectus supplement), or 102% of the principal amount, plus any accrued and unpaid interest, if called for a rating agency event (as defined in the prospectus supplement). On or after September 15, 2021, the 5.45% 2056 Notes can be redeemed in aggregate or in part, at 100% of the principal amount, plus any related accrued and unpaid interest.

As of September 30, 2016, $250,000 of long-term debt matures in fiscal 2020, and $2,000,000 matures after fiscal 2021.

At September 30, 2016, the estimated fair value of Long-term debt was approximately $2,363,237. The fair value of debt was estimated using publicly quoted market prices and was classified as Level 2 in the fair value hierarchy.

Interest Rate Swap - 2.7% Senior Notes due July 2019

On June 23, 2014, Legg Mason entered into an interest rate swap contract with a financial intermediary with a notional amount of $250,000, which was designated as a fair value hedge. The interest rate swap was being used to effectively convert the 2.7% Senior Notes due July 2019 from fixed rate debt to floating rate debt and had identical terms as the underlying debt being hedged. The related hedging gains and losses offset one another and resulted in no net income or loss impact. The swap had a five-year term, and was scheduled to mature on July 15, 2019. On April 21, 2016, the fair value hedge swap was terminated for a cash receipt of $6,500, and the related fair value hedge adjustment is being amortized as Interest expense over the remaining life of the debt. During the three and six months ended September 30, 2016, $451 and $902, respectively, was amortized and recorded as Interest expense in the Consolidated Statement of Income.

During the three and six months ended September 30, 2015, $2,772 and $1,797 was recorded as Other income (gain on hedging activity) in the Consolidated Statement of Income, which reflects a gain on hedging activity related to the fair value adjustment on the derivative asset. Also, during the three and six months ended September 30, 2015, $2,772 and $1,797 was recorded as Other expense (loss on hedging activity) in the Consolidated Statements of Income, which reflects a loss on hedging activity related to the fair value adjustment on the debt. The swap payment dates coincided with the debt payment dates on July 15 and January 15. The related receipts/payments by Legg Mason were recorded as Interest expense in the Consolidated Statements of Income. Until the swap was terminated on April 21, 2016, the original terms and conditions of the hedged instruments were unchanged and the swap was an effective fair value hedge.