Debt, Derivatives and Hedging Activities

9 Months Ended

Feb. 29, 2020

Debt, Derivatives and Hedging Activities

Cintas' outstanding debt is summarized as follows:


(In thousands)	Interest Rate			Fiscal Year Issued	Fiscal Year Maturity	February 29, 2020		May 31, 2019

Debt due within one year
Commercial paper	2.68	%	⁽¹⁾	2019	2020	$	—	$	112,500
Term loan	2.25	%	⁽²⁾	2019	2020	200,000		200,000
Debt issuance costs						(200)		(236)
Total debt due within one year						$	199,800	$	312,264

Debt due after one year
Senior notes	4.30	%		2012	2022	$	250,000	$	250,000
Senior notes	2.90	%		2017	2022	650,000		650,000
Senior notes	3.25	%		2013	2023	300,000		300,000
Senior notes ⁽³⁾	2.78	%		2013	2023	51,359		51,684
Senior notes ⁽⁴⁾	3.11	%		2015	2025	51,721		51,973
Senior notes	3.70	%		2017	2027	1,000,000		1,000,000
Senior notes	6.15	%		2007	2037	250,000		250,000

Debt issuance costs						(13,924)		(16,150)
Total debt due after one year						$	2,539,156	$	2,537,507

⁽¹⁾ Variable rate debt instrument. The rate presented is the variable borrowing rate at May 31, 2019.

⁽²⁾Variable rate debt instrument. The rate presented is the variable borrowing rate at February 29, 2020.

⁽³⁾ Cintas assumed these senior notes with the acquisition of G&K Services, Inc. (G&K) in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.73%.

⁽⁴⁾Cintas assumed these senior notes with the acquisition of G&K in the fourth quarter of fiscal 2017, and they were recorded at fair value. The interest rate shown above is the effective interest rate. The principal amount of these notes is $50.0 million with a stated interest rate of 3.88%.

Cintas' senior notes, excluding the G&K senior notes assumed with the acquisition of G&K in fiscal 2017 and term loan, are recorded at cost, net of debt issuance costs. The fair value of the long-term debt is estimated using Level 2 inputs based on general market prices. The carrying value and fair value of Cintas' debt as of February 29, 2020 were $2,750.0 million and $3,028.5 million, respectively, and as of May 31, 2019 were $2,866.2 million and $2,998.7 million, respectively. During the nine months ended February 29, 2020, Cintas paid a net total of $112.5 million of commercial paper.

The credit agreement that supports our commercial paper program was amended and restated on May 24, 2019. The amendment increased the capacity of the revolving credit facility from $600.0 million to $1.0 billion and created a new term loan of $200.0 million. The credit agreement has an accordion feature that provides Cintas the ability to request increases to the borrowing commitments under either the revolving credit facility or the term loan of up to $250.0 million in the aggregate, subject to customary conditions. The maturity date of the revolving credit facility is May 23, 2024, and the maturity date of the term loan is May 23, 2020, which can be extended 12 months, annually, for up to four years. As of February 29, 2020, there was no commercial paper outstanding and no borrowings on our revolving credit facility. As of May 31, 2019, there was $112.5 million of commercial paper outstanding with maturity dates less than 30 days and with a weighted average interest rate of 2.68% and no borrowings on our revolving credit facility.

Cintas uses interest rate locks to manage our overall interest expense as interest rate locks effectively change the interest rate of specific debt issuances. The interest rate locks are entered into to protect against unfavorable movements in the benchmark treasury rate related to forecasted debt issuances. Cintas used interest rate lock agreements to hedge against movements in the treasury rates at the time Cintas issued its senior notes in fiscal

2007, fiscal 2012, fiscal 2013 and fiscal 2017. The amortization of the cash flow hedges resulted in an increase to other comprehensive loss of $0.4 million and $0.3 million for the three months ended February 29, 2020 and February 28, 2019, respectively. For the nine months ended February 29, 2020 and February 28, 2019, the amortization of the cash flow hedges resulted in a increase to other comprehensive loss of $1.0 million and $0.9 million, respectively. During the nine months ended February 29, 2020, Cintas entered into interest rate lock agreements with a notional value of $700.0 million for a forecasted debt issuance in connection with the upcoming debt maturities. As of February 29, 2020, the fair values of these interest rate locks were a liability of $27.1 million and were recorded in long-term accrued liabilities and in other comprehensive loss, net of tax. During fiscal 2019, Cintas entered into interest rate lock agreements with a notional value of $500.0 million for a forecasted debt issuance in connection with the upcoming debt maturities. As of February 29, 2020 and May 31, 2019, the fair values of these interest rate locks were a liability of $89.8 million and $36.4 million, respectively, and were recorded in long-term accrued liabilities and in other comprehensive loss, net of tax. These interest rate locks had no impact on net income or cash flows from continuing operations for the three and nine months ended February 29, 2020 or February 28, 2019.

Cintas has certain covenants related to debt agreements. These covenants limit Cintas’ ability to incur certain liens, to engage in sale-leaseback transactions and to merge, consolidate or sell all or substantially all of Cintas’ assets. These covenants also require Cintas to maintain certain debt to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and interest coverage ratios. Cross-default provisions exist between certain debt instruments. If a default of a significant covenant were to occur, the default could result in an acceleration of the maturity of the indebtedness, impair liquidity and limit the ability to raise future capital. As of February 29, 2020, Cintas was in compliance with all debt covenants.