Notes Payable and Debt and Financing Arrangements

(a) Notes Payable and Debt

The following table presents the Company's outstanding notes payable and debt as of December 31, 2017 and 2016:



(U.S. dollars in thousands)	2017		2016
(U.S. dollars in thousands)	Outstanding (1)		Outstanding (1)
Debt Issuance:
$300 million, 2.30% Senior Notes due December 2018	$	299,357	$	298,686
$400 million, 5.75% Senior Notes due October 2021	398,384		397,953
$350 million, 6.375% Senior Notes due November 2024	349,248		349,139
$500 million, 4.45% Subordinated Notes due March 2025	494,138		493,329
$325 million, 6.25% Senior Notes due May 2027	323,531		323,375
$300 million, 5.25% Senior Notes due December 2043	296,560		296,427
$500 million, 5.5% Subordinated Notes due March 2045 (2)	472,832		488,768
€500 million, 3.25% Subordinated Notes due June 2047 (3)	586,719		—
Total debt carrying value	$	3,220,769	$	2,647,677

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(1) "Outstanding" data represent December 31, 2017 and December 31, 2016 accreted values.


(2)	On July 7, 2017, the Company repurchased and canceled $16.7 million of the original debt issuance. See below for further details.


(3)	This issuance carried a fixed coupon of 3.25% for a period of ten years, then a floating rate of three-month EURIBOR plus 2.90% from (and including) June 29, 2027 through maturity. The outstanding amount is subject to movement due to foreign exchange.

All outstanding debt of the Company at December 31, 2017 and 2016, which is identified in the table above, was issued by XLIT. XLIT's outstanding debt, other than the Senior Notes due 2024 and due 2027, are listed on the NYSE and are fully and unconditionally guaranteed by XL Group. See Note 26, "Guarantor Financial Information," for condensed comparative financial information of XL Group and XLIT for the periods ended December 31, 2017 and December 31, 2016.

The ability of XLIT, like that of the Company, to obtain funds from its subsidiaries to satisfy any of its obligations, including under guarantees, is subject to certain contractual restrictions, applicable laws and statutory requirements of the various countries in which the subsidiaries operate, including, among others, Bermuda, the United States, Ireland, Switzerland and the United Kingdom. For details of the required statutory capital and surplus for the principal operating subsidiaries of the Company, see Item 8, Note 24, "Statutory Financial Data."

On March 30, 2015, XLIT issued $500 million of subordinated notes due March 2025, with a fixed coupon of 4.45%, at 99.633% of the face amount and net proceeds were $492.2 million. Related expenses of the offering amounted to approximately $5.9 million. These costs were deferred and are being amortized over the term of the subordinated notes.

On March 30, 2015, XLIT issued $500 million of subordinated notes due March 2045, with a fixed coupon of 5.5%, at 99.115% of the face amount and net proceeds were $488.4 million. Related expenses of the offering amounted to approximately $7.2 million. These costs were deferred and are being amortized over the term of the subordinated notes.

As a result of the Catlin Acquisition, the Company had assumed the following liabilities of Catlin, all of which were redeemed at par and extinguished in December of 2015:

•

Variable rate unsecured subordinated notes in the amounts of €7 million and $27 million due March 2035 and March 2036, respectively, issued by Catlin Underwriting (formerly Wellington Underwriting plc) in May 2006. The notes were subordinated to the claims of all senior creditors, as defined in the agreement governing the notes. The notes paid interest at a floating rate based on the rate on three-month deposits in U.S. dollars plus a margin of 295 basis points and 317 basis points, respectively. Interest was payable quarterly in arrears.

•

Variable rate unsecured subordinated notes in the amounts of $31 million, $10 million and €11 million due September 2036, issued by Catlin Underwriting, in July 2006. The notes were subordinated to the claims of all senior creditors, as defined in the agreement governing the notes. The notes paid interest at a floating rate based on the rate on three-month deposits in U.S. dollars plus a margin of 310 basis points, 300 basis points and 300 basis points, respectively. Interest was payable quarterly in arrears.

As a result of the Allied Acquisition described in Note 2(d), "Acquisitions and Disposals - Allied Acquisition" the Company assumed, and subsequently redeemed on June 15, 2016, $8.2 million of trust preferred securities, which bore interest at three-month LIBOR plus 3.75%.

On June 29, 2017, XLIT issued €500 million ($568.8 million) of fixed to floating rate subordinated notes due June 2047, with a fixed coupon of 3.25% for a period of ten years, then a floating rate of three-month EURIBOR plus 2.90% thereafter. The notes were issued at 99.054% of the face amount and net proceeds were $558.3 million. Related expenses of the offering amounted to approximately $10.5 million. These costs were deferred and are being amortized over the expected life of the subordinated notes.

On July 7, 2017, the Company repurchased through a tender offer and canceled $16.7 million outstanding 5.5% Subordinated Notes due 2045 issued by XLIT with a net carrying value of $16.3 million for $17.9 million, inclusive of transaction costs. As a result of this repurchase, the Company recorded a loss of approximately $1.6 million through "(Gain) loss from the early extinguishment of debt" and interest expense of $0.3 million in the Consolidated Statements of Income.

XLIT and the Company were in compliance with all applicable covenants at December 31, 2017 and 2016.

(b) Letter of Credit ("LOC") Facilities and Other Sources of Collateral

The Company has several credit facilities provided on both syndicated and bilateral bases from commercial banks. As described in more detail below, the Company may utilize the full capacity of these credit facilities to issue LOC in support of non-admitted insurance and reinsurance operations in the U.S., and to meet capital requirements at Lloyd's. Alternatively, under certain of the credit facilities, the Company instead may elect to utilize a stated portion of such facilities' capacity for revolving loans to support other operating or financing needs, which would reduce the amount available for LOC. XL Group and several of its wholly-owned subsidiaries provide guarantees, on a joint and several basis, for obligations of the Company under certain of these facilities.

The following table presents the Company's ten and nine unsecured LOC facilities and revolving credit facilities at December 31, 2017 and December 31, 2016, respectively:



(U.S. dollars in thousands)	December 31, 2017					December 31, 2016
Facility Name:	Commitment		In Use/ Outstanding			Commitment		In Use/ Outstanding
2015 Citi Facility	$	—	$	—		$	250,000	$	245,000
Goldman Facility	—		—			200,000		200,000
2016 Credit Agricole Facility I	125,000		125,000			125,000		125,000
2016 Credit Agricole Facility II	125,000		125,000			125,000		125,000
2017 Commonwealth Bank Facility	215,000		215,000			—		—
2017 Credit Suisse Facility	100,000		100,000			—		—
FAL Facility I	125,000		125,000			125,000		125,000
FAL Facility II	125,000		125,000			125,000		125,000
FAL Facility III	125,000		125,000			125,000		125,000
FAL Facility IV	125,000		125,000			125,000		125,000
Syndicated Unsecured Facility	750,000		2,000			750,000		—
2017 Commerzbank Facility	100,000		100,000			—		—
Total unsecured LOC facilities	$	1,915,000	$	1,167,000		$	1,950,000	$	1,195,000
Facilities collateralized by certain investment assets	1,477,986		1,382,226			2,041,687		1,150,293
Total LOC facilities	$	3,392,986	$	2,549,226		$	3,991,687	$	2,345,293

Percentage of facilities collateralized by certain investment assets			54.2		%			48.6		%

Certain credit facilities permit the Company to utilize up to $750.0 million and $1.0 billion as of December 31, 2017 and December 31, 2016, respectively, for revolving loans to support general operating and financing needs. At December 31, 2017 and December 31, 2016, $2.0 million and $245.0 million, respectively, were utilized under these facilities to issue letters of credit, leaving $748.0 million and $755.0 million, respectively, available to support other operating and financing needs.

Funds at Lloyd's

In November 2015, we entered into four bilateral unsecured credit agreements, each providing for $125 million of letters of credit for Funds at Lloyd's purposes (FAL Facility I, FAL Facility II, FAL Facility III, and FAL Facility IV, collectively the "FAL Facilities") for an aggregate amount of $500 million. Each of the FAL Facilities expires in 2019. The FAL Facilities replaced four unsecured bilateral facilities available for utilization by Catlin Insurance Company Ltd. ("Catlin-Bermuda") for Funds at Lloyd's purposes that we terminated in November 2015.

Syndicated Facilities

On August 5, 2016, the Company entered into agreements with a banking syndicate to provide: (a) a new secured credit facility that provides for the issuance of letters of credit up to $750 million (the "Secured Syndicated Facility"), and (b) a new unsecured credit facility that provides for the issuance of letters of credit and revolving credit loans up to $750 million (the "Unsecured Syndicated Facility", and together with the Secured Syndicated Facility, the "Syndicated Facilities"). The Company has the option to increase the maximum amount of letters of credit available under the facilities by $500 million in aggregate across the facilities. In connection with the Syndicated Facilities, the Company's previous syndicated credit agreements originally entered into in November 2013, as well as certain related security arrangements, were terminated. The commitments under the Syndicated Facilities are available until, the earlier of (i) August 5, 2021 (unless extended by the parties), and (ii) the date of termination in whole of the commitments upon an optional termination or reduction of the commitments by the account parties or upon the occurrence of certain events of default.

The availability of letters of credit under the Secured Syndicated Facility is subject to a borrowing base requirement, determined on the basis of specified percentages of the face value of eligible categories of assets varying by type of collateral. In the event that such credit support is insufficient, the Company could be required to provide alternative security to cedants. This could take the form of insurance trusts supported by the investment portfolio or funds withheld (amounts retained by ceding companies to collateralize loss or premium reserves) using the Company's cash resources or combinations thereof. The face amount of letters of credit required is driven by, among other things, loss development of existing reserves, the payment pattern of such reserves, the expansion of business written by the Company and the loss experience of such business.

Credit Agricole Facilities

In November and December of 2016, we entered into two credit agreements with Credit Agricole Corporate and Investment Bank ("Credit Agricole Facility I" and "Credit Agricole Facility II," respectively, and collectively, the "Credit Agricole Facilities"). Each credit agreement provides for the issuance of letters of credit in an amount up to $125 million. The commitments under the Credit Agricole Facilities expire on, and such facilities are available until, the earlier of (i) December 15, 2019, provided that, if neither the Company nor the lender provides notice to the other not more than 90 days, but at least 30 days, prior to such date, the commitment termination date will be extended to December 15, 2020, and (ii) the date of termination in whole of the commitments upon an optional termination or reduction of the commitments by the account parties or upon the occurrence of certain events of default.

Commonwealth Bank Facility

On June 19, 2017, the Company entered into a new credit agreement with Commonwealth Bank of Australia, as administrative agent and issuing lender ("2017 Commonwealth Bank Facility"). The capacity available under this standby letter of credit is $215 million. The commitments under the 2017 Commonwealth Bank Facility expire on, and such credit facility is available until, the earlier of (i) September 15, 2020 and (ii) the date of termination in whole of the commitment upon an optional termination or reduction of the commitment by the account party or upon the occurrence of certain events of default.

Credit Suisse Bank Facility

On September 15, 2017, the Company entered into a new credit agreement with Credit Suisse Bank, as administrative agent and issuing lender ("2017 Credit Suisse Facility"). The capacity available under this standby letter of credit is $100 million. The commitments under the 2017 Credit Suisse Facility expire on, and such credit facility is available until, the earlier of (i) June 19, 2020 and (ii) the date of termination in whole of the commitment upon an optional termination or reduction of the commitment by the account party or upon the occurrence of certain events of default.

Commerzbank Bank Facility

On September 15, 2017, the Company entered into a new credit agreement with Commerzbank AG, as administrative agent and issuing lender ("2017 Commerzbank Facility"). The capacity available under this standby letter of credit is $100 million. The commitments under the 2017 Commerzbank Facility expire on, and such credit facility is available until, the earlier of (i) September 15, 2022 and (ii) the date of termination in whole of the commitment upon an optional termination or reduction of the commitment by the account party or upon the occurrence of certain events of default.

Insurance Trusts and other matters

In addition to letters of credit, the Company has established insurance trusts in the U.S. that provide cedants with statutory relief required under state insurance regulation in the U.S. It is anticipated that the commercial facilities may be renewed on expiry but such renewals are subject to the availability of credit from banks utilized by the Company and may be renewed with materially different terms and conditions. In the event that such credit support is insufficient, the Company could be required to provide alternative security to cedants. This could take the form of additional insurance trusts supported by the Company's investment portfolio or funds withheld using the Company's cash resources. The value of letters of credit required is driven by, among other things, loss development of existing reserves, the payment pattern of such reserves, the expansion of business written by the Company and the loss experience of such business.

The majority of the Company's bank facilities, indentures and other documents relating to the Company's outstanding indebtedness (collectively, the "Company's Debt Documents"), which are described above, contain cross acceleration or cross default provisions to each other and the Company's Debt Documents contain affirmative and negative covenants as well as certain customary events of default. These covenants provide for, among other things, a maximum ratio of total consolidated debt plus consolidated net worth. Generally, each of the Company's Debt Documents provide for an event of default in the event of bankruptcy, insolvency or reorganization of the Company, and the majority of the Company's bank facilities provide an event of default if there is a change of control in the Company.

Given that many of the Company's Debt Documents contain cross acceleration or cross default provisions, a default by one of these subsidiaries may result in all holders declaring their debt due and payable and accelerating all debt due under those documents. If this were to occur, the Company may not have funds sufficient at that time to repay any or all of such indebtedness.