FINANCING ARRANGEMENTS

Principal amounts of debt obligations and principal amounts of debt obligations net of discounts and issuance costs consists of the following:



		September 30, 2017				December 31, 2016
(in millions)	Maturity	Principal Amount		Net of Discounts and Issuance Costs		Principal Amount		Net of Discounts and Issuance Costs
Senior Secured Credit Facilities:
Revolving Credit Facility	April 2018	$	—	$	—	$	875	$	875
Revolving Credit Facility	April 2020	425		425		—		—
Series A-3 Tranche A Term Loan Facility	October 2018	—		—		1,032		1,016
Series A-4 Tranche A Term Loan Facility	April 2020	—		—		668		658
Series D-2 Tranche B Term Loan Facility	February 2019	—		—		1,068		1,048
Series C-2 Tranche B Term Loan Facility	December 2019	—		—		823		805
Series E-1 Tranche B Term Loan Facility	August 2020	—		—		2,456		2,429
Series F Tranche B Term Loan Facility	April 2022	5,800		5,685		3,892		3,815
Senior Secured Notes:
6.50% Secured Notes	March 2022	1,250		1,235		—		—
7.00% Secured Notes	March 2024	2,000		1,975		—		—
Senior Unsecured Notes:
6.75%	August 2018	—		—		1,600		1,593
5.375%	March 2020	2,000		1,988		2,000		1,985
7.00%	October 2020	690		689		690		689
6.375%	October 2020	2,250		2,235		2,250		2,231
7.50%	July 2021	1,625		1,615		1,625		1,613
6.75%	August 2021	650		647		650		647
5.625%	December 2021	900		895		900		894
7.25%	July 2022	550		544		550		543
5.50%	March 2023	1,000		993		1,000		992
5.875%	May 2023	3,250		3,223		3,250		3,220
4.50% euro-denominated debt	May 2023	1,772		1,757		1,578		1,563
6.125%	April 2025	3,250		3,221		3,250		3,218
Other	Various	14		14		12		12
Total long-term debt		$	27,426	27,141		$	30,169	29,846
Less: Current portion of long-term debt and other				925				1
Non-current portion of long-term debt				$	26,216			$	29,845

Covenant Compliance

The Senior Secured Credit Facilities and the indentures governing the Company’s Senior Secured Notes and Senior Unsecured Notes contain customary affirmative and negative covenants and specified events of default. These affirmative and negative covenants include, among other things, and subject to certain qualifications and exceptions, covenants that restrict the Company’s ability and the ability of its subsidiaries to: incur or guarantee additional indebtedness; create or permit liens on assets; pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; make certain investments and other restricted payments; engage in mergers, acquisitions, consolidations and amalgamations; transfer and sell certain assets; and engage in transactions with affiliates. The Revolving Credit Facility also contains specified financial maintenance covenants (consisting of a secured leverage ratio and an interest coverage ratio).

During the nine months ended September 30, 2017, the Company completed several actions which included using the proceeds from divestitures and cash flows from operations to repay debt, amending financial maintenance covenants, extending a significant portion of the Revolving Credit Facility, and refinancing debt with near term maturities. These actions, described below, have reduced the Company’s debt balance and positively affected the Company’s ability to comply with its financial maintenance covenants. As of September 30, 2017, the Company was in compliance with all financial maintenance covenants related to its outstanding debt. The Company, based on its current forecast for the next twelve months from the date of issuance of these financial statements and the amendments executed, expects to remain in compliance with these financial maintenance covenants and meet its debt service obligations over that same period.

The Company continues to take steps to improve its operating results to ensure continual compliance with its financial maintenance covenants and take other actions to reduce its debt levels to align with the Company’s long term strategy. The Company may consider taking other actions, including divesting other businesses and refinancing debt as deemed appropriate, to provide additional coverage in complying with the financial maintenance covenants and meeting its debt service obligations.

Senior Secured Credit Facilities

On February 13, 2012, the Company and certain of its subsidiaries as guarantors entered into the Credit Agreement with a syndicate of financial institutions and investors, as lenders. As of January 1, 2016, the Credit Agreement provided for: (i) a $1,500 million Revolving Credit Facility maturing on April 20, 2018, which included a sublimit for the issuance of standby and commercial letters of credit and a sublimit for swing line loans and (ii) a series of term loans maturing during the years 2016 through 2022.

On April 11, 2016, the Company entered into Amendment No. 12 and Waiver to the Credit Agreement (“Amendment No. 12”), which addressed the Company's delay in delivering its Annual Report for the year ended December 31, 2015 on Form 10-K (the “2015 Annual Report”). Amendment No. 12 extended the deadlines to deliver the Company’s 2015 Annual Report and its Quarterly Report for the period ended March 31, 2016 on Form 10-Q (such requirements, the “Financial Reporting Requirements”) and waived, among other things, any cross-default under the Credit Agreement to the Company’s other indebtedness as a result of the delays. These Financial Reporting Requirements were subsequently satisfied as extended. In addition to these waivers, Amendment No. 12 (i) modified certain financial maintenance covenants, (ii) amended certain financial definitions and (iii) imposed a number of restrictions on the Company and its subsidiaries’ ability to incur additional debt, make additional acquisitions, make investments, distribute capital and make other capital allocations until such time that the Financial Reporting Requirements were satisfied and the Company attains specific leverage ratios. Amendment No. 12 also increased each of the applicable interest rate margins under the Credit Agreement by 1.00% until delivery of the Company's financial statements for the quarter ending June 30, 2017. Thereafter, the interest rate applicable to the loans will be determined on the basis of a pricing grid tied to the Company's secured leverage ratio. Amendment No. 12 was accounted for as a debt modification, and as a result, payments to the lenders were recognized as additional debt discounts and were being amortized over the remaining term of each term loan.

On August 23, 2016, the Company entered into Amendment No. 13 to the Credit Agreement (“Amendment No. 13”) which (i) reduced the minimum interest coverage maintenance covenant under the Credit Agreement, (ii) permitted the issuance of secured notes with shorter maturities and the incurrence of other indebtedness, in each case to repay term loans under the Credit Agreement and (iii) provided additional flexibility to sell assets, provided the proceeds of such asset sales are used to prepay loans under the Credit Agreement. Amendment No. 13 also increased each of the applicable interest rate margins under the Credit Agreement by 0.50% until delivery of the Company’s financial statements for the quarter ending June 30, 2017. Thereafter, the interest rate applicable to the loans will be determined on the basis of a pricing grid tied to the Company's secured leverage ratio. Amendment No. 13 was accounted for as a debt modification, and as a result, payments to the lenders were recognized as additional debt discounts and were being amortized over the remaining term of each term loan.

On March 3, 2017, the Company used proceeds from the Skincare Sale to repay $1,086 million of outstanding debt under its Senior Secured Credit Facilities.

On March 21, 2017, the Company entered into Amendment No. 14 to the Credit Agreement (“Amendment No. 14”) which (i) provided additional financing from an incremental term loan under the Company's Series F Tranche B Term Loan Facility of $3,060 million (the “Series F-3 Tranche B Term Loan”), (ii) amended the financial covenants contained in the Credit Agreement, (iii) increased the amortization rate for the Series F Tranche B Term Loan Facility from 0.25% per quarter (1% per annum) to 1.25% per quarter (5% per annum), with quarterly payments starting March 31, 2017, (iv) amended certain financial definitions, including the definition of Consolidated Adjusted EBITDA, and (v) provided additional ability for the Company to, among other things, incur indebtedness and liens, consummate acquisitions and make other investments, including relaxing certain limitations imposed by prior amendments. The proceeds from the additional financing, combined with the proceeds from the issuance of the Senior Secured Notes described below and cash on hand, were used to (i) repay all outstanding balances under the Company’s Series A-3 Tranche A Term Loan Facility, Series A-4 Tranche A Term Loan Facility, Series D-2 Tranche B Term Loan Facility, Series C-2 Tranche B Term Loan Facility, and Series E-1 Tranche B Term Loan Facility (collectively the “Refinanced Debt”), (ii) repurchase $1,100 million in principal amount of 6.75% Senior Unsecured Notes due August 2018 (the “August 2018 Senior Unsecured Notes”), (iii) repay $350 million of amounts outstanding under the Company's Revolving Credit Facility and (iv) pay related fees and expenses (collectively, the “March 2017 Refinancing Transactions”).

Amendments to the covenants made as part of Amendment No. 14 include: (i) removed the financial maintenance covenants with respect to the Series F Tranche B Term Loan Facility, (ii) reduced the interest coverage ratio maintenance covenant to 1.50:1.00 with respect to the Revolving Credit Facility beginning in the quarter ending March 31, 2017 through the quarter ending March 31, 2019 (stepping up to 1.75:1.00 thereafter) and (iii) increased the secured leverage ratio maintenance covenant to 3.00:1.00 with respect to the Revolving Credit Facility beginning in the quarter ending March 31, 2017 through the quarter ending March 31, 2019 (stepping down to 2.75:1.00 thereafter). These financial maintenance covenants apply only with respect to the Revolving Credit Facility and can be waived or amended without the consent of the term loan lenders under the Credit Agreement.

Modifications to Consolidated Adjusted EBITDA from Amendment No. 14 included, among other things: (i) modifications to permit the Company to add back extraordinary, unusual or non-recurring expenses or charges (including certain costs of, and payments of, litigation expenses, actual or prospective legal settlements, fines, judgments or orders, subject to a cap of $500 million in any twelve month period, of which no more than $250 million may pertain to any costs, payments, expenses, settlements, fines, judgments or orders, in each case, arising out of any actual or potential claim, investigation, litigation or other proceeding that the Company did not publicly disclose on or prior to the effectiveness of Amendment No. 14, and subject to other customary limitations), and (ii) modifications to allow the Company to add back expenses, charges or losses actually reimbursed or for which the Company reasonably expects to be reimbursed by third parties within 365 days, subject to customary limitations.

Amendment No. 14 was accounted for as a modification of debt to the extent the Refinanced Debt was replaced with the incremental Series F-3 Tranche B Term Loan issued to the same creditor and an extinguishment of debt to the extent the Refinanced Debt was replaced with Series F-3 Tranche B Term Loan issued to a different creditor. The Refinanced Debt replaced with the proceeds of the newly issued senior secured notes was accounted for as an extinguishment of debt. For amounts accounted for as an extinguishment of debt, the Company incurred a Loss on extinguishment of debt of $27 million representing the difference between the amount paid to settle the extinguished debt and the extinguished debt’s carrying value (the stated principal amount net of unamortized discount and debt issuance costs). Payments made to the lenders of $38 million associated with the issuance of the new Series F-3 Tranche B Term Loan were capitalized and are being amortized as interest expense over the remaining term of the Series F Tranche B Term Loan Facility. Third party expenses of $3 million associated with the modification of debt were expensed as incurred and included in Interest expense.

On March 28, 2017, the Company entered into Amendment No. 15 to the Credit Agreement (“Amendment No. 15”) which provided for the extension of the maturity date of $1,190 million of revolving credit commitments under the Revolving Credit Facility from April 20, 2018 to the earlier of (i) April 20, 2020 and (ii) the date that is 91 calendar days prior to the scheduled maturity of any series or tranche of term loans under the Credit Agreement, certain Senior Secured Notes or Senior Unsecured Notes and any other indebtedness for borrowed money in excess of $750 million. Unless otherwise terminated prior thereto, the remaining $310 million of revolving credit commitments under the Revolving Credit Facility will continue to mature on April 20, 2018. Amendment No. 15 was accounted for in part as a debt modification, whereby the fees paid to lenders agreeing to extend their commitment through April 20, 2020 and the fees paid to lenders providing additional commitments were recognized as additional debt issuance costs and are being amortized over the remaining term of the Revolving Credit Facility. Amendment No. 15 was accounted for in part as an extinguishment of debt and the Company incurred a Loss on extinguishment of debt of $1 million representing the unamortized debt issuance costs associated with the commitments canceled by lenders in the amendment.

In April 2017, using the remaining proceeds from the Skincare Sale and the proceeds from the divestiture of a manufacturing facility in Brazil, the Company repaid $220 million of its Series F Tranche B Term Loan Facility. On July 3, 2017, using the net proceeds from the Dendreon Sale, the Company repaid $811 million of its Series F Tranche B Term Loan Facility. On September 29, 2017, using cash on hand, the Company repaid $100 million of amounts outstanding under its Revolving Credit Facility.

Borrowings under the Senior Secured Credit Facilities bear interest at a rate per annum equal to, at the Company's option from time to time, either (i) a base rate determined by reference to the higher of (a) the prime rate (as defined in the Credit Agreement) and (b) the federal funds effective rate plus 1/2 of 1% or (ii) a LIBO rate determined by reference to the costs of funds for U.S. dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, in each case plus an applicable margin. These applicable margins are subject to increase or decrease quarterly based on the secured leverage ratio beginning with the quarter ended June 30, 2017. Based on its calculation of the Company’s secured leverage ratio, management does not anticipate any such increase or decrease to the current applicable margins for the next applicable period.

The applicable interest rate margins for borrowings under the Revolving Credit Facility are 2.75% with respect to base rate borrowings and 3.75% with respect to LIBO rate borrowings. As of September 30, 2017, the stated rate of interest on the Revolving Credit Facility was 4.99% per annum. In addition, the Company is required to pay commitment fees of 0.50% per annum in respect to the commitments not utilized, letter of credit fees on the maximum amount available to be drawn under all outstanding letters of credit in an amount equal to the applicable margin on LIBO rate borrowings, customary fronting fees for the issuance of letters of credit and agency fees.

The applicable interest rate margins for the Series F Tranche B Term Loan Facility are 3.75% with respect to base rate borrowings and 4.75% with respect to LIBO rate borrowings, subject to a 0.75% LIBO rate floor. As of September 30, 2017, the stated rate of interest on the Company’s borrowings under the Series F Tranche B Term Loan Facility was 5.99% per annum.

Senior Secured Notes

March 2017 Refinancing Transactions

As part of the March 2017 Refinancing Transactions, the Company issued $1,250 million aggregate principal amount of 6.50% senior secured notes due March 15, 2022 (the “March 2022 Senior Secured Notes”) and $2,000 million aggregate principal amount of 7.00% senior secured notes due March 15, 2024 (the “March 2024 Senior Secured Notes”), in a private placement, the proceeds of which, when combined with the proceeds from the Series F-3 Tranche B Term Loan and cash on hand, were used to (i) repay the Refinanced Debt, (ii) repurchase $1,100 million in principal amount of August 2018 Senior Unsecured Notes, (iii) repay $350 million of amounts outstanding under the Company's Revolving Credit Facility and (iv) pay related fees and expenses. Interest on these notes is payable semi-annually in arrears on each March 15 and September 15.

The Senior Secured Notes are guaranteed by each of the Company’s subsidiaries that is a guarantor under the Credit Agreement and existing Senior Unsecured Notes (together, the “Note Guarantors”). The Senior Secured Notes and the guarantees related thereto are senior obligations and are secured, subject to permitted liens and certain other exceptions, by the same first priority liens that secure the Company’s obligations under the Credit Agreement under the terms of the indenture governing the Senior Secured Notes.

The Senior Secured Notes and the guarantees rank equally in right of payment with all of the Company’s and Note Guarantors’ respective existing and future unsubordinated indebtedness and senior to the Company’s and Note Guarantors’ respective future subordinated indebtedness. The Senior Secured Notes and the guarantees related thereto are effectively pari passu with the Company’s and the Note Guarantors’ respective existing and future indebtedness secured by a first priority lien on the collateral securing the Senior Secured Notes and effectively senior to the Company’s and the Note Guarantors’ respective existing and future indebtedness that is unsecured, including the existing Senior Unsecured Notes, or that is secured by junior liens, in each case to the extent of the value of the collateral. In addition, the Senior Secured Notes are structurally subordinated to (i) all liabilities of any of the Company’s subsidiaries that do not guarantee the Senior Secured Notes and (ii) any of the Company’s debt that is secured by assets that are not collateral.

The March 2022 Senior Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 2019, at the redemption prices set forth in the indenture. The Company may redeem some or all of the March 2022 Senior Secured Notes prior to March 15, 2019 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to March 15, 2019, the Company may redeem up to 40% of the aggregate principal amount of the March 2022 Senior Secured Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.

The March 2024 Senior Secured Notes are redeemable at the option of the Company, in whole or in part, at any time on or after March 15, 2020, at the redemption prices set forth in the indenture. The Company may redeem some or all of the March 2024 Senior Secured Notes prior to March 15, 2020 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium. Prior to March 15, 2020, the Company may redeem up to 40% of the aggregate principal amount of the March 2024 Senior Secured Notes using the proceeds of certain equity offerings at the redemption price set forth in the indenture.

Upon the occurrence of a change in control (as defined in the indentures governing the Senior Secured Notes), unless the Company has exercised its right to redeem all of the notes of a series as described above, holders of the Senior Secured Notes may require the Company to repurchase such holder’s notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest.

Senior Unsecured Notes

The Senior Unsecured Notes issued by the Company are the Company’s senior unsecured obligations and are jointly and severally guaranteed on a senior unsecured basis by each of its subsidiaries that is a guarantor under the Senior Secured Credit Facilities. The Senior Unsecured Notes issued by the Company’s subsidiary Valeant are senior unsecured obligations of Valeant and are jointly and severally guaranteed on a senior unsecured basis by the Company and each of its subsidiaries (other than Valeant) that is a guarantor under the Senior Secured Credit Facilities. Future subsidiaries of the Company and Valeant, if any, may be required to guarantee the Senior Unsecured Notes.

If the Company experiences a change in control, the Company may be required to make an offer to repurchase each series of Senior Unsecured Notes, in whole or in part, at a purchase price equal to 101% of the aggregate principal amount of the Senior Unsecured Notes repurchased, plus accrued and unpaid interest.

As part of the March 2017 Refinancing Transactions, the Company completed a tender offer to repurchase $1,100 million in aggregate principal amount of the August 2018 Senior Unsecured Notes for total consideration of approximately $1,132 million plus accrued and unpaid interest through March 20, 2017. Loss on extinguishment of debt during the three months ended March 31, 2017 associated with the repurchase of the August 2018 Senior Unsecured Notes was $36 million representing the difference between the amount paid to settle the debt and the debt’s carrying value.

On August 15, 2017, the Company repurchased the remaining $500 million of outstanding August 2018 Senior Unsecured Notes using cash on hand, plus accrued and unpaid interest. Loss on extinguishment of debt during the three months ended September 30, 2017 associated with the repurchase of the August 2018 Senior Unsecured Notes was $1 million representing the difference between the amount paid to settle the debt and the debt’s carrying value.

Weighted Average Stated Rate of Interest

The weighted average stated rate of interest as of September 30, 2017 and December 31, 2016 was 6.09% and 5.75%, respectively.

Maturities

Maturities and mandatory amortization payments of debt obligations for the period October through December 2017, the five succeeding years ending December 31 and thereafter are as follows:



(in millions)
October through December 2017	$	923
2018	2
2019	—
2020	5,365
2021	3,175
2022	6,677
Thereafter	11,284
Total gross maturities	27,426
Unamortized discounts	(285		)
Total long-term debt	$	27,141

During the nine months ended September 30, 2017, the Company made aggregate repayments of long-term debt of $9,249 million, which consisted of (i) $7,199 million of repayments of term loans under its Senior Secured Credit Facilities, (ii) $1,600 million of repurchased August 2018 Senior Unsecured Notes, and (iii) $450 million of Revolving Credit Facility amounts outstanding. During the nine months ended September 30, 2017, the Company incurred $6,310 million of long-term debt, consisting of $3,060 million of Series F-3 Tranche B Term Loan and $3,250 million of Senior Secured Notes.

On October 5, 2017, using the net proceeds from the iNova Sale, the Company repaid $923 million of its Series F Tranche B Term Loan Facility. This repayment satisfied the $923 million due during the period October through December 2017 in the table above. On October 17, 2017, the Company issued $1,000 million aggregate principal amount of 5.50% senior secured notes due November 1, 2025 (the “5.50% 2025 Notes”), in a private placement, the proceeds of which were used to (i) repurchase $569 million in principal amount of 6.375% senior notes due 2020 (the “6.375% 2020 Notes”) and (ii) repurchase $431 million in principal amount of 7.00% senior notes due 2020 (the “7.00% 2020 Notes”) (collectively the “2020 Notes”). The related fees and expenses were paid using cash on hand. The repayments of the 2020 Notes and issuance of the 5.50% 2025 Notes are not reflected in the table above. On November 2, 2017, using cash on hand, the Company repaid $125 million of its Series F Tranche B Term Loan Facility, satisfying an equivalent amount due in the year 2022 reflected in the table above. See Note 20, "SUBSEQUENT EVENTS" for additional details regarding the private placement of the 5.50% 2025 Notes and repurchase of the 2020 Notes.