SHORT-TERM AND LONG-TERM DEBT

Term Loan

On July 15, 2014, Ciena entered into a Credit Agreement (the “Term Loan Credit Agreement”) which provides for senior secured term loans in an aggregate principal amount of $250 million (the “Term Loan”). Ciena received proceeds from the Term Loan, net of original issue discount and debt issuance costs, of approximately $246 million.

The Term Loan bears interest at a rate equal to LIBOR (subject to a floor of 0.75%) plus an applicable margin of 3.00% and matures on July 15, 2019. The Term Loan Credit Agreement requires Ciena to make quarterly installment payments in aggregate amounts equal to 0.25% of the original principal amount of the Term Loan, with the balance of the Term Loan payable at maturity. The Term Loan Credit Agreement requires mandatory prepayments on the occurrence of certain customary events and, when the total secured net leverage ratio (as defined in the Term Loan Credit Agreement) is in excess of 2.50 to 1.00, the Term Loan Credit Agreement requires a mandatory prepayment of 50% of excess annual cash flow (as defined in the Term Loan Credit Agreement).

The Term Loan Credit Agreement contains customary covenants that limit, absent lender approval, the ability of Ciena to, among other things, incur additional debt, create liens and encumbrances, pay cash dividends, enter into certain acquisition transactions or transactions with affiliates, merge, dissolve, repay certain indebtedness, change the nature of Ciena’s business, make investments or dispose of assets.

The Term Loan Credit Agreement contains customary events of default including, among other things, failure to pay obligations when due, initiation of bankruptcy or insolvency proceedings, defaults on certain other indebtedness, change of control, incurrence of certain material judgments, violation of affirmative and negative covenants, and breaches of representations and warranties set forth in the Term Loan Credit Agreement. Upon an event of default, the administrative agent may, subject to various customary cure rights, require the immediate payment of all amounts outstanding and foreclose on collateral.

In connection with Ciena entering into the Term Loan Credit Agreement, Ciena and certain of its subsidiaries entered into a guaranty, a security agreement and a pledge agreement, each on customary terms. The Term Loan is secured by (i) second-priority security interests in the ABL Priority Collateral (as defined in Note 14 below), and (ii) first-priority security interests in substantially all other tangible and intangible assets including equipment, intercompany notes, intellectual property and material owned real property (the "Term Loan Priority Collateral").

The principal balance, unamortized discount and net carrying amount of the Term Loan was as follows as of July 31, 2014:



	Principal Balance		Unamortized Discount		Net Carrying Amount
Term Loan Payable due July 15, 2019	$	250,000	$	1,237	$	248,763
	$	250,000	$	1,237	$	248,763

The following table sets forth, in thousands, the carrying value and the estimated fair value of the Term Loan:



	July 31, 2014
	Carrying Value		Fair Value⁽²⁾
Term Loan Payable due July 15, 2019⁽¹⁾	$	248,763	$	249,375
	$	248,763	$	249,375


(1)	Includes unamortized bond discount.


(2)	The term loan was categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its term loan using a market approach based upon observable inputs, such as current market transactions involving comparable securities.

Convertible Notes

The principal balance, unamortized discount and net carrying amount of the liability and equity components of our 4.0% convertible senior notes due December 15, 2020 ("2020 Notes") were as follows as of July 31, 2014:



	Liability Component						Equity Component
	Principal Balance		Unamortized Discount		Net Carrying Amount		Net Carrying Amount
4.0% Convertible Senior Notes due December 15, 2020	$	193,101	$	15,248	$	177,853	$	43,131

The following table sets forth, in thousands, the carrying value and the estimated fair value of Ciena’s outstanding convertible notes:



	July 31, 2014
	Carrying Value		Fair Value⁽²⁾
4.0% Convertible Senior Notes, due March 15, 2015 ⁽¹⁾	$	187,605	$	206,719
0.875% Convertible Senior Notes due June 15, 2017	500,000		494,375
3.75% Convertible Senior Notes due October 15, 2018	350,000		445,813
4.0% Convertible Senior Notes due December 15, 2020 ⁽³⁾	177,853		242,822
	$	1,215,458	$	1,389,729


(1)	Includes unamortized bond premium related to embedded redemption feature.


(2)	The convertible notes were categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its outstanding convertible notes using a market approach based upon observable inputs, such as current market transactions involving comparable securities.


(3)	Includes unamortized discount and accretion of principal.