Constellation Brands, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Borrowings

Borrowings

12 Months Ended

Feb. 29, 2016

Debt Disclosure [Abstract]

BORROWINGS

BORROWINGS:

Borrowings consist of the following:



	February 29, 2016						February 28, 2015
	Current		Long-term		Total		Total
(in millions)
Notes payable to banks
Senior Credit Facility – Revolving Credit Loans	$	92.0	$	—	$	92.0	$	—
Other	316.3		—		316.3		52.4
	$	408.3	$	—	$	408.3	$	52.4
Long-term debt
Senior Credit Facility – Term Loans	$	137.5	$	2,719.3	$	2,856.8	$	2,773.6
Senior Notes	699.0		4,017.3		4,716.3		4,315.6
Other	20.2		79.6		99.8		154.9
	$	856.7	$	6,816.2	$	7,672.9	$	7,244.1

Senior credit facility –

In connection with the Beer Business Acquisition, in May 2013, the Company, CIH International S.à r.l., a wholly-owned indirect subsidiary of ours (“CIH”), and Bank of America, N.A., as administrative agent (the “Administrative Agent”), and certain other lenders entered into a Restatement Agreement (the “2013 Restatement Agreement”) that amended and restated our then existing senior credit facility (as amended and restated by the 2013 Restatement Agreement, the “2013 Credit Agreement”). A portion of the borrowings under the 2013 Credit Agreement were used to refinance the outstanding obligations under our then existing senior credit facility with the remainder used to finance a portion of the purchase price for the Beer Business Acquisition and related expenses.

In May 2014, the Company, CIH, the Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “2014 Restatement Agreement”) that amended and restated the 2013 Credit Agreement (as amended and restated by the 2014 Restatement Agreement, the “May 2014 Credit Agreement”). The principal change to the 2013 Credit Agreement effected by the May 2014 Credit Agreement was the conversion of the pre-existing $850.0 million revolving credit facility into two tranches, a $425.0 million U.S. revolving credit facility and a $425.0 million European revolving credit facility.

In August 2014, the Company, CIH, the Administrative Agent, and certain other lenders entered into Amendment No. 1 (“Amendment No. 1”) to the May 2014 Credit Agreement (as amended, the “2014 Credit Agreement”). Amendment No. 1 was entered into primarily to reduce the interest rate applicable to the then existing European Term B loan facility under the May 2014 Credit Agreement by removing the provisions imposing certain minimums, or floors, used in the calculation of the interest rate on the European Term B loan facility. This was accomplished by adding a new European Term B-1 tranche to the 2014 Credit Agreement which replaced the existing European Term B loan facility.

In July 2015, the Company, CIH, the Administrative Agent, and certain lenders entered into Amendment No. 2 (“Amendment No. 2”) to the 2014 Credit Agreement (as amended, the “2015 Credit Agreement”). Amendment No. 2 was entered into primarily for (i) the creation of a new $1.27 billion U.S. Term A loan facility into which the existing U.S. Term A and Term A-2 loan facilities were combined and increased by $200.0 million, (ii) the refinance of the existing U.S. Term A-1 loan facility and extension of its maturity to July 16, 2021, (iii) the creation of a new $1.43 billion European Term A loan facility into which the existing European Term A and Term B-1 loan facilities were combined, (iv) the extension of the maturity date of all tranches, other than the new U.S. Term A-1 loan facility, to July 16, 2020, and (v) the increase of the revolving credit facility by $300.0 million to $1.15 billion. The 2015 Credit Agreement was used to refinance the outstanding obligations under the 2014 Credit Agreement, with the incremental $200.0 million of borrowings under the new U.S. Term A loan facility used to finance a portion of the purchase price for the acquisition of Meiomi.

Amendment No. 2 also modified certain of our financial and other covenants, and provides for the automatic revision of certain covenants (including financial covenants) and the suspension of the Incremental Cap (as defined below) and the collateral requirements under the 2015 Credit Agreement if we receive an Investment Grade Rating (as defined in the 2015 Credit Agreement) on our corporate ratings from each of S&P and Moody’s, and no default or event of default has occurred or is continuing (a “Covenant Suspension Period”). A Covenant Suspension Period will continue until such time as any of our corporate ratings cease to be an Investment Grade Rating.

The 2015 Credit Agreement provides for aggregate credit facilities of $4,093.6 million, consisting of the following:



	Amount		Maturity
(in millions)
Revolving Credit Facility ^{(1) (2)}	$	1,150.0	July 16, 2020
U.S. Term A Facility ^{(1) (3)}	1,271.6		July 16, 2020
U.S. Term A-1 Facility ^{(1) (3)}	241.9		July 16, 2021
European Term A Facility ^{(1) (3)}	1,430.1		July 16, 2020
	$	4,093.6


⁽¹⁾	Contractual interest rate varies based on our debt ratio (as defined in the 2015 Credit Agreement) and is a function of LIBOR plus a margin, or the base rate plus a margin.


⁽²⁾	Provides for credit facilities consisting of a $575.0 million U.S. Revolving Credit Facility and a $575.0 million European Revolving Credit Facility. Includes two sub-facilities for letters of credit of up to $200.0 million in the aggregate. We are the borrower under the U.S. Revolving Credit Facility and we and/or CIH are the borrowers under the European Revolving Credit Facility.


⁽³⁾	We are the borrower under the U.S. Term A and the U.S. Term A-1 loan facilities. CIH is the borrower under the European Term A loan facility.

The 2015 Credit Agreement also permits us to elect to increase the revolving credit commitments under the U.S. Revolving Credit Facility or add one or more tranches of additional term loans, subject to the willingness of existing or new lenders to fund such increase or term loans and other customary conditions. The maximum aggregate principal amount of all such incremental revolving credit commitment increases and additional term loans, other than term loans the proceeds of which are applied to repay existing term loans, may be no more than $750.0 million (the “Incremental Cap”), except during a Covenant Suspension Period, during which time the Incremental Cap would be an unlimited amount.

The U.S. obligations under the 2015 Credit Agreement are guaranteed by certain of our U.S. subsidiaries. These obligations are also secured by a pledge of (i) 100% of the ownership interests in certain of our U.S. subsidiaries and (ii) 65% of the ownership interests in certain of our foreign subsidiaries. The European obligations under the 2015 Credit Agreement are guaranteed by us and certain of our U.S. subsidiaries. These obligations are also secured by a pledge of (i) 100% of certain interests in certain of CIH’s subsidiaries and (ii) 100% of the ownership interests in certain of our U.S. subsidiaries and 65% of the ownership interests in certain of our foreign subsidiaries.

We and our subsidiaries are subject to covenants that are contained in the 2015 Credit Agreement, including those restricting the incurrence of additional indebtedness (including guarantees of indebtedness), additional liens, mergers and consolidations, the payment of dividends, the making of certain investments, prepayments of certain debt, transactions with affiliates, agreements that restrict our non-guarantor subsidiaries from paying dividends, and dispositions of property, in each case subject to numerous conditions, exceptions and thresholds. The financial covenants are limited to a minimum interest coverage ratio and a maximum net debt coverage ratio.

As of February 29, 2016, information with respect to borrowings under the 2015 Credit Agreement is as follows:



	Revolving Credit Facility			U.S. Term A Facility ⁽¹⁾			U.S. Term A-1 Facility ⁽¹⁾			European Term A Facility ⁽¹⁾
(in millions)
Outstanding borrowings	$	92.0		$	1,230.3		$	240.3		$	1,386.2
Interest rate	1.9		%	1.9		%	2.2		%	1.9		%
LIBOR margin	1.5		%	1.5		%	1.75		%	1.5		%
Outstanding letters of credit	$	15.9
Remaining borrowing capacity	$	1,042.1


⁽¹⁾	Outstanding term loan facility borrowings are net of unamortized debt issuance costs (see Note 1).

As of February 29, 2016, the required principal repayments of the term loans under the 2015 Credit Agreement (excluding unamortized debt issuance costs of $18.0 million) for each of the five succeeding fiscal years and thereafter are as follows:



	U.S. Term A Facility		U.S. Term A-1 Facility		European Term A Facility		Total
(in millions)
2017	$	63.6	$	2.4	$	71.5	$	137.5
2018	63.6		2.4		71.5		137.5
2019	63.6		2.4		71.5		137.5
2020	63.5		2.5		71.5		137.5
2021	985.5		2.4		1,108.3		2,096.2
Thereafter	—		228.6		—		228.6
	$	1,239.8	$	240.7	$	1,394.3	$	2,874.8

Interest rate swap contracts –

In April 2012, we transitioned our then existing interest rate swap agreement to a one-month LIBOR base rate versus the existing three-month LIBOR base rate by entering into a new interest rate swap agreement which was designated as a cash flow hedge for $500.0 million of our floating LIBOR rate debt. In addition, our existing interest rate swap agreement was dedesignated as a hedge. We also entered into an additional interest rate swap agreement for $500.0 million that was not designated as a hedge to offset the prospective impact of the newly undesignated interest rate swap agreement. As a result of these hedges, we have fixed our interest rates on $500.0 million of our floating LIBOR rate debt at an average rate of 2.8% (exclusive of borrowing margins) through September 1, 2016. The losses in AOCI related to the dedesignated interest rate swap agreement are being reclassified from AOCI ratably into earnings in the same period in which the original hedged item is being recorded in our results of operations.

In addition, we have entered into additional one-month LIBOR base rate delayed-start interest rate swap agreements effective September 1, 2016, which are designated as cash flow hedges for $100.0 million of our floating LIBOR rate debt. As a result, we have fixed our interest rates on $100.0 million of our floating LIBOR rate debt at an average rate of 1.2% (exclusive of borrowing margins) through July 1, 2020.

For the years ended February 29, 2016, February 28, 2015, and February 28, 2014, we reclassified net losses of $8.1 million, $8.3 million and $8.2 million, net of income tax effect, respectively, from AOCI to interest expense.

Senior notes –

Our outstanding senior notes are as follows:



	Date of					Outstanding Balance ⁽¹⁾
	Issuance	Maturity	Interest Payments	Principal		February 29, 2016		February 28, 2015
(in millions)
7.25% Senior Notes ⁽²⁾	August 2006	September 2016	Mar/Sep	$	700.0	$	699.0	$	697.0
7.25% Senior Notes ^{(2) (3)}	January 2008	May 2017	May/Nov	$	700.0	$	699.0	$	698.3
6% Senior Notes ⁽²⁾	April 2012	May 2022	May/Nov	$	600.0	$	594.1	$	593.4
3.75% Senior Notes ⁽²⁾	May 2013	May 2021	May/Nov	$	500.0	$	496.8	$	496.3
4.25% Senior Notes ⁽²⁾	May 2013	May 2023	May/Nov	$	1,050.0	$	1,042.5	$	1,041.6
3.875% Senior Notes ⁽²⁾	November 2014	November 2019	May/Nov	$	400.0	$	395.7	$	394.6
4.75% Senior Notes ⁽²⁾	November 2014	November 2024	May/Nov	$	400.0	$	394.9	$	394.4
4.75% Senior Notes ⁽²⁾	December 2015	December 2025	June/Dec	$	400.0	$	394.3	$	—


⁽¹⁾	Amounts are net of unamortized discounts, where applicable, and debt issuance costs (see Note 1).

⁽²⁾

Senior unsecured obligations which rank equally in right of payment to all of our existing and future senior unsecured indebtedness. Guaranteed by certain of our U.S. subsidiaries on a senior unsecured basis. Redeemable, in whole or in part, at our option at any time at a redemption price equal to 100% of the outstanding principal amount plus a make whole payment based on the present value of the future payments at the adjusted Treasury Rate plus 50 basis points.


⁽³⁾	Issued in exchange for notes originally issued in May 2007.

Indentures –

Our Indentures relating to our outstanding senior notes contain certain covenants, including, but not limited to: (i) a limitation on liens on certain assets, (ii) a limitation on certain sale and leaseback transactions, and (iii) restrictions on mergers, consolidations and the transfer of all or substantially all of our assets to another person.

Subsidiary credit facilities –

We have additional credit arrangements totaling $424.1 million and $483.4 million as of February 29, 2016, and February 28, 2015, respectively. As of February 29, 2016, and February 28, 2015, amounts outstanding under these arrangements were $157.1 million and $207.3 million, respectively, the majority of which is classified as long-term as of the respective date. These arrangements primarily support the financing needs of our domestic and foreign subsidiary operations. Interest rates and other terms of these borrowings vary from country to country, depending on local market conditions.

Debt payments –

As of February 29, 2016, the required principal repayments under long-term debt obligations (excluding unamortized debt issuance costs and unamortized discount of $51.2 million and $0.5 million, respectively) for each of the five succeeding fiscal years and thereafter are as follows:



(in millions)
2017	$	857.1
2018	853.0
2019	148.1
2020	591.5
2021	2,096.3
Thereafter	3,178.6
	$	7,724.6

Accounts receivable securitization facilities –

On September 29, 2014, we entered into an amended 364-day revolving trade accounts receivable securitization facility (the “2014 CBI Facility”). Under the 2014 CBI Facility, trade accounts receivable generated by us and certain of our subsidiaries are sold by us to our wholly-owned bankruptcy remote single purpose subsidiary (the “CBI SPV”), which is consolidated by us for financial reporting purposes. Such receivables have been pledged by the CBI SPV to secure borrowings under the 2014 CBI Facility. We service the receivables for the 2014 CBI Facility. The receivable balances related to the 2014 CBI Facility are reported as accounts receivable on our balance sheets, but the receivables are at all times owned by the CBI SPV and are included on our financial statements as required by generally accepted accounting principles. On September 28, 2015, we and the CBI SPV amended the 2014 CBI Facility (as amended, the “CBI Facility”) for an additional 364-day term. Under the CBI Facility, there are two lenders, one holding 60% of the aggregate facility and the other holding 40% of the aggregate facility. Any borrowings under the CBI Facility are recorded as secured borrowings and bear interest as follows: (i) 60% of the borrowings are charged at that lender’s cost of funds plus a margin of 80 basis points and (ii) 40% of the borrowings are charged at one-month LIBOR plus a margin of 80 basis points. The CBI Facility provides borrowing capacity of $235.0 million up to $330.0 million structured to account for the seasonality of our business, subject to further limitations based upon various pre-agreed formulas.

Also, on September 29, 2014, Crown Imports entered into an amended 364-day revolving trade accounts receivable securitization facility (the “2014 Crown Facility”). Under the 2014 Crown Facility, trade accounts receivable generated by Crown Imports are sold by Crown Imports to its wholly-owned bankruptcy remote single purpose subsidiary (the “Crown SPV”), which is consolidated by us for financial reporting purposes. Such receivables have been pledged by the Crown SPV to secure borrowings under the 2014 Crown Facility. Crown Imports services the receivables for the 2014 Crown Facility. The receivable balances related to the 2014 Crown Facility are reported as accounts receivable on our balance sheets, but the receivables are at all times owned by the Crown SPV and are included on our financial statements to comply with generally accepted accounting principles. On September 28, 2015, Crown Imports and the Crown SPV amended the 2014 Crown Facility (as amended, the “Crown Facility”) for an additional 364-day term. Under the Crown Facility, there are two lenders, one holding 60% of the aggregate facility and the other holding 40% of the aggregate facility. Any borrowings under the Crown Facility are recorded as secured borrowings and bear interest as follows: (i) 60% of the borrowings are charged at that lender’s cost of funds plus a margin of 80 basis points and (ii) 40% of the borrowings are charged at one-month LIBOR plus a margin of 80 basis points. The Crown Facility provides borrowing capacity of $100.0 million up to $190.0 million structured to account for the seasonality of Crown Imports’ business.

As of February 29, 2016, our accounts receivable securitization facilities are as follows:



	Outstanding Borrowings		Weighted Average Interest Rate		Remaining Borrowing Capacity
(in millions)
CBI Facility	$	150.0	1.3	%	$	145.0
Crown Facility	$	109.0	1.3	%	$	11.0

Subsequent event –

2016 Credit Agreement:

In March 2016, the Company, CIH, CIH Holdings S.à r.l., a wholly-owned indirect subsidiary of ours (“CIHH”), the Administrative Agent, and certain other lenders entered into a Restatement Agreement (the “2016 Restatement Agreement”) that amended and restated the 2015 Credit Agreement (as amended and restated by the 2016 Restatement Agreement, the “2016 Credit Agreement”). The principal changes to the 2015 Credit Agreement effected by the 2016 Restatement Agreement were:


•	The creation of a new $700.0 million European Term A-1 loan facility maturing on March 10, 2021;


•	An increase of the European revolving commitment under the revolving credit facility by $425.0 million to $1.0 billion;


•	The addition of CIHH as a new borrower under the new European Term A-1 loan facility and the European revolving commitment; and


•	The entry into a cross-guarantee agreement by CIH and CIHH whereby each guarantees the other’s obligations under the 2016 Credit Agreement.

In addition, the European obligations under the 2016 Credit Agreement are guaranteed by us and certain of our U.S. subsidiaries. These obligations are also secured by a pledge of (i) 100% of certain interests in certain of CIH’s subsidiaries, (ii) 100% of certain interests in certain of CIHH’s subsidiaries and (iii) 100% of the ownership interests in certain of our U.S. subsidiaries and 65% of the ownership interests in certain of our foreign subsidiaries. Proceeds from borrowings under the 2016 Credit Agreement were used to refinance (i) outstanding obligations under the 2015 Credit Agreement and (ii) short-term borrowings under our accounts receivable securitization facilities, and for other general corporate purposes.