| Long-Term and Other Debt |
Long-Term and Other Debt Outstanding Debt and Finance Leases The following reflects outstanding debt: | | | | | | | | | | | | | | | | | | | | | | | | | 2019 | | 2018 | | Final Maturity | | Rate(s) | | Face Value | | Unamortized debt discount/premium and deferred financing costs, net | | Book Value | | Book Value | Senior Secured Credit Facilities: | | | | | | | | | | | | Revolver | 2020 | | variable |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 325 |
| Revolver | 2024 | | variable |
| | 195 |
| | — |
| | 195 |
| | — |
| Term Loan B-5 | 2024 | | variable |
| | 4,102 |
| | (60 | ) | | 4,042 |
| | 4,071 |
| SciPlay Revolver | 2024 | | variable |
| | — |
| | — |
| | — |
| | — |
| Senior Notes: | | | | | | | | |
| | | 2025 Secured Notes(1) | 2025 | | 5.000% |
| | 1,250 |
| | (15 | ) | | 1,235 |
| | 1,233 |
| 2026 Secured Euro Notes(2) | 2026 | | 3.375% |
| | 364 |
| | (5 | ) | | 359 |
| | 367 |
| 2022 Unsecured Notes | 2022 | | 10.000% |
| | — |
| | — |
| | — |
| | 2,176 |
| 2026 Unsecured Euro Notes(2) | 2026 | | 5.500% |
| | 280 |
| | (4 | ) | | 276 |
| | 282 |
| 2026 Unsecured Notes | 2026 | | 8.250% |
| | 1,100 |
| | (15 | ) | | 1,085 |
| | — |
| 2028 Unsecured Notes | 2028 | | 7.000% | | 700 |
| | (10 | ) | | 690 |
| | — |
| 2029 Unsecured Notes | 2029 | | 7.250% | | 500 |
| | (7 | ) | | 493 |
| | — |
| Subordinated Notes: | | | | | | | | |
| | | 2020 Notes | 2020 | | 6.250% |
| | — |
| | — |
| | — |
| | 242 |
| 2021 Notes | 2021 | | 6.625% |
| | 341 |
| | (2 | ) | | 339 |
| | 337 |
| Finance lease obligations as of December 31, 2019 payable monthly through 2023 and other(3) | 2023 | | 4.652 | % | | 11 |
| | — |
| | 11 |
| | 4 |
| Total long-term debt outstanding | | | | | $ | 8,843 |
| | $ | (118 | ) | | $ | 8,725 |
| | $ | 9,037 |
| Less: current portion of long-term debt | | | | | | | | | (45 | ) | | (45 | ) | Long-term debt, excluding current portion | | | | | | | | | $ | 8,680 |
| | $ | 8,992 |
| Fair value of debt(4) | | | | | $ | 9,181 |
| | | | | | |
(1) In connection with the February 2018 Refinancing (as defined below), we entered into certain cross-currency interest rate swap agreements to achieve more attractive interest rates by effectively converting $460 million of the fixed-rate, U.S. Dollar-denominated 2025 Secured Notes, including the semi-annual interest payments through October 2023, to a fixed-rate Euro-denominated debt, with a fixed annual weighted average interest rate of approximately 2.946%. These cross-currency swaps have been designated as a hedge of our net investment in certain subsidiaries. (2) We designated a portion of our 2026 Secured Euro Notes as a net investment non-derivative hedge of our investments in certain of our international subsidiaries that use the Euro as their functional currency in order to reduce the volatility in our operating results caused by the change in foreign currency exchange rates of the Euro relative to the U.S. Dollar (see Note 16 for additional information). The total change in the face value of the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes due to changes in foreign currency exchange rates since the issuance was a reduction of $68 million, of which gains of $9 million and $43 million were recognized on remeasurement of debt in the Consolidated Statements of Operations for the years ended December 31, 2019 and 2018, respectively. (3) Includes $9 million related to certain revenue transactions presented as debt in accordance with ASC 470. (4) Fair value of our fixed rate and variable interest rate debt is classified within Level 2 in the fair value hierarchy and has been calculated based on the quoted market prices of our securities.
The following reflects the principal amount of debt and finance lease payments due over the next five years and beyond as of December 31, 2019: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total | | 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | After 2024 | Senior Secured Credit Facilities | | $ | 4,297 |
| | $ | 42 |
| | $ | 42 |
| | $ | 42 |
| | $ | 42 |
| | $ | 4,129 |
| | $ | — |
| Senior Notes | | 4,194 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4,194 |
| Subordinated Notes | | 341 |
| | — |
| | 341 |
| | — |
| | — |
| | — |
| | — |
| Finance lease obligations and other | | 11 |
| | 3 |
| | 3 |
| | 3 |
| | 2 |
| | — |
| | — |
| Total long-term debt outstanding | | $ | 8,843 |
| | $ | 45 |
| | $ | 386 |
| | $ | 45 |
| | $ | 44 |
| | $ | 4,129 |
| | $ | 4,194 |
| Unamortized deferred financing costs and discount/premium | | (118 | ) | | | | | | | | | | | | | Total debt book value | | $ | 8,725 |
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Debt Financing Transactions February 2018 Refinancing On February 14, 2018, SGI issued an additional $900 million aggregate principal amount of its 2025 Secured Notes, €325 million aggregate principal amount of its new 2026 Secured Euro Notes and €250 million aggregate principal amount of its new 2026 Unsecured Euro Notes, and entered into an amendment to our credit agreement to refinance our existing term loan B-4 facility and increase the term loans outstanding by $900 million under a new term loan B-5 facility (the “February 2018 Refinancing”). March 2019 Refinancing On March 19, 2019, SGI issued $1,100 million in aggregate principal amount of its new 2026 Unsecured Notes. We used the net proceeds of the 2026 Unsecured Notes offering to redeem $1,000 million of our outstanding 2022 Unsecured Notes and pay accrued and unpaid interest thereon plus related premiums, fees, and costs, which redemption was completed on April 4, 2019, and paid related fees and expenses of the 2026 Unsecured Notes offering (the “March 2019 Refinancing”). November 2019 Refinancing On November 20, 2019, we entered into an amendment to the revolving credit facility under the credit agreement to refinance the existing revolving credit facility and to provide for an aggregate of $650 million of revolving credit commitments through 2024, and on November 26, 2019, SGI issued $700 million in aggregate principal amount of its new 2028 Unsecured Notes and $500 million in aggregate principal amount of its new 2029 Unsecured Notes (the “November 2019 Refinancing”). We used the net proceeds of the 2028 Unsecured Notes and the 2029 Unsecured Notes, together with cash on hand and borrowings under the revolving credit facility, to redeem the remaining $1,200 million of our outstanding 2022 Unsecured Notes and all $244 million of our outstanding 2020 Notes and pay accrued and unpaid interest thereon plus related premiums, fees, and costs, which redemption was completed on December 12, 2019, and paid related fees and expenses of the offering. Debt issuance costs We capitalize debt issuance costs associated with long-term financing arrangements and amortize the deferred debt issuance costs over the term of the arrangement using the effective interest method. The capitalized debt issuance costs associated with long-term debt financing, other than line-of-credit arrangements, are presented as a direct reduction from the carrying value of long-term debt, consistent with the treatment of unamortized debt discount. In connection with 2017 refinancing activities, we incurred $42 million in financing costs of which approximately $34 million are presented as a reduction to long-term debt and $8 million were expensed. In connection with the February 2018 Refinancing, we incurred $26 million in financing costs presented primarily as a reduction to long-term debt. In connection with the March 2019 Refinancing, we reflected $16 million in financing costs presented primarily as a reduction to long-term debt. In connection with the November 2019 Refinancing, we reflected $17 million in financing costs presented primarily as a reduction to long-term debt. Loss on Debt Financing Transactions The following are components of the loss on debt financing transactions resulting from debt extinguishment and modification accounting: | | | | | | | | | | | | | | | | 2019 | | 2018 | | 2017 | Repurchase and cancellation of principal balance at premium | $ | 80 |
| | $ | 110 |
| | $ | — |
| Unamortized debt (premium) discount and deferred financing costs, net | 20 |
| | (30 | ) | | 26 |
| Third party debt issuance fees | — |
| | 13 |
| | 12 |
| Total loss on debt financing transactions | $ | 100 |
| | $ | 93 |
| | $ | 38 |
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Description of Outstanding Debt Credit agreement SGC and certain of its subsidiaries are party to a credit agreement, dated as of October 18, 2013, by and among SGI, as the borrower, SGC, as a guarantor, Bank of America, N.A., as administrative agent, and the lenders and other agents party thereto (the “credit agreement”). As of December 31, 2019, the credit agreement included (a) a revolving credit facility of $650 million through November 20, 2024, with up to $350 million available for issuances of letters of credit and (b) a $4,102 million term B-5 loan facility that matures August 14, 2024. The term B-5 loans amortize in equal quarterly installments in an amount equal to 1.00% per annum of the stated principal amount thereof, with the remaining balance due at final maturity. All of the debt incurred under the credit agreement is subject to accelerated maturity if our 2021 Notes remain outstanding 91 days prior to their stated maturity date of May 15, 2021 and we do not have sufficient liquidity at that time, and all of the debt incurred under the revolving credit facility is subject to accelerated maturity if loans under our term B-5 loan facility remain outstanding 91 days prior to their stated maturity date of August 14, 2024 and we do not have sufficient liquidity at that time. In each of those cases, liquidity would be based on our unrestricted cash (excluding SciPlay cash) and availability under our revolving credit facility. SGI may voluntarily prepay all or any portion of outstanding amounts under the credit agreement at any time, without premium or penalty, subject to redeployment costs in the case of a prepayment of eurocurrency loans on a day that is not the last day of the relevant interest period. The applicable margin for the term B-5 loans is 2.75% per annum for eurocurrency (LIBOR) loans and 1.75% per annum for base rate loans. The applicable margin for revolver borrowings is 3.00% per annum for eurocurrency (LIBOR) loans and 2.00% per annum for base rate loans. SGI is required to pay commitment fees to revolving lenders on the actual daily unused portion of the revolving commitments at a rate of 0.50% per annum through maturity, subject to a step-down to 0.375% based upon the achievement of certain net first lien leverage ratios. SciPlay Revolver SciPlay Holding, a subsidiary of SciPlay, entered into the SciPlay Revolver, a $150 million revolving credit agreement, dated as of May 7, 2019, that matures in May 2024, by and among SciPlay Holding, as the borrower, SciPlay Parent LLC, as a guarantor, the subsidiary guarantors party thereto (which are all domestic entities that comprise our SciPlay business segment), the lenders party thereto and Bank of America, N.A., as administrative agent and collateral agent. The interest rate is either Adjusted LIBOR (as defined in the SciPlay Revolver) plus 2.250% (with one 0.250% leverage-based step-down to the margin and one 0.250% leverage-based step-up to the margin) or ABR (as defined in the SciPlay Revolver) plus 1.250% (with one 0.250% leverage-based step-down to the margin and one 0.250% leverage-based step-up to the margin) at the option of SciPlay Holding. SciPlay Holding is required to pay to the lenders a commitment fee of 0.500% per annum on the average daily unused portion of the revolving commitments through maturity, which fee varies based on the total net leverage ratio and is subject to a floor of 0.375%. The SciPlay Revolver provides for up to $15 million in letter of credit issuances. Notes The following table sets forth the indenture dates, redemption prices and dates and ranking, guarantees and collateral for each of our outstanding series of notes: | | | | | | | | Series of Notes | | | | Redeemable at Make Whole Price Prior To(1) | | Ranking, Guarantees and Collateral | 2025 Secured Notes | | | | | | Senior Secured | 2026 Secured Euro Notes(2) | | | | | | Senior Secured | 2026 Unsecured Euro Notes(2) | | | | | | Senior Unsecured | 2026 Unsecured Notes | | | | | | Senior Unsecured | 2028 Unsecured Notes | | | | | | Senior Unsecured | 2029 Unsecured Notes | | | | | | Senior Unsecured | 2021 Notes | | | | N/A | | Senior Subordinated | | (1) Refers to the date prior to which such series of notes may be redeemed at a redemption price equal to 100% of the principal amount of such notes plus accrued and unpaid interest, if any, to the date of redemption plus a “make whole” premium. On or after such date, such notes may be redeemed at the prices specified in the indenture governing such notes. The 2021 Notes are redeemable at the prices specified in the indenture governing the 2021 Notes. | (2) Effective April 30, 2018, the 2026 Secured Euro Notes and 2026 Unsecured Euro Notes were listed on the Official List of The International Stock Exchange. |
Ranking, guarantees and collateral Borrowings under the credit agreement and the Secured Notes are senior secured obligations of SGI, rank equally to all of SGI’s existing and future senior debt and rank senior to all of SGI’s existing and future senior subordinated debt. The Unsecured Notes are senior unsecured obligations of SGI, rank equally to all of SGI’s existing and future senior debt and rank senior to all of SGI’s existing and future senior subordinated debt. The 2021 Notes are unsecured senior subordinated obligations of SGI and are subordinated to all of SGI’s existing and future senior debt, rank equally with all of SGI’s existing and future senior subordinated debt and rank senior to all of SGI’s future debt that is expressly subordinated to the 2021 Notes. Borrowings under the credit agreement, the Senior Notes and the 2021 Notes are guaranteed by us and each of our current and future direct and indirect wholly owned domestic subsidiaries (other than SGI, the unrestricted business entities comprising our SciPlay business segment and certain immaterial subsidiaries), subject to certain customary exceptions as set forth in the credit agreement and the indentures governing such notes. Borrowings under the credit agreement, the Senior Notes and the 2021 Notes are structurally subordinated to all of the liabilities of our Non-Guarantor Subsidiaries. The obligations under the credit agreement and the Secured Notes are secured by a first priority lien on (1) substantially all the property and assets (real and personal, tangible and intangible) of SGI and the other guarantors, and (2) 100% of the capital stock (or other equity interests) of the direct domestic subsidiaries of SGC, SGI and the guarantors and 65% of the capital stock (or other equity interests) of the direct foreign subsidiaries of SGC, SGI and the guarantors, in each case, subject to certain customary exceptions. The SciPlay Revolver is secured by a (i) first priority pledge of the equity securities of SciPlay Holding, SciPlay Parent LLC’s restricted subsidiaries and each subsidiary guarantor party thereto and (ii) first priority security interests in, and mortgages on, substantially all tangible and intangible personal property and material fee-owned real property of SciPlay Parent LLC, SciPlay Holding and each subsidiary guarantor party thereto, in each case, subject to customary exceptions. Social gaming unrestricted subsidiary designation In order to provide flexibility for potential future growth opportunities with respect to our SciPlay business, we have designated certain of our direct and indirect subsidiaries, which hold substantially all of the assets of, and operate, our SciPlay business, as “Unrestricted Subsidiaries” under our credit agreement and the indentures governing the Senior Notes and the 2021 Notes. As a result of such designations, the SciPlay subsidiaries are not guarantors under our credit agreement and indentures and are not obligated to comply with many of the covenants set forth in those agreements and that remain applicable to us and our restricted subsidiaries. In addition, except to the extent of cash distributions from the SciPlay subsidiaries to us or our restricted subsidiaries, the assets, liabilities and financial results of the SciPlay subsidiaries will be excluded from the calculation of the applicable financial metrics required by these agreements, including our credit agreement’s maintenance covenant, which is based on our consolidated net first lien leverage. Following these designations, the SciPlay subsidiaries remain our direct and indirect subsidiaries. Restrictive covenants Our only financial maintenance covenant is contained in our credit agreement. This covenant is tested at the end of each fiscal quarter and requires us to not exceed a maximum consolidated net first lien leverage ratio of 5.00x Consolidated The SciPlay Revolver requires that SciPlay maintain a maximum total net leverage ratio not to exceed 2.50x and maintain a minimum fixed charge coverage ratio of no less than 4.00x. The credit agreement and the indentures governing the Senior Notes and the 2021 Notes also contain certain covenants that, among other things and subject to certain exceptions, limit SGC’s and its restricted subsidiaries’ (including SGI) ability to incur additional indebtedness or guarantees, pay dividends or make distributions or certain other restricted payments, purchase or redeem capital stock, prepay junior indebtedness or modify certain debt instruments, make investments or extend credit, engage in certain transactions with affiliates, engage in sale-leaseback transactions, consummate certain assets sales, effect a consolidation or merger, sell, transfer, lease or otherwise dispose of assets, create certain liens and other encumbrances on assets, enter into arrangements that restrict the ability to pay dividends or change fiscal years. These agreements also contain events of default customary for agreements of their type (with customary grace periods, as applicable). Failure to comply with any of the covenants in these agreements could result in a default under these agreements and under other agreements containing cross-default provisions. Such a default would permit lenders to accelerate the maturity of the debt under these agreements and other agreements containing cross-default provisions and, in the case of the credit agreement and the indentures governing the Secured Notes, to foreclose upon any collateral securing such debt. The SciPlay Revolver contains covenants that, among other things, restricts SciPlay’s ability to incur additional indebtedness; incur liens; sell, transfer or dispose of property and assets; invest; make dividends or distributions or other restricted payments; and engage in affiliate transactions, with the exception of certain payments under the TRA and payments in respect of certain tax distributions and intercompany services under the SciPlay Parent LLC Operating Agreement. We were in compliance with the financial covenants under our debt agreements as of December 31, 2019.
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