5. LONG-TERM DEBT AND LEASE OBLIGATIONS

Long-term debt, net consists of the following:



	December 31,
	2017		2016
	(in millions)
Revolving credit facility	$	—	$	—
Term Loan A Facility	92.5		—
Term Loan B Facility	1,526.8		—
7.75% Notes due 2019	200.0		200.0
6.625% Notes due 2022	550.0		550.0
6.50% Notes due 2027	500.0		—
6.25% Notes due 2025	700.0		—
6.25% Notes due 2021	400.0		400.0
5.125% Notes due 2019	—		200.0
Foreign credit facilities	53.2		60.4
Capital lease obligations	28.3		5.5
Debt	4,050.8		1,415.9
Less: Current portion of long-term debt	5.9		3.3
Long-term debt	4,044.9		1,412.6
Less: Debt issuance costs	75.6		11.7
Long-term debt, net	$	3,969.3	$	1,400.9

NEW SENIOR SECURED CREDIT FACILITIES In connection with our acquisition of MPG (the Acquisition) on April 6, 2017, Holdings and AAM, Inc. entered into a credit agreement (the Credit Agreement), among AAM, Inc., as borrower, Holdings, each financial institution party thereto as a lender (the Lenders) and administrative agent, pursuant to which Holdings and certain of its restricted subsidiaries (including certain subsidiaries of MPG acquired as part of the Acquisition) are required to guarantee the borrowings of AAM, Inc. thereunder and Holdings, AAM, Inc. and certain of their restricted subsidiaries are required to pledge their assets (including, without limitation, after-acquired assets), subject to certain exceptions and limitations. In connection with the Credit Agreement, Holdings, AAM, Inc. and certain of their restricted subsidiaries entered into a Collateral Agreement and Guarantee Agreement with the financial institutions party thereto as collateral agent and administrative agent.

Pursuant to the Credit Agreement, the Lenders agreed to provide a $100.0 million term loan A facility (the Term Loan A Facility), a $1.55 billion term loan B facility (the Term Loan B Facility) and a $900 million multi-currency revolving credit facility (the Revolving Credit Facility, and together with the Term Loan A Facility and the Term Loan B Facility, the New Senior Secured Credit Facilities). The proceeds of the Term Loan A Facility and the Term Loan B Facility were used to finance a portion of the consideration for the Acquisition, pay transaction costs, redeem in full MPG Holdco I Inc.’s 7.375% Senior Notes due 2022, and repay the existing indebtedness of AAM, Inc. under its Amended and Restated Credit Agreement, dated as of January 9, 2004, amended and restated as of September 13, 2013 and as further amended, among AAM, Inc., as borrower, Holdings, and each financial institution party thereto as a lender and administrative agent, as well as repay existing indebtedness of MPG under its Credit Agreement, dated as of October 20, 2014 and as amended as of May 8, 2015, among MPG Holdco I Inc., as guarantor, MPG, the subsidiary guarantors party thereto, and each financial institution party thereto as a lender and administrative agent. The proceeds of the Revolving Credit Facility will be used for general corporate purposes. We incurred debt issuance costs of $54.0 million in 2017 related to the New Senior Secured Credit Facilities.

The Term Loan A Facility and the Revolving Credit Facility will mature on April 6, 2022, and the Term Loan B Facility will mature on April 6, 2024. Borrowings under the New Senior Secured Credit Facilities bear interest at rates based on the applicable Eurodollar rate or alternate base rate, as AAM may elect, in each case plus an applicable margin determined based on AAM’s total net leverage ratio. The alternate base rate is the greatest of (a) the prime rate of a major United States financial institution, (b) the Federal Reserve Bank of New York rate plus 0.50% and (c) the adjusted Eurodollar rate plus 1.00%. The applicable margin for Eurodollar-based loans under the New Senior Secured Credit Facilities will be between 1.25% and 2.25% with respect to any loan under the Term Loan A Facility, 2.25% with respect to any loan under the Term Loan B Facility, and between 2.00% and 3.00% with respect to any loan under the Revolving Credit Facility. The applicable margin for loans subject to alternate base rate will be between 0.25% and 1.25% with respect to any loan under the Term Loan A Facility, 1.25% with respect to any loan under the Term Loan B Facility, and between 1.00% and 2.00% with respect to any loan under the Revolving Credit Facility.

The Credit Agreement requires certain mandatory prepayments of outstanding loans under the Term Loan A Facility and the Term Loan B Facility, subject to certain exceptions, based on a percentage of the annual excess cash flow of Holdings and its restricted subsidiaries (with step-downs to 0% based upon the total net leverage ratio, and with no prepayment required if annual excess cash flow is under a specified minimum threshold), the net cash proceeds of certain asset sales and casualty and condemnation events, subject to reinvestment rights and certain other exceptions, and the net cash proceeds of any issuance of debt not otherwise permitted under the Credit Agreement.

The Credit Agreement permits AAM, Inc. to incur incremental term loan borrowings and/or increase commitments under the Revolving Credit Facility, subject to certain limitations and the satisfaction of certain conditions, in an aggregate amount not to exceed (i) $600 million, plus (ii) certain voluntary prepayments, plus (iii) additional amounts subject to pro forma compliance with a first lien net leverage ratio for Holdings and its restricted subsidiaries.

The Credit Agreement contains customary affirmative and negative covenants, including, among others, financial covenants based on total net leverage and cash interest expense coverage ratios and limitations on the ability of Holdings, AAM, Inc. or their restricted subsidiaries to make certain investments, declare or pay dividends or distributions on capital stock, redeem or repurchase capital stock and certain debt obligations, incur liens, incur indebtedness, or merge, make certain acquisitions or certain sales of assets. The Credit Agreement includes customary events of default, the occurrence of which would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable. Upon such default, the lenders may also seek customary remedies with respect to the collateral under the Collateral Agreement.

As of December 31, 2017, we have prepaid $5.0 million of the outstanding principal on our Term Loan A Facility and $15.5 million of the outstanding principal on our Term Loan B Facility. These payments satisfy our obligation for principal payments under the Term Loan A Facility and Term Loan B Facility for the next four quarters. As a result, there are no amounts related to the Term Loan A Facility or Term Loan B Facility in the Current portion of long-term debt line item in our Consolidated Balance Sheet as of December 31, 2017.

At December 31, 2017, $866.2 million was available under the Revolving Credit Facility. This availability reflects a reduction of $33.8 million for standby letters of credit issued against the facility.

The New Senior Secured Credit Facilities provide back-up liquidity for our foreign credit facilities. We intend to use the availability of long-term financing under the New Senior Secured Credit Facilities to refinance any current maturities related to such debt agreements that are not otherwise refinanced on a long-term basis in their local markets, except where otherwise reclassified to current portion of long-term debt on our Consolidated Balance Sheet.

FORMER REVOLVING CREDIT FACILITY AND TERM FACILITY Prior to our acquisition of MPG, we had a revolving credit facility that provided up to $523.5 million of revolving bank financing commitments through September 13, 2018. The revolving credit agreement was terminated as part of our acquisition of MPG and replaced with the New Senior Secured Credit Facilities.

In addition, the former credit agreement provided for a senior secured term loan A facility in an aggregate principal amount of $150.0 million (term facility). In 2015, we made principal payments of $142.5 million on our term facility to prepay all outstanding principal. Upon prepayment, we expensed $0.8 million in 2015 related to the write-off of the remaining unamortized debt issuance costs related to our term facility that we had been amortizing over the expected life of the borrowing.

REPAYMENT OF MPG INDEBTEDNESS Upon our acquisition of MPG, we assumed approximately $1.9 billion of existing MPG indebtedness, which we repaid in its entirety on the date of acquisition. This indebtedness was comprised of approximately $0.2 billion of a Euro denominated term loan, approximately $1.0 billion of a U.S. dollar denominated term loan and approximately $0.7 billion of outstanding MPG bonds. Upon settlement of the debt, we paid approximately $24.6 million of accrued interest. In addition, we expensed $2.7 million of prepayment premiums related to the extinguishment of MPG's debt, which has been presented in the Debt refinancing and redemption costs line item within our Consolidated Statements of Income for the year ended December 31, 2017.

6.50% NOTES DUE 2027 AND 6.25% NOTES DUE 2025 On March 23, 2017, we issued $700.0 million in aggregate principal amount of 6.25% senior notes due 2025 and $500.0 million in aggregate principal amount of 6.50% senior notes due 2027 (the Notes). Proceeds from the Notes were used primarily to fund the cash consideration related to our acquisition of MPG, related fees and expenses, refinance certain existing indebtedness of MPG and borrowings under our previous revolving credit facility, which has been replaced by our new Revolving Credit Facility, together with borrowings under the New Senior Secured Credit Facilities. We incurred debt issuance costs of $37.2 million in 2017 related to the Notes.

5.125% NOTES In 2013, we issued $200.0 million of 5.125% senior unsecured notes due 2019 (5.125% Notes). Pursuant to the terms of our 5.125% Notes, in the fourth quarter of 2017, we voluntarily redeemed the full amount of the 5.125% Notes. This resulted in a principal payment of $200.0 million, and a payment of $3.1 million in accrued interest. We also expensed $0.8 million in the fourth quarter of 2017 for the write-off of the remaining unamortized debt issuance costs that we had been amortizing over the expected life of the borrowing.

LEASES We lease certain facilities and furniture under capital leases expiring at various dates. The gross asset cost of our capital leases was $10.1 million and $8.8 million at December 31, 2017 and 2016, respectively. The net book value included in property, plant and equipment, net on the balance sheet was $5.3 million and $5.5 million at December 31, 2017 and 2016, respectively. The weighted-average interest rate on these capital lease obligations at December 31, 2017 was 16.0%.

We also lease certain manufacturing machinery and equipment, commercial office and production facilities, vehicles and other assets under operating leases expiring at various dates. Future minimum payments under non-cancelable operating leases are as follows: $26.3 million in 2018, $20.0 million in 2019, $18.2 million in 2020, $12.2 million in 2021, and $9.8 million in 2022. Our total expense relating to operating leases was $28.6 million, $26.9 million and $25.3 million in 2017, 2016 and 2015, respectively.

FOREIGN CREDIT FACILITIES We utilize local currency credit facilities to finance the operations of certain foreign subsidiaries. These credit facilities, some of which are guaranteed by Holdings and/or AAM, Inc., expire at various dates through July 2019. At December 31, 2017, $53.2 million was outstanding under these facilities and an additional $159.7 million was available. In 2017, we increased our foreign credit capacity to support our global operations, primarily in China and Mexico. At December 31, 2016, $60.4 million was outstanding under these facilities and an additional $62.0 million was available.

DEBT MATURITIES Aggregate maturities of long-term debt are as follows (in millions):



2018	$	52.2
2019	227.7
2020	26.3
2021	426.5
2022	630.2
Thereafter	2,687.9
Total	$	4,050.8

INTEREST EXPENSE AND INVESTMENT INCOME Interest expense was $195.6 million in 2017, $93.4 million in 2016 and $99.2 million in 2015. The increase in interest expense in 2017, as compared to 2016, reflects the increase in the amount of indebtedness in connection with our acquisition of MPG. The decrease in interest expense in 2016, as compared to 2015, reflects the decrease in our average outstanding borrowings.

We capitalized interest of $18.3 million in 2017, $6.5 million in 2016 and $4.5 million in 2015. The weighted-average interest rate of our long-term debt outstanding at December 31, 2017 was 5.7% as compared to 6.6% and 6.5% at December 31, 2016 and 2015, respectively.

Investment income was $2.9 million in 2017 and 2016, and $2.6 million in 2015. Investment income includes interest earned on cash and cash equivalents and realized and unrealized gains and losses on our short-term investments during the period.