Debt and Financing Arrangements

12 Months Ended

Dec. 31, 2021

The Company’s senior notes payable at December 31, 2021 and 2020 were as follows:


					Carrying Amount at
	Interest		Principal		December 31,
	(Fixed)		Amount		2021		2020
2034 notes (1)	7.350	%	300,000		297,488		297,367
2043 notes (2)	5.144	%	500,000		495,063		494,944
2026 notes (3)	4.011	%	500,000		497,633		497,211
2046 notes (4)	5.031	%	450,000		445,490		445,402
2050 notes (5)	3.635	%	1,000,000		988,720		988,500
Somers notes (6)							137,689
			$	2,750,000	$	2,724,394	$	2,861,113

(1) Senior notes of Arch Capital issued on May 4, 2004 and due May 1, 2034 (“2034 notes”).

(2) Senior notes of Arch-U.S., a wholly-owned subsidiary of Arch Capital, issued on December 13, 2013 and due November 1, 2043 (“2043 notes”), fully and unconditionally guaranteed by Arch Capital.

(3) Senior notes of Arch Capital Finance LLC (“Arch Finance”), a wholly-owned finance subsidiary of Arch Capital, issued on December 8, 2016 and due December 15, 2026 (“2026 notes”), fully and unconditionally guaranteed by Arch Capital.

(4) Senior notes of Arch Finance issued on December 8, 2016 and due December 15, 2046 (“2046 notes”), fully and unconditionally guaranteed by Arch Capital

(5) Senior notes of Arch Capital issued on June 30, 2020 and due June 30, 2050 (“2050 notes”).

(6) Senior notes of Somers issued on July 2, 2019 and due July 2, 2029 (“Somers Senior Notes”), reflecting the elimination of amounts owned by Arch-U.S. Effective July 1, 2021, the Company no longer consolidates Somers in its financials. See note 12.

The 2034 notes are Arch Capital’s senior unsecured obligations and rank equally with all of its existing and future senior unsecured indebtedness. Interest payments on the 2034 notes are due on May 1st and November 1st of each year. Arch Capital may redeem the 2034 notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price.

The 2043 notes are unsecured and unsubordinated obligations of Arch-U.S. and Arch Capital, respectively, and rank equally and ratably with the other unsecured and unsubordinated indebtedness of Arch-U.S. and Arch Capital, respectively. Interest payments on the 2043 notes are due on May 1st and November 1st of each year. Arch-U.S. may

redeem the 2043 notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price.

The 2026 notes are unsecured and unsubordinated obligations of Arch Finance and Arch Capital, respectively, and rank equally and ratably with the other unsecured and unsubordinated indebtedness of Arch Finance and Arch Capital, respectively. Interest payments on the 2026 notes are due on June 15th and December 15th of each year. Arch Finance may redeem the 2026 notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price.

The 2046 notes are unsecured and unsubordinated obligations of Arch Finance and Arch Capital, respectively, and rank equally and ratably with the other unsecured and unsubordinated indebtedness of Arch Finance and Arch Capital, respectively. Interest payments on the 2046 notes are due on June 15th and December 15th of each year. Arch Finance may redeem the 2046 notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price.

The 2050 notes are Arch Capital’s senior unsecured obligations and rank equally with all of its existing and future senior unsecured indebtedness. Interest payments on the 2050 notes are due on June 30 and December 30 of each year. Arch Capital may redeem the 2050 notes at any time and from time to time, in whole or in part, at a “make-whole” redemption price.

Interest payments on the Somers Senior Notes due on each January 2 and July 2, commencing January 2, 2020. The Company purchased $35.0 million in aggregate principal amount of the Somers Senior Notes. Effective July 1, 2021, the Company no longer consolidates the results of Somers in its consolidated financial statements and footnotes. See note 12, “Variable Interest Entity and Noncontrolling Interests.”

Letter of Credit and Revolving Credit Facilities

In the normal course of its operations, the Company enters into agreements with financial institutions to obtain secured and unsecured credit facilities.

On December 17, 2019, Arch Capital and certain of its subsidiaries entered into a $750.0 million five-year credit facility (the “Credit Facility”) with a syndication of lenders. The Credit Facility consists of a $250.0 million secured facility for letters of credit (the “Secured Facility”) and a $500.0 million unsecured facility for revolving loans and letters of credit (the “Unsecured Facility”). Obligations of each borrower under the Secured Facility for letters of credit are secured by cash and eligible securities of such borrower held in collateral accounts. Commitments under the Credit Facility may be increased up to, but not exceeding, an

aggregate of $1.3 billion. Arch Capital has a one-time option to convert any or all outstanding revolving loans of Arch Capital and/or Arch-U.S. to term loans with the same terms as the revolving loans except that any prepayments may not be re-borrowed. Arch-U.S. guarantees the obligations of Arch Capital, and Arch Capital guarantees the obligations of Arch-U.S. Borrowings of revolving loans may be made at a variable rate based on LIBOR or an alternative base rate at the option of Arch Capital. Arch Capital and its lenders may agree on a LIBOR successor rate at the appropriate time to address the replacement of LIBOR. Secured letters of credit are available for issuance on behalf of certain Arch Capital subsidiaries. The Credit Facility is structured such that each party that requests a letter of credit or borrowing does so only for itself and its own obligations.

The Credit Facility contains certain restrictive covenants customary for facilities of this type, including restrictions on indebtedness, consolidated tangible net worth, minimum shareholders’ equity levels and minimum financial strength ratings. Arch Capital and its subsidiaries which are party to the agreement were in compliance with all covenants contained therein at December 31, 2021.

Commitments under the Credit Facility will expire on December 17, 2024, and all loans then outstanding must be repaid. Letters of credit issued under the Unsecured Facility will not have an expiration date later than December 17, 2025.

Under the $250.0 million secured letter of credit facility, Arch Capital’s subsidiaries had $240.4 million of letters of credit outstanding and remaining capacity of $9.6 million at December 31, 2021. In addition, certain of Arch Capital’s subsidiaries had outstanding secured and unsecured letters of credit of $26.0 million and $290.0 million respectively, which were issued in the normal course of business.

When issued, all secured letters of credit are secured by a portion of the investment portfolio. At December 31, 2021, these letters of credit were secured by investments with a fair value of $348.4 million.

The Company’s outstanding revolving credit agreement borrowings were as follows:


	Year Ended December 31,
	2021		2020
Arch Capital	$	—	$	—
Somers			155,687
Total	$	—	$	155,687

Federal Home Loan Bank Membership

Certain subsidiaries of the Company are members of Federal Home Loan Banks (“FHLBs”). Members may borrow from the FHLBs at competitive rates subject to certain conditions. Conditions include maintaining sufficient collateral deposits for funding and a requirement to hold stock in the FHLBs related to both membership and outstanding advances. At December 31, 2021 and 2020, the Company had $80.0 million of advances outstanding under the FHLB program, included in ‘other liabilities’ on the Company’s balance sheet, secured by investments with a fair value of $80.2 million.