Seasonal Financing and Debt

Seasonal Financing

On December 20, 2017, Mattel entered into a syndicated facility agreement (the “Credit Agreement”), as a borrower thereunder (in such capacity, the “Borrower”), along with certain of Mattel’s domestic subsidiaries, as additional borrowers thereunder (together with the Borrower, the “U.S. Borrowers”), Mattel Canada Inc. as a borrower thereunder (the “Canadian Borrower”), certain additional domestic and foreign subsidiaries of Mattel, as guarantors thereunder, Bank of America, N.A., as global administrative agent, collateral agent, Australian security trustee, and lender, and the other lenders and financial institutions party thereto, providing for $1.60 billion in aggregate principal amount of senior secured revolving credit facilities (the “new senior secured revolving credit facilities”), consisting of an asset based lending facility with aggregate commitments of approximately $1.31 billion, subject to borrowing base capacity, and a revolving credit facility with $294.0 million in aggregate commitments secured by certain fixed assets and intellectual property of the U.S. Borrowers and certain equity interests in various subsidiaries of Mattel, subject to borrowing base capacity (the “Fixed Asset & IP Facility”). The new senior secured revolving credit facilities will mature on December 20, 2020.

A portion of the new senior secured revolving credit facilities (the “U.S. Subfacility”) is currently available to the U.S. Borrowers. A portion of the new senior secured revolving credit facilities (the “Canadian Subfacility”) is also currently available to the “Canadian Borrower”. Upon the satisfaction of various deliverables and other conditions, other international subsidiaries of Mattel will join the Credit Agreement as borrowers and portions of the new senior secured revolving credit facilities will also become available to such borrowers, including (i) a portion (the “French Subfacility”) to Mattel France (the “French Borrower”), (ii) a portion (the “Spanish Subfacility”) to Mattel España, S.A. (the “Spanish Borrower”), (iii) a portion (the “European (GNU) Subfacility”) to Mattel Europa B.V., Mattel U.K. Limited, HIT Entertainment Limited, Gullane (Thomas) Limited, and Mattel GMBH (collectively, the “European (GNU) Borrowers”) and (iv) a portion (the “Australian Subfacility”) to Mattel Pty Ltd. (the “Australian Borrower”).

Borrowings under the new senior secured revolving credit facilities will (i) be limited by jurisdiction-specific borrowing base calculations based on the sum of specified percentages of eligible accounts receivable, eligible inventory and certain fixed assets and intellectual property, as applicable, minus the amount of any applicable reserves, and (ii) bear interest at a floating rate, which can be either, at the Borrower’s option, (a) an adjusted LIBOR rate plus an applicable margin ranging from 1.25% to 3.00% per annum or (b) an alternate base rate plus an applicable margin ranging from 0.25% to 2.00% per annum, in each case, such applicable margins to be determined based on the Borrower’s average borrowing availability remaining under the new senior secured revolving credit facilities.

In addition to paying interest on the outstanding principal under the new senior secured revolving credit facilities, the Borrower will be required to pay (i) an unused line fee per annum of the average daily unused portion of the new senior secured revolving credit facilities; (ii) a letter of credit fronting fee based on a percentage of the aggregate face amount of outstanding letters of credit; and (iii) certain other customary fees and expenses of the lenders and agents.

The U.S. Borrowers, as well as certain U.S. subsidiaries of the Borrower (the “U.S. Guarantors”), are initially guaranteeing the obligations of all Borrowers under the new senior secured revolving credit facilities. Additionally, the obligations of the Canadian Borrower, the French Borrower, the Spanish Borrower, the European (GNU) Borrowers and the Australian Borrower (collectively, the “Foreign Borrowers”), will respectively each be guaranteed by the obligations of the other Foreign Borrowers, as well as certain additional foreign subsidiaries (“Foreign Guarantors”).

The U.S. Subfacility is secured by liens on substantially all of the U.S. Borrowers’ and the U.S. Guarantors’ accounts receivable and inventory (the “U.S. Current Assets Collateral”). The Canadian Subfacility is, and the French Subfacility, the Spanish Subfacility, the European (GNU) Subfacility and the Australian Subfacility will be, each secured by a first priority lien on (i) the accounts receivable and inventory of the applicable Foreign Borrower(s) and Foreign Guarantors under such facility, and (ii) the U.S. Current Assets Collateral. The Fixed Asset & IP Facility is secured by a first priority lien on certain owned real property in the U.S., certain U.S. trademarks and patents and 100% of the equity interests in the U.S. Borrowers (aside from Mattel) and U.S. Guarantors, as well as 65% of the voting equity interests and 100% of the non-voting equity interests in Mattel Holdings Limited. Upon the additional Foreign Borrowers and Foreign Guarantors joining the Credit Agreement, the Fixed Asset & IP Facility will also be secured by 65% of the voting equity interests of such additional Foreign Borrowers and Foreign Guarantors that are directly owned by a U.S. Borrower or U.S. Guarantor. The book value of the accounts receivable and inventory of the U.S. Borrowers, U.S. Guarantors, Canadian Borrower and the current Foreign Guarantor of the Canadian Subfacility, together with the non-current assets currently pledged as collateral under the new senior secured revolving credit facilities was approximately $900 million as of December 31, 2017.

The Credit Agreement contains customary covenants, including, but not limited to, restrictions on the Borrower’s and its subsidiaries’ ability to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make acquisitions, loans, advances or investments, pay dividends, sell or otherwise transfer assets outside of the ordinary course, optionally prepay or modify terms of any junior indebtedness, enter into transactions with affiliates or change their line of business.

The Credit Agreement requires the maintenance of a fixed charge coverage ratio of 1.00 to 1.00 at the end of each fiscal quarter when excess availability under the new senior secured revolving credit facilities is less than the greater of (x) $100 million and (y) 10% of the aggregate amount available thereunder (the “Availability Threshold”) and on the last day of each subsequent fiscal quarter ending thereafter until no event of default exists and excess availability is greater than the Availability Threshold for at least 30 consecutive days.

Since Mattel had no borrowings to-date under the new senior secured revolving credit facilities, the fixed charge coverage ratio covenant was not in effect as of December 31, 2017. As of December 31, 2017, Mattel was in compliance with all covenants contained in the Credit Agreement. The Credit Agreement is a material agreement, and failure to comply with the covenants may result in an event of default under the terms of the new senior secured revolving credit facilities. If Mattel were to default under the terms of the new senior secured revolving credit facilities, its ability to meet its seasonal financing requirements could be adversely affected.

Furthermore, in connection with the entry into the new senior secured revolving credit facilities, Mattel terminated the commitments and satisfied all outstanding obligations under its previous Credit Agreement, amended on June 8, 2015 (the "previous Credit Agreement"). The previous Credit Agreement, governing an unsecured committed revolving credit facility (the "previous Credit Facility") was used as a back-up to Mattel’s commercial paper program. The aggregate commitments under the previous Credit Facility was $1.60 billion. Applicable interest rate margins were within a range of 0.00% to 0.75% above the applicable base rate for base rate loans and 0.88% to 1.75% above the applicable LIBOR for Eurodollar rate loans, and the commitment fees ranged from 0.08% to 0.25% of the unused commitments under the Credit Facility, in each case depending on Mattel’s senior unsecured long-term debt rating.

To finance seasonal working capital requirements of certain foreign subsidiaries, Mattel avails itself of individual short-term credit lines with a number of banks. As of December 31, 2017, foreign credit lines totaled approximately $110 million. Mattel expects to extend the majority of these credit lines throughout 2018.

Mattel believes its cash on hand, amounts available under the new senior secured revolving credit facilities, and its foreign credit lines will be adequate to meet its seasonal financing requirements in 2018.

Additionally, sales of foreign receivables occur periodically to finance seasonal working capital requirements. The outstanding amounts of accounts receivable that have been sold under international factoring arrangements were approximately $19 million and $18 million at December 31, 2017 and 2016, respectively. These amounts have been excluded from Mattel’s consolidated balance sheets.

Short-Term Borrowings

As of December 31, 2017, Mattel had no borrowings outstanding under the new senior secured revolving credit facilities and no foreign short-term bank loans outstanding. As of December 31, 2016, Mattel had $192.2 million of short-term borrowing outstanding, which included $47.2 million of foreign short-term bank loans outstanding and $145.0 million of commercial paper outstanding under its previous Credit Facility.

During 2017 and 2016, Mattel had average borrowings under its foreign short-term bank loans of $0 and $2.0 million, respectively, and average borrowings under the previous Credit Facility and other short-term borrowings of $811.5 million and $728.4 million, respectively, to help finance its seasonal working capital requirements. The weighted average interest rate on foreign short-term bank loans during 2016 was 12.5%. The weighted average interest rate on the previous Credit Facility and other short-term borrowings during 2017 and 2016 was 1.6% and 0.6%, respectively.

Long-Term Debt

In December 2017, Mattel issued $1.00 billion aggregate principal amount of 6.75% senior unsecured notes due December 31, 2025 ("2017 Senior Notes"). The 2017 Senior Notes were issued pursuant to an indenture, dated December 20, 2017, among Mattel, the guarantors named therein and MUFG Union Bank, N.A., as Trustee (the “Indenture”). Interest on the 2017 Senior Notes is payable semi-annually in arrears on June 30 and December 31 of each year, beginning on June 30, 2018. Mattel may redeem all or part of the 2017 Senior Notes at any time or from time to time prior to December 31, 2020 at its option, at a redemption price equal to 100% of the principal amount, plus a "make whole" premium, plus accrued and unpaid interest on the 2017 Senior Notes being redeemed to, but excluding, the redemption date. Mattel may also redeem up to 40% of the principal amount of the 2017 Senior Notes at any time or from time to time prior to December 31, 2020 at its option, at a redemption price equal to 106.75% of the principal amount, plus accrued and unpaid interest on the 2017 Senior Notes being redeemed to, but excluding, the redemption date, with the net cash proceeds of sales of one or more equity offerings by Mattel or any direct or indirect parent of Mattel. Mattel may redeem all or part of the 2017 Senior Notes at any time or from time to time on or after December 31, 2020, at its option, at a redemption price including a call premium that varies (from 0% to 5.063%) depending on the year of redemption, plus accrued and unpaid interest on the 2017 Senior Notes being redeemed to, but excluding, the redemption date.

The 2017 Senior Notes are Mattel’s and the guarantors’ senior unsecured obligations. The 2017 Senior Notes are guaranteed by Mattel's existing and, subject to certain exceptions, future wholly-owned domestic restricted subsidiaries that guarantee Mattel’s new senior secured revolving credit facilities or certain other indebtedness. Under the terms of the Indenture, the 2017 Senior Notes rank equally in right of payment with all of Mattel’s existing and future senior debt, including Mattel’s Existing Notes (as defined in the Indenture) and borrowings under the new senior secured revolving credit facilities, and rank senior in right of payment to Mattel's existing and future debt and other obligations that expressly provide for their subordination to the 2017 Senior Notes. The 2017 Senior Notes are structurally subordinated to all of the existing and future liabilities, including trade payables, of the Mattel’s subsidiaries that do not guarantee the 2017 Senior Notes (including the Canadian Subfacility, the French Subfacility, the Spanish Subfacility, the European (GNU) Subfacility and the Australian Subfacility of the new senior secured revolving credit facilities and are effectively subordinated to Mattel’s and the guarantors’ existing and future senior secured debt to the extent of the value of the collateral securing such debt (including borrowings under the new senior secured revolving credit facilities). The guarantees are, with respect to the assets of the guarantors of the 2017 Senior Notes, structurally senior to all of Mattel’s existing indebtedness, future indebtedness or other liabilities that are not guaranteed by such guarantors, including Mattel’s obligations under the Existing Notes.

The Indenture contains covenants that limit Mattel’s (and some of its subsidiaries’) ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) pay dividends on or make other distributions in respect of their capital stock or make other restricted payments; (iii) make investments in unrestricted subsidiaries; (iv) create liens; (v) enter into certain sale/leaseback transactions; (vi) merge or consolidate, or sell, transfer or otherwise dispose of substantially all of their assets; and (vii) designate subsidiaries as unrestricted.

In August 2016, Mattel issued $350.0 million aggregate principal amount of 2.35% senior unsecured notes due August 15, 2021 ("2016 Senior Notes"). Interest on the 2016 Senior Notes is payable semi-annually in arrears on February 15 and August 15 of each year, beginning February 15, 2017. Mattel may redeem all or part of the 2016 Senior Notes at any time or from time to time prior to July 15, 2021 (one month prior to the maturity date of the 2016 Senior Notes), at its option, at a redemption price equal to the greater of (1) 100% of the principal amount of the 2016 Senior Notes being redeemed or (2) a "make-whole" amount based on the yield of a comparable U.S. Treasury security plus 20 basis points, plus, in each case, accrued and unpaid interest on the 2016 Senior Notes being redeemed to, but excluding, the redemption date. Mattel may redeem all or part of the 2016 Senior Notes at any time or from time to time on or after July 15, 2021, at its option, at a redemption price equal to 100% of the principal amount of the 2016 Senior Notes to be redeemed, plus accrued and unpaid interest on the 2016 Senior Notes being redeemed to, but excluding, the redemption date.

Mattel’s 2010 Senior Notes bear interest at fixed rates ranging from 4.35% to 6.20%, with a weighted average interest rate of 5.28% as of December 31, 2017 and 2016. Mattel’s 2011 Senior Notes bear interest at a fixed rate of 5.45% as of December 31, 2017 and 2016. Mattel’s 2013 Senior Notes bear interest at fixed rates ranging from 1.70% to 3.15%, with a weighted average interest rate of 2.43% as of December 31, 2017 and 2016. Mattel’s 2014 Senior Notes, 2016 Senior Notes, and 2017 Senior Notes bear interest at a fixed rate of 2.35%, 2.35%, and 6.75%, respectively, as of December 31, 2017 and 2016.

On November 1, 2016, Mattel repaid $300.0 million of its 2.50% Senior Notes in connection with the scheduled maturity.

Mattel’s long-term debt consists of the following:



	December 31, 2017			December 31, 2016
	(In thousands)
2010 Senior Notes due October 2020 and October 2040	$	500,000		$	500,000
2011 Senior Notes due November 2041	300,000			300,000
2013 Senior Notes due March 2018 and March 2023	500,000			500,000
2014 Senior Notes due May 2019	500,000			500,000
2016 Senior Notes due August 2021	350,000			350,000
2017 Senior Notes due December 2025	1,000,000			—
Debt issuance costs and debt discount	(26,881		)	(15,729		)
	3,123,119			2,134,271
Less: current portion	(250,000		)	—
Total long-term debt	$	2,873,119		$	2,134,271

The aggregate principal amount of long-term debt maturing in the next five years and thereafter is as follows:



	2010 Senior Notes		2011 Senior Notes		2013 Senior Notes		2014 Senior Notes		2016 Senior Notes		2017 Senior Notes		Total
	(In thousands)
2018	$	—	$	—	$	250,000	$	—	$	—	$	—	$	250,000
2019	—		—		—		500,000		—		—		500,000
2020	250,000		—		—		—		—		—		250,000
2021	—		—		—		—		350,000		—		350,000
2022	—		—		—		—				—		—
Thereafter	250,000		300,000		250,000		—		—		1,000,000		1,800,000
	$	500,000	$	300,000	$	500,000	$	500,000	$	350,000	$	1,000,000	$	3,150,000