| Debt | Note 10–Debt Our debt consisted of the following: Stated interest rate Effective interest rate October 2, 2020 (1) January 3, 2020 (1) (in millions) Senior unsecured term loans: $300 million Term Loan, due June 2021 2.15% 2.41% $ 299 $ — $1,925 million Term Loan, due January 2025 1.53% 1.78% 1,860 — Senior secured term loans: $690 million Term Loan A, due August 2023 3.31% 3.74% — 581 $310 million Term Loan A, due August 2023 3.31% 3.76% — 242 $1,131 million Term Loan B, due August 2025 3.56% 3.91% — 1,075 Senior unsecured notes: $450 million notes, due December 2020 4.45% 4.53% — 452 $500 million notes, due May 2023 2.95% 3.17% 497 — $500 million notes, due May 2025 3.63% 3.76% 496 — $750 million notes due May 2030 4.38% 4.50% 736 — $250 million notes, due July 2032 7.13% 7.43% 247 247 $300 million notes, due July 2033 5.50% 5.88% 158 158 $300 million notes, due December 2040 5.95% 6.03% 216 216 Notes payable and finance leases due on various dates through fiscal 2030 2.15%-5.49% Various 17 15 Total long-term debt 4,526 2,986 Less: current portion (401) (61) Total long-term debt, net of current portion $ 4,125 $ 2,925 (1) The carrying amounts of the senior term loans and notes as of October 2, 2020, and January 3, 2020, include the remaining principal outstanding of $4,556 million and $3,004 million, respectively, less total unamortized debt discounts and deferred debt issuances costs of $47 million and $35 million, respectively, and a $2 million asset as of January 3, 2020 related to the fair value interest rate swaps (see "Note 9–Derivative Instruments"). Senior Notes Notes Retirement On September 1, 2020, we retired our $450 million senior unsecured notes due December 2020. Cash on hand was used to repay in full all indebtedness under, and discharge and release all guarantees existing in connection with these notes. Notes Issuance On May 12, 2020, we issued and sold $500 million senior notes maturing in May 2023 (the "2023 Notes"), $500 million senior notes maturing in May 2025 (the "2025 Notes") and $750 million senior notes maturing in May 2030 (the "2030 Notes", and together with the 2023 Notes and 2025 Notes, the "Notes"). The Notes are senior unsecured obligations issued by Leidos, Inc. and guaranteed by Leidos Holdings, Inc. The Notes have not been registered under the Securities Act of 1933, as amended (the "Securities Act") and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The proceeds from the Notes were used to repay all of the outstanding obligations in respect of principal, interest, fees and other amounts under the January 31, 2020 Bridge Facility and to repay a portion of the outstanding loans under the February 12, 2020 Facility. Interest on the Notes is payable on a semi-annual basis with principal payments due at maturity. The annual interest rate for the 2023 Notes, 2025 Notes and 2030 Notes is 2.95%, 3.63% and 4.38%, respectively. Additionally, on May 12, 2020, we entered into a registration rights agreement, pursuant to which we agreed to use reasonable best efforts to file a registration statement to permit the exchange of the Notes and related guarantees for registered notes having terms substantially identical thereto, or in the alternative, the registered resale of the Notes and related guarantees, under certain circumstances. Under the agreement, the registration statement is to be filed no later than 420 days after the original issuance of the securities. If we fail to satisfy our obligations under the registration rights agreement, we will be required to pay additional annual interest equal to 0.25% of the aggregate outstanding on the principal amount to holders of the Notes. Term Loan Financing On June 18, 2020 (the "Agreement Date"), we entered into a 364-day Term Loan Credit Agreement, which provided for a senior unsecured term loan facility in an aggregate principal amount of $300 million (the "Term Loan"), with maturity 364 days after the Agreement Date. The proceeds of the Term Loan and cash on hand on the Agreement Date were used to repay in full all indebtedness under, and discharge and release all guarantees existing in connection with the delayed-draw term loan facility. Borrowings under the Term Loan Credit Agreement bear interest at a rate determined, at our option, based on either an alternate base rate or a LIBOR rate plus, in each case, an applicable margin that varies depending on our credit rating. The applicable margin range for LIBOR-denominated borrowings is from 1.75% to 2.25%. Based on our current ratings, the applicable margin for LIBOR-denominated borrowings is 2.00%. The financial covenants in the Term Loan Credit Agreement require that we maintain, as of the last day of each fiscal quarter, a ratio of adjusted consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization ("EBITDA") of not more than 4.50 to 1.00 and a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00. Delayed-Draw Term Loan Facility On February 12, 2020, we entered into a senior unsecured delayed-draw term loan facility providing for $1.0 billion of commitments from certain financial institutions in connection with the acquisition of the SD&A Businesses. On May 4, 2020, we completed our acquisition of the SD&A Businesses and drew on the Facility in an aggregate principal amount of $1.0 billion (the "Facility"). The proceeds of the Facility and cash on hand were used to fund the purchase of the SD&A Businesses. On May 12, 2020, in connection with the issuance of the $1.75 billion Notes, $500 million of the principal outstanding on the Facility was repaid. During May and June 2020, we made $200 million of principal repayments on the Facility. On June 18, 2020, in connection with the 364-day Term Loan Credit Agreement, the remaining principal outstanding on the Facility was fully repaid. Bridge Facility On January 31, 2020, in connection with the acquisition of Dynetics, we entered into a Bridge Credit Agreement with certain financial institutions, which provided for a senior unsecured 364-day bridge loan facility in an aggregate principal amount of $1.25 billion (the "Bridge Facility"), with maturity 364 days after the Acquisition Date. The proceeds of the Bridge Facility and cash on hand on the Acquisition Date were used to fund the purchase of Dynetics and repay in full all third party indebtedness of Dynetics, terminate all commitments thereunder and discharge and release all existing guarantees and liens. Borrowings under the Bridge Credit Agreement bear interest at a rate determined, at our option, based on either an alternate base rate or a LIBOR rate, plus, in each case, an applicable margin that varies depending on our credit rating, subject to increases by 0.25% every 90 days. During the period the Bridge Facility borrowing was outstanding, the applicable margins for LIBOR-denominated borrowings were 1.38% and 1.63%. Additionally, we paid to each lender under the Bridge Facility a duration fee equal to 0.50% of the aggregate outstanding principal amount of the loans under the Bridge Facility 90 days after the Acquisition Date. On May 12, 2020, in connection with the issuance of the Notes, the outstanding principal on the Bridge Credit Agreement was fully repaid. Term Loans and Revolving Credit Facility Refinancing On January 17, 2020 (the "Closing Date"), we entered into a Credit Agreement (the "Credit Agreement") with certain financial institutions, which provided for a senior unsecured term loan facility in an aggregate principal amount of $1.9 billion (the "Term Loan Facility") and a $750 million senior unsecured revolving facility (the "Revolving Facility" and, together with the Term Loan Facility, the "Credit Facilities"). The Credit Facilities will mature five years from the Closing Date, subject to two additional one year extensions. The proceeds of the Term Loan Facility and cash on hand on the Closing Date were used to repay in full all indebtedness, and terminate all commitments, under, and discharge and release all guarantees and liens existing in connection with the credit agreements entered into in August 2016 (the "Terminated Credit Agreements"). As a result of the termination of the liens under the Terminated Credit Agreements, the liens securing the $450 million notes due 2020 and $300 million notes due 2040 were also released and such notes became senior unsecured obligations. Borrowings under the Credit Agreement bear interest at a rate determined, at our option, based on either an alternate base rate or a LIBOR rate plus, in each case, an applicable margin that varies depending on our credit rating. The applicable margin range for LIBOR-denominated borrowings is from 1.13% to 1.75%. Based on our current ratings, the applicable margin for LIBOR-denominated borrowings is 1.38%. Principal payments are made quarterly on the Term Loan Facility, with the majority of the principal due at maturity. Interest on the Term Loan Facility for LIBOR-denominated borrowings is payable on a periodic basis, which must be at least quarterly. The financial covenants in the Credit Agreement require that we maintain, as of the last day of each fiscal quarter, a ratio of adjusted consolidated total debt to consolidated EBITDA of not more than 3.75 to 1.00, subject to two increases to 4.50 to 1.00 following a material acquisition, and a ratio of EBITDA to consolidated interest expense of not less than 3.50 to 1.00. Principal Payments and Debt Issuance Costs In addition to the refinancing activity noted above, we made principal payments on our long-term debt of $477 million and $705 million during the three and nine months ended October 2, 2020, respectively, and $2 million and $50 million during the three and nine months ended September 27, 2019, respectively. This activity included required principal payments on our term loans of $24 million and $48 million during the three and nine months ended October 2, 2020, respectively and $41 million during the nine months ended September 27, 2019. As of October 2, 2020, and January 3, 2020, there were no borrowings outstanding under the unsecured and secured credit facility, respectively. In connection with the financing activity noted above, $56 million of debt discount and debt issuance costs related to the debt and revolving credit facility were recognized, which were recorded as an offset against the carrying value of debt and capitalized within "Other assets" in the condensed consolidated balance sheets, respectively. For the nine months ended October 2, 2020, $31 million of debt discount and debt issuance costs were written off related to the Terminated Credit Agreements and loan facility repayments. Amortization of debt discount and debt issuance costs was $4 million and $13 million for the three and nine months ended October 2, 2020, respectively, and $2 million and $7 million for the three and nine months ended September 27, 2019, respectively. The senior unsecured term loans, notes and revolving credit facility are fully and unconditionally guaranteed and contain certain customary restrictive covenants, including among other things, restrictions on our ability to create liens and enter into sale and leaseback transactions under certain circumstances. We were in compliance with all covenants as of October 2, 2020. |
