CIENA CORP - 10-Q filing on 2017-06-07

SHORT-TERM AND LONG-TERM DEBT

6 Months Ended

Apr. 30, 2017

Outstanding Term Loan Payable

The net carrying amount of Ciena's term loans were comprised of the following for the fiscal periods indicated (in thousands):



	April 30, 2017		October 31, 2016
Term Loan Payable due July 15, 2019	$	—	$	241,359
Term Loan Payable due April 25, 2021	—		244,944
Term Loan Payable due January 30, 2022	393,377		—
	$	393,377	$	486,303

The term loan balances in the table above reflect Ciena's adoption of ASU 2015-03, as described in Note 2 above. Deferred debt issuance costs that were deducted from the carrying amounts of the term loans totaled $3.5 million at April 30, 2017 and $4.9 million at October 31, 2016. Deferred debt issuance costs are amortized using the straight-line method, which approximates the effect of the effective interest rate method, through the maturity of the term loans. The amortization of deferred debt issuance costs for these term loans are included in interest expense, and was $0.5 million and $0.4 million during the first six months of fiscal 2017 and 2016, respectively. The carrying amounts of the term loans listed above are also net of any unamortized discounts.

2022 Term Loan

On January 30, 2017, Ciena, as borrower, and Ciena Communications, Inc. and Ciena Government Solutions, Inc., as guarantors, entered into an Omnibus Refinancing Amendment to the Credit Agreement, Security Agreement and Pledge Agreement with the lenders party thereto and the administrative agent (the “Refinancing Agreement”), pursuant to which Ciena refinanced its existing 2019 Term Loan and 2021 Term Loan (as described under "Prior Term Loans" below) into a single term loan with an aggregate principal amount of $400 million maturing on January 30, 2022 (the “2022 Term Loan”). In connection with the transaction, Ciena received a loan in the amount of $399.5 million, net of original discount, from the 2022 Term Loan and repaid $493.1 million of outstanding principal under the 2019 Term Loan and 2021 Term Loan. The 2022 Term Loan requires Ciena to make installment payments of approximately $1 million on a quarterly basis. This arrangement was accounted for as a modification of debt and, as such, $2.9 million of debt issuance costs associated with the 2022 Term Loan were expensed and the aggregate balance of $3.5 million of debt issuance costs and approximately $1.7 million of original discount from the 2019 Term Loan and the 2021 Term Loan, and approximately $0.5 million of original discount from the 2022 Term Loan, are included in the carrying value of the 2022 Term Loan. See table below.

The Refinancing Agreement amends the Term Loan Credit Agreement (as defined below) and provides that the 2022 Term Loan will, among other things:


•	be subject to mandatory prepayment on the same basis as under the Term Loan Credit Agreement;


•	bear interest, at Ciena’s election, at a per annum rate equal to (a) LIBOR (subject to a floor of 0.75%) plus an applicable margin of 2.50%, or (b) a base rate (subject to a floor of 1.75%) plus an applicable margin of 1.50%; and


•	be repayable at any time at Ciena's election, provided that repayment of the 2022 Term Loan with proceeds of certain indebtedness prior to July 30, 2017 will require a prepayment premium of 1% of the aggregate principal amount of such prepayment.

Except as amended by the Refinancing Agreement, the remaining terms of the Term Loan Credit Agreement remain in full force and effect.

The principal balance, unamortized discount, deferred debt issuance costs and net carrying value of the liability components of our 2022 Term Loan were as follows as of April 30, 2017 (in thousands):




	Principal Balance		Unamortized Discount			Deferred Debt Issuance Costs			Net Carrying Amount
Term Loan Payable due January 30, 2022	$	399,000	$	(2,153	)	$	(3,470	)	$393,377

The following table sets forth the carrying value and the estimated fair values of Ciena's term loan (in thousands):



	April 30, 2017
	Carrying Value		Fair Value⁽²⁾
Term Loan Payable due January 30, 2022⁽¹⁾	$	393,377	$	401,494


(1)	Includes unamortized debt discount and debt issuance costs.


(2)	Ciena's term loan is categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its term loan using a market approach based upon observable inputs, such as current market transactions involving comparable securities.

Prior Term Loans

On July 15, 2014, Ciena entered into a Term Loan Credit Agreement (the "Term Loan Credit Agreement") providing for senior secured term loans in an aggregate principal amount of $250 million (the “2019 Term Loan”) with a maturity date of July 15, 2019. The 2019 Term Loan required Ciena to make installment payments of approximately $0.6 million on a quarterly basis.

On April 25, 2016, Ciena entered into an Incremental Joinder and Amendment Agreement (the “Incremental Term Loan Credit Agreement”) that amended the Term Loan Credit Agreement. The Incremental Term Loan Credit Agreement provided for a new tranche of senior secured term loans under the Term Loan Credit Agreement in an aggregate principal amount of $250 million (the “2021 Term Loan”). The 2021 Term Loan required Ciena to make installment payments of approximately $0.6 million on a quarterly basis.

Outstanding Convertible Notes Payable

The net carrying amount of Ciena's outstanding convertible notes payable was comprised of the following for the fiscal periods indicated (in thousands):



	April 30, 2017		October 31, 2016
0.875% Convertible Senior Notes due June 15, 2017	$	185,221	$	231,240
3.75% Convertible Senior Notes due October 15, 2018	348,248		347,630
4.0% Convertible Senior Notes due December 15, 2020	191,557		188,509
	$	725,026	$	767,379

The convertible notes payable balances in the table above reflects Ciena's adoption of ASU 2015-03, as described in Note 2 above. Deferred debt issuance costs that were deducted from the carrying amounts of the convertible notes payable totaled $2.9 million at April 30, 2017 and $3.9 million at October 31, 2016. Deferred debt issuance costs are amortized using the straight-line method, which approximates the effect of the effective interest rate method, through the maturity of the convertible notes payable. The amortization of deferred debt issuance costs is included in interest expense, and was $1.0 million and $1.4 million during the first six months of fiscal 2017 and 2016, respectively. The carrying amounts of the convertible notes payable listed above are also net of any unamortized discounts.

The principal balance, unamortized discount, deferred debt issuance costs and net carrying value of the liability and equity components of our Ciena's outstanding issues of convertible notes were as follows as of April 30, 2017 (in thousands):



	Liability Component									Equity Component
	Principal Balance		Unamortized Discount			Deferred Debt Issuance Costs			Net Carrying Amount	Net Carrying Amount
0.875% Convertible Senior Notes due June 15, 2017	$	185,258	$	—		$	(37	)	$185,221	$	—
3.75% Convertible Senior Notes due October 15, 2018	$	350,000	$	—		$	(1,752	)	$348,248	$	—
4.0% Convertible Senior Notes due December 15, 2020	$	203,093	$	(10,428	)	$	(1,108	)	$191,557	$	43,131

The following table sets forth, in thousands, the carrying value and the estimated fair value of Ciena’s outstanding issues of convertible notes as of April 30, 2017:



	April 30, 2017
	Carrying Value ⁽¹⁾		Fair Value⁽²⁾
0.875% Convertible Senior Notes due June 15, 2017	$	185,221	$	185,085
3.75% Convertible Senior Notes due October 15, 2018	348,248		449,313
4.0% Convertible Senior Notes due December 15, 2020	191,557		254,925
	$	725,026	$	889,323


(1)	Includes unamortized debt discount, accretion of principal and debt issuance costs.


(2)	The convertible notes are categorized as Level 2 in the fair value hierarchy. Ciena estimated the fair value of its outstanding convertible notes using a market approach based upon observable inputs, such as current market transactions involving comparable securities.