7. Financing
The Company’s debt, net of unamortized discounts and premiums, consists of:
|
| | | | | | | |
| December 31, |
(in millions) | 2013 | | 2012 |
Long-term debt: | | | |
March 2008 Senior Notes | | | |
7.125% senior notes due 2018 | $ | 1,378.5 |
| | $ | 1,417.2 |
|
6.125% senior notes due 2013 | — |
| | 303.3 |
|
| 1,378.5 |
| | 1,720.5 |
|
June 2009 Senior Notes | | | |
6.250% senior notes due 2014 | — |
| | 998.7 |
|
7.250% senior notes due 2019 | 497.9 |
| | 497.6 |
|
| 497.9 |
| | 1,496.3 |
|
September 2010 Senior Notes | | | |
2.750% senior notes due 2015 | 506.9 |
| | 510.9 |
|
4.125% senior notes due 2020 | 506.8 |
| | 507.6 |
|
| 1,013.7 |
| | 1,018.5 |
|
May 2011 Senior Notes | | | |
3.125% senior notes due 2016 | 1,497.0 |
| | 1,495.8 |
|
| | | |
November 2011 Senior Notes | | | |
3.500% senior notes due 2016 | 1,249.8 |
| | 1,249.7 |
|
4.750% senior notes due 2021 | 1,241.2 |
| | 1,240.3 |
|
2.750% senior notes due 2014 | 899.7 |
| | 899.4 |
|
6.125% senior notes due 2041 | 698.4 |
| | 698.4 |
|
| 4,089.1 |
| | 4,087.8 |
|
February 2012 Senior Notes | | | |
2.650% senior notes due 2017 | 1,490.7 |
| | 1,487.9 |
|
2.100% senior notes due 2015 | 998.1 |
| | 996.5 |
|
3.900% senior notes due 2022 | 981.9 |
| | 980.0 |
|
| 3,470.7 |
| | 3,464.4 |
|
Term facility due August 29, 2016 with an average interest rate of 1.92% at December 31, 2013 and 1.96% at December 31, 2012 | 2,000.0 |
| | 2,631.6 |
|
Other | 0.1 |
| | 0.1 |
|
Total debt | 13,947.0 |
| | 15,915.0 |
|
Less: Current maturities of long-term debt | 1,584.0 |
| | 934.9 |
|
Total long-term debt | $ | 12,363.0 |
| | $ | 14,980.1 |
|
BANK CREDIT FACILITIES
On August 29, 2011, ESI entered into a credit agreement (the “credit agreement”) with a commercial bank syndicate providing for a five-year $4,000.0 million term loan facility (the “term facility”) and a $1,500.0 million revolving loan facility (the “revolving facility”). The term facility was used to pay a portion of the cash consideration in connection with the Merger (as discussed in Note 3 - Changes in business), to repay existing indebtedness and to pay related fees and expenses. Subsequent to consummation of the Merger on April 2, 2012, the revolving facility is available for general corporate purposes. The term facility and the revolving facility both mature on August 29, 2016. As of December 31, 2013, no amounts were drawn under the revolving facility. The Company makes quarterly principal payments on the term facility. Additionally, during the fourth quarter of 2012, the Company paid down $1,000.0 million of the term facility. As of December 31, 2013, $2,000.0 million was outstanding under the term facility with an average interest rate of 1.92%, of which $684.2 million is considered current maturities of long-term debt. Upon consummation of the Merger, Express Scripts assumed the obligations of ESI and became the borrower under the credit agreement.
The credit agreement requires interest to be paid at the LIBOR or adjusted base rate options, plus a margin. The margin over LIBOR ranges from 1.25% to 1.75% for the term facility and 1.10% to 1.55% for the revolving facility, and the margin over the base rate options ranges from 0.25% to 0.75% for the term facility and 0.10% to 0.55% for the revolving facility, depending on our consolidated leverage ratio. Under the credit agreement, we are required to pay commitment fees on the unused portion of the $1,500.0 million revolving facility. The commitment fee ranges from 0.15% to 0.20% depending on our consolidated leverage ratio.
BRIDGE FACILITY
On August 5, 2011, ESI entered into a credit agreement with Credit Suisse AG, Cayman Islands Branch, as administrative agent, Citibank, N.A., as syndication agent, and the other lenders and agents named within the agreement. The credit agreement provided for a one-year unsecured $14,000.0 million bridge term loan facility (the “bridge facility”). No amounts were withdrawn under the bridge facility, and subsequent to consummation of the Merger on April 2, 2012, the bridge facility was terminated.
FIVE-YEAR CREDIT FACILITY
On April 30, 2007, Medco entered into a senior unsecured credit agreement, which was available for general working capital requirements. The facility consisted of a $1,000.0 million, 5-year senior unsecured term loan and a $2,000.0 million, 5-year senior unsecured revolving credit facility. The facility was due to mature on April 30, 2012. Medco refinanced the $2,000.0 million senior unsecured revolving credit facility on January 23, 2012. Upon completion of the Merger, the $1,000.0 million senior unsecured term loan and all associated interest, and the $1,000.0 million then outstanding under the senior unsecured revolving credit facility, were repaid in full and terminated.
ACCOUNTS RECEIVABLE FINANCING FACILITY
Upon consummation of the Merger, Express Scripts assumed a $600.0 million, 364-day renewable accounts receivable financing facility that was collateralized by Medco’s pharmaceutical manufacturer rebates accounts receivable. On September 21, 2012, Express Scripts terminated the facility and repaid all amounts drawn down.
INTEREST RATE SWAP
Medco entered into five interest rate swap agreements in 2004. These swap agreements, in effect, converted $200.0 million of Medco’s $500.0 million of 7.250% senior notes due 2013 to variable interest rate debt. Under the terms of these swap agreements, Medco received a fixed rate of interest of 7.250% on $200.0 million and paid variable interest rates based on the six-month LIBOR plus a weighted-average spread of 3.05%. The payment dates under the agreements coincided with the interest payment dates on the hedged debt instruments and the difference between the amounts paid and received was included in interest expense. These swaps were settled on May 7, 2012. Express Scripts received $10.1 million for settlement of the swaps and the associated accrued interest receivable through May 7, 2012, and recorded a loss of $1.5 million related to the carrying amount of the swaps and bank fees.
SENIOR NOTES
Following the consummation of the Merger on April 2, 2012, several series of senior notes issued by Medco are reported as debt obligations of Express Scripts on a consolidated basis.
In August 2003, Medco issued $500.0 million aggregate principal amount of 7.250% senior notes due 2013 (the “August 2003 Senior Notes”). On May 7, 2012, the Company redeemed the August 2003 Senior Notes. These notes were redeemable at a redemption price equal to the greater of (i) 100% of the principal amount of the notes being redeemed, or (ii) the sum of the present values of 107.25% of the principal amount of these notes being redeemed, plus all scheduled payments of interest on the notes discounted to the redemption date at a semi-annual equivalent yield to a comparable U.S. Treasury security for such redemption date plus 50 basis points. Total cash payments related to these notes were $549.4 million comprised of principal, redemption costs and interest.
On March 18, 2008, Medco issued $1,500.0 million of senior notes (the “March 2008 Senior Notes”), including:
| |
• | $300.0 million aggregate principal amount of 6.125% senior notes due 2013 |
| |
• | $1,200.0 million aggregate principal amount of 7.125% senior notes due 2018 |
The March 2008 Senior Notes require interest to be paid semi-annually on March 15 and September 15. On March 18, 2013, $300.0 million aggregate principal amount of 6.125% senior notes due 2013 matured and were redeemed. We may redeem some or all of the remaining March 2008 Senior Notes prior to maturity at a price equal to the greater of (1) 100% of the aggregate principal amount of any notes being redeemed, plus accrued and unpaid interest; or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed, not including unpaid interest accrued to the redemption date, discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate plus 50 basis points with respect to any March 2008 Senior Notes being redeemed, plus, in each case, unpaid interest on the notes being redeemed accrued to the redemption date. The March 2008 Senior Notes are jointly and severally and fully and unconditionally (subject to certain customary release provisions, including sale, exchange, transfer or liquidation of the guarantor subsidiary) guaranteed on a senior basis by us and most of our current and future 100% owned domestic subsidiaries. Medco used the net proceeds to reduce debts held on Medco’s revolving credit facility.
On June 9, 2009, ESI issued $2,500.0 million of senior notes (the “June 2009 Senior Notes”), including:
| |
• | $1,000.0 million aggregate principal amount of 5.250% senior notes due 2012 |
| |
• | $1,000.0 million aggregate principal amount of 6.250% senior notes due 2014 |
| |
• | $500.0 million aggregate principal amount of 7.250% senior notes due 2019 |
The June 2009 Senior Notes require interest to be paid semi-annually on June 15 and December 15. On June 15, 2012, $1,000.0 million aggregate principal amount of 5.250% Senior Notes due 2012 matured and were redeemed. On March 29, 2013, the Company redeemed ESI’s $1,000.0 million aggregate principal amount of 6.250% senior notes due 2014. Total cash payments related to the redemption of the 6.250% senior notes due 2014 were $1,085.0 million, which included $68.5 million of redemption costs and write-off of deferred financing fees which are reflected within the “Interest expense and other” line item of the consolidated statement of operations for the year ended December 31, 2013. These notes are redeemable at a price equal to the greater of (1) 100% of the aggregate principal amount of any notes being redeemed, plus accrued and unpaid interest; or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed, not including unpaid interest accrued to the redemption date, discounted to the redemption date on a semiannual basis at the treasury rate plus 50 basis points with respect to any notes being redeemed, plus in each case, unpaid interest on the notes being redeemed accrued to the redemption date. The June 2009 Senior Notes are jointly and severally and fully and unconditionally (subject to certain customary release provisions, including sale, exchange, transfer or liquidation of the guarantor subsidiary) guaranteed on a senior unsecured basis by us and most of our current and future 100% owned domestic subsidiaries. ESI used the net proceeds for the acquisition of WellPoint’s NextRx PBM Business.
On September 10, 2010, Medco issued $1,000.0 million of senior notes (the “September 2010 Senior Notes”) including:
| |
• | $500.0 million aggregate principal amount of 2.750% senior notes due 2015 (the “September 2015 Senior Notes”) |
| |
• | $500.0 million aggregate principal amount of 4.125% senior notes due 2020 (the “September 2020 Senior Notes”) |
The September 2010 Senior Notes require interest to be paid semi-annually on March 15 and September 15. We may redeem some or all of the September 2010 Senior Notes prior to maturity at a price equal to the greater of (1) 100% of the aggregate principal amount of any notes being redeemed, plus accrued and unpaid interest; or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed, not including unpaid interest accrued to the redemption date, discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate plus 20 basis points with respect to any September 2015 Senior Notes being redeemed, or 25 basis points with respect to any September 2020 Senior Notes being redeemed, plus, in each case, unpaid interest on the notes being redeemed accrued to the redemption date. The September 2010 Senior Notes are jointly and severally and fully and unconditionally (subject to certain customary release provisions, including sale, exchange, transfer or liquidation of the guarantor subsidiary) guaranteed on a senior basis by us and most of our current and future 100% owned domestic subsidiaries.
On May 2, 2011, ESI issued $1,500.0 million aggregate principal amount of 3.125% senior notes due 2016 (the “May 2011 Senior Notes”). The May 2011 Senior Notes require interest to be paid semi-annually on May 15 and November 15. We may redeem some or all of the May 2011 Senior Notes prior to maturity at a price equal to the greater of (1) 100% of the aggregate principal amount of any notes being redeemed, plus accrued and unpaid interest; or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed, not including unpaid interest accrued to the redemption date, discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate plus 20 basis points with respect to any May 2011 Senior Notes being redeemed, plus in each case, unpaid interest on the notes being redeemed accrued to the redemption date. The May 2011 Senior Notes are jointly and severally and fully and unconditionally (subject to certain customary release provisions, including sale, exchange, transfer or liquidation of the guarantor subsidiary) guaranteed on a senior basis by us and most of our current and future 100% owned domestic subsidiaries. ESI used the net proceeds to repurchase treasury shares.
On November 14, 2011, we issued $4,100.0 million of senior notes (the “November 2011 Senior Notes”), including:
| |
• | $900.0 million aggregate principal amount of 2.750% senior notes due 2014 (the “November 2014 Senior Notes”) |
| |
• | $1,250.0 million aggregate principal amount of 3.500% senior notes due 2016 (the “November 2016 Senior Notes”) |
| |
• | $1,250.0 million aggregate principal amount of 4.750% senior notes due 2021 (the “2021 Senior Notes”) |
| |
• | $700.0 million aggregate principal amount of 6.125% senior notes due 2041 (the “2041 Senior Notes”) |
The November 2014 Senior Notes require interest to be paid semi-annually on May 21 and November 21. The November 2016 Senior Notes, 2021 Senior Notes, and 2041 Senior Notes require interest to be paid semi-annually on May 15 and November 15.
We may redeem some or all of each series of November 2011 Senior Notes prior to maturity at a price equal to the greater of (1) 100% of the aggregate principal amount of any notes being redeemed, plus accrued and unpaid interest; or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed, not including unpaid interest accrued to the redemption date, discounted to the redemption date on a semiannual basis at the treasury rate plus 35 basis points with respect to any November 2014 Senior Notes being redeemed, 40 basis points with respect to any November 2016 Senior Notes being redeemed, 45 basis points with respect to any 2021 Senior Notes being redeemed, or 50 basis points with respect to any 2041 Senior Notes being redeemed, plus in each case, unpaid interest on the notes being redeemed accrued to the redemption date. The November 2011 Senior Notes are jointly and severally and fully and unconditionally (subject to certain customary release provisions, including sale, exchange, transfer or liquidation of the guarantor subsidiary) guaranteed on a senior unsecured basis by most of our current and future 100% owned domestic subsidiaries. The net proceeds were used to pay a portion of the cash consideration paid in the Merger and to pay related fees and expenses (see Note 3 - Changes in business).
On February 6, 2012, we issued $3,500.0 million of senior notes (the “February 2012 Senior Notes”), including:
| |
• | $1,000.0 million aggregate principal amount of 2.100% senior notes due 2015 (“February 2015 Senior Notes”) |
| |
• | $1,500.0 million aggregate principal amount of 2.650% senior notes due 2017 (“February 2017 Senior Notes”) |
| |
• | $1,000.0 million aggregate principal amount of 3.900% senior notes due 2022 (“February 2022 Senior Notes”) |
We may redeem some or all of each series of February 2012 Senior Notes prior to maturity at a price equal to the greater of (1) 100% of the aggregate principal amount of any notes being redeemed, plus accrued and unpaid interest; or (2) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed, not including unpaid interest accrued to the redemption date, discounted to the redemption date on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the treasury rate plus 30 basis points with respect to any February 2015 Senior Notes being redeemed, 35 basis points with respect to any February 2017 Senior Notes being redeemed, or 40 basis points with respect to any February 2022 Senior Notes being redeemed plus, in each case, unpaid interest on the notes being redeemed, accrued to the redemption date. The February 2012 Senior Notes are jointly and severally and fully and unconditionally (subject to certain customary release provisions, including sale, exchange, transfer or liquidation of the guarantor subsidiary) guaranteed on a senior unsecured basis by most of our current and future 100% owned domestic subsidiaries. The net proceeds were used to pay a portion of the cash consideration paid in the Merger and to pay related fees and expenses (see Note 3 - Changes in business).
FINANCING COSTS
Financing costs of $13.3 million for the issuance of the June 2009 Senior Notes are being amortized over a weighted-average period of 5.2 years. Financing costs of $10.9 million for the issuance of the May 2011 Senior Notes are being amortized over 5 years. Financing costs of $29.9 million for the issuance of the November 2011 Senior Notes are being amortized over a weighted-average period of 12.1 years. Financing costs of $22.5 million for the issuance of the February 2012 Senior Notes are being amortized over a weighted-average period of 6.2 years.
We incurred financing costs of $91.0 million related to the bridge facility. Financing costs of $26.0 million were immediately expensed upon entering into the credit agreement, which reduced the commitments under the bridge facility by $4,000.0 million. The remaining financing costs of $65.0 million related to the bridge facility were capitalized and were amortized through April 2012. Amortization of the deferred financing costs was accelerated in proportion to the amount by which alternative financing replaced the commitments under the bridge facility.
Financing costs of $36.1 million related to the term facility and revolving facility are being amortized over 4.4 years. In conjunction with our payment of $1,000.0 million on the term loan, we wrote off a proportionate amount of financing costs.
Deferred financing costs are reflected in other intangible assets, net in the accompanying consolidated balance sheet.
COVENANTS
Our bank financing arrangements contain covenants that restrict our ability to incur additional indebtedness, create or permit liens on assets and engage in mergers or consolidations. The covenants also include minimum interest coverage ratios and maximum leverage ratios. The March 2008 Senior Notes are also subject to an interest rate adjustment in the event of a downgrade in the ratings to below investment grade. At December 31, 2013, we believe we were in compliance with all covenants associated with our credit agreements.
The following represents the schedule of current maturities, excluding unamortized discounts and premiums, for our long-term debt as of December 31, 2013 (amounts in millions):
|
| | | |
Year Ended December 31, | |
2014 | $ | 1,584.3 |
|
2015 | 2,552.6 |
|
2016 | 3,013.2 |
|
2017 | 1,500.0 |
|
2018 | 1,200.0 |
|
Thereafter | 3,950.0 |
|
| $ | 13,800.1 |
|
