This excerpt taken from the LUX 20-F filed Jun 28, 2006.
Amended Euro 1,130 Million and U.S. $325 Million Credit Facility and Related Interest Rate Swaps
In March 2006, we amended our credit facility with a group of banks to provide for borrowings of an aggregate of Euro 1,130 million and an aggregate of U.S. $325 million in favor of Luxottica Group S.p.A. and our subsidiary U.S. Holdings. The credit facility consists of three tranches: Tranche A is an amortizing term loan of Euro 405 million that is to be used to refinance Luxottica Group S.p.A.s existing debt as it matures and for other general corporate purposes and will require nine equal quarterly installments of Euro 45 million beginning in June 2007; Tranche B is a term loan of U.S. $325 million that was used by U.S. Holdings to finance the acquisition of Cole and will mature in March 2011; and Tranche C is a revolving credit facility equivalent to Euro 725 million, available in Euro or U.S.$, in favor of both Luxottica Group S.p.A. and U.S. Holdings, that is to be used for general corporate purposes and all outstanding borrowings, if any, will mature in March 2011. At December 31, 2005, Euro 294.9 million had been drawn from Tranche C. We may select interest periods of one, two, three or six months with interest accruing on Euro-denominated loans based on the corresponding EURIBOR rate, plus a margin, and U.S. dollar-denominated loans based on the corresponding LIBOR rate, plus a margin of between 0.20 percent and 0.40 percent based on the Net Debt/EBITDA ratio, as defined in the agreement. The interest rates on December 31, 2005 was 2.94 percent for Tranche A, 4.56 percent for Tranche B and a 4.49 percent weighted average rate on Tranche C. The credit facility also contains certain financial and operating covenants. We were in compliance with those covenants as of December 31, 2005. Under this credit facility, Euro 974.3 million was outstanding as of December 31, 2005.
In June 2005, we entered into nine interest rate swap transactions with various banks with an aggregate initial notional amount of Euro 405 million which will decrease by Euro 45 million every three months starting on June 3, 2007 (Club Deal Swaps). These swaps will expire on June 3, 2009. The Club Deal Swaps were entered into as a cash flow hedge on Tranche A of the credit facility discussed above. The Club Deal Swaps exchange the floating rate of Euribor for an average fixed rate of 2.40 percent per annum. The cash flow hedges are deemed to be highly effective and as such the change in the fair value of the swaps will be included on the balance sheets in other comprehensive income. Any ineffectiveness and the amounts needed to properly reflect interest expense will be amortized out of OCI and recorded in the appropriate periods. As a result, approximately Euro 3.5 million is included in OCI as of December 31, 2005. Based on current interest rates and market conditions, the estimated aggregate amount to be recognized into earnings from OCI for these cash flow hedges in fiscal 2006 is approximately Euro 0.4 million, net of taxes.