This excerpt taken from the LUX 20-F filed Jun 28, 2006.
Amended and Restated Euro 1,130 Million and U.S. $325 Million Credit Facility and Related Interest Rate Swaps
In March 2006, we amended and restated our credit facility with a group of banks to provide for loans in the aggregate principal of Euro 1,130 million and U.S. $325 million. See Item 4Information on the CompanyBusiness OverviewRecent Developments. The facility has a maturity date of five years from the date of the amendment, or March 2011, and consists of three Tranches (Tranche A, Tranche B, Tranche C). Tranche A is a Euro 405 million amortizing term loan requiring repayment of nine equal quarterly installments of principal of Euro 45 million beginning in June 2007, which is to be used for general corporate purposes, including the refinancing of existing Luxottica Group S.p.A. debt as it matures. Tranche B is a term loan of U.S, $325 million which was drawn upon on October 1, 2004 by U.S. Holdings to finance the purchase price for the acquisition of Cole. Amounts borrowed under Tranche B will mature in June 2009. Tranche C is a Revolving Credit Facility of Euro 725 million-equivalent multi-currency (/U.S. $). Amounts borrowed under Tranche C may be repaid and reborrowed with all outstanding balances maturing in March 2011. The Company can select interest periods of one, two, three or six months with interest accruing on Euro-denominated loans based on the corresponding Euribor rate and U.S. $ denominated loans based on the corresponding LIBOR rate, both plus a margin between 0.20 percent and 0.40 percent, based on the Net Debt/EBITDA ratio, as defined in the agreement. The interest rate on December 31,
2005 was 2.94 percent for Tranche A, 4.56 percent for Tranche B and a weighted average rate of 4.49 percent on Tranche C. The credit facility 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 (OCI). 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.