News Column

MARINA DISTRICT FINANCE COMPANY, INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations

August 13, 2014

The following discussion should be read in conjunction with, and is qualified in its entirety by, the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q. Unless the context otherwise requires, all references herein to "we," "our," "us" and the "Company," or similar terms, refer to Marina District Development Company, LLC ("MDDC") and Marina District Finance Company, Inc. ("MDFC").

Overview

We developed, own and operate Borgata Hotel Casino and Spa, including The Water Club at Borgata (collectively, "Borgata"), located on a 45.6-acre site within the Marina District of Atlantic City, New Jersey. Since its opening on July 3, 2003, our property has been the leading hotel, casino and spa in the Atlantic City market. The property is an upscale destination resort that features a 160,000 square foot casino and 2,767 guest rooms and suites, comprised of 1,970 guest rooms and suites at the Borgata hotel and 797 guest rooms and suites at The Water Club. Borgata features five fine-dining restaurants, six casual dining restaurants, eight quick dining options, 14 retail boutiques, two European-style spas, two nightclubs and over 8,200 parking spaces. In addition, the property contains approximately 88,000 square feet of meeting and event space, as well as two entertainment venues. Our location within the Marina District provides guests with convenient access to the property via the Atlantic City Expressway Connector tunnel, without the delays associated with driving to competing casinos located on the Boardwalk of Atlantic City.

Borgata was developed as a joint venture between Boyd Atlantic City, Inc. ("BAC"), a wholly owned subsidiary of Boyd Gaming Corporation ("Boyd"), and MAC, Corp. ("MAC"), a second tier, wholly owned subsidiary of MGM Resorts International (the successor-in-interest to MGM MIRAGE) ("MGM"). The joint venture operates pursuant to an operating agreement between BAC and MAC (the "Operating Agreement"), in which BAC and MAC each originally held a 50% interest in Marina District Development Holding Co., LLC, MDDC's parent holding company ("MDDHC").

As managing member of MDDHC pursuant to the terms of the Operating Agreement, BAC, through MDDHC, has responsibility for the oversight and management of our day-to-day operations. We do not presently record a management fee to BAC, as our management team performs these services directly or negotiates contracts to provide for these services. As a result, the costs of these services are directly borne by us and are reflected in our consolidated financial statements. Boyd, the parent of BAC, is a diversified operator of 21 wholly owned gaming entertainment properties. Headquartered in Las Vegas, Nevada, Boyd has other gaming operations in Nevada, Illinois, Indiana, Iowa, Kansas, Louisiana and Mississippi.

On March 24, 2010, MAC transferred its 50% ownership interest (the "MGM Interest") in MDDHC, and certain land leased to MDDC, into a divestiture trust, of which MGM and its subsidiaries are the economic beneficiaries (the "Divestiture Trust"), for sale to a third-party in connection with MGM's settlement agreement with the New Jersey Division of Gaming Enforcement ("NJDGE"). MGM subsequently announced that it had entered into an amended settlement agreement with the NJDGE, as approved by the New Jersey Casino Control Commission ("NJCCC"). The amendment provided that until March 24, 2013, MGM had the right to direct the Divestiture Trust to sell the MGM Interest. If a sale was not concluded by that time, the Divestiture Trust was to be responsible for selling MGM's Interest during the following 12-month period, or not later than March 24, 2014. Subsequent to a Joint Petition of MGM, Boyd and MDDC, the NJCCC, on February 13, 2013, approved amendments to the Stipulation of Settlement and Trust Agreement which permits MGM to file an application for a statement of compliance, which, if approved, could permit MGM to reacquire its interest in MDDC. The deadline requiring MGM and the Divestiture Trust to sell the MGM Interest has been tolled to allow the NJCCC to complete a review of the application. BAC has a right of first refusal on any sale of the MGM Interest. We continue to operate under normal business conditions throughout MGM's sales efforts, and do not believe that it has had or will have a material impact on our operations.

Upon the transfer of the MGM Interest into the Divestiture Trust, MGM relinquished all of its specific participating rights under the Operating Agreement, and Boyd effectively obtained control of Borgata. As a result, beginning on March 24, 2010, our financial position and results of operations have been included in the consolidated financial statements of Boyd. This resulting change in control required acquisition method accounting by Boyd in accordance with the authoritative accounting guidance for business combinations; however, there was no resulting direct impact on our consolidated financial statements. Accordingly, our financial position and results of operations as reported herein will differ from the results as consolidated with and separately reported by Boyd, as certain fair value and other acquisition method accounting adjustments have not been pushed down to our stand-alone consolidated financial statements.

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Overall Outlook We continually work to position Borgata for greater success by strengthening our existing operations and growing through capital investment and other strategic initiatives. In November 2013, we launched our real money online gaming site under the provisions of the New Jersey legislation authorizing intrastate internet gaming. Working in collaboration with bwin.party Digital Entertainment PLC ("bwin"), we offer a full suite of games, including poker, slots and table games, under the Borgata brand and have captured a 38.8% market share since our launch. We expect that we will face increased competition, both to our online gaming site and to our land-based operations, from internet lotteries, sweepstakes, and other internet wagering gaming services.

As part of our ongoing efforts to maintain our position as the premiere hotel and casino in Atlantic City, our estimated total capital expenditures for 2014 are expected to be approximately $25.0 million and are primarily comprised of various maintenance capital projects. We intend to fund such capital expenditures through our Amended and Restated Credit Agreement (the "Credit Facility") with MDDC, certain financial institutions, and Wells Fargo Bank, National Association, as administrative agent, letter of credit issuer and swing line lender, as well as through operating cash flows.

Due to a number of factors affecting consumers, including reduced consumer spending and depressed home prices, the outlook for the gaming industry remains highly unpredictable. Because of these uncertain conditions, we have increasingly focused on managing our operating margins. Our present objective is to manage our cost and expense structure to cope with the increase in regional competition and generate strong and stable cash flow.

We sponsor our own program to expand our brand awareness and leverage our strong loyalty card program, predicated on efforts to use marketing and promotional programs to retain existing customers, maintain trip frequency and acquire new customers. We offer our guests comprehensive, competitive and targeted marketing and promotion programs. The "My Borgata Rewards" program, for example, offers players a hassle-free way of earning slot dollars, comp dollars and other rewards and benefits based on game play, with convenient on-line access to account balances and other program information. In addition, we strive to differentiate our casino with high-quality guest service to further enhance overall brand and customer experience to position Borgata as the must visit property in Atlantic City. We maintain a database of customers enrolled in "My Borgata Rewards," which is used to support our marketing efforts.

We use several key performance measures to evaluate the operations of our business. These key performance measures include the following:

Gaming revenue measures:

Slot handle, which means the dollar amount wagered in slot machines, and table game drop, which means the total amount of cash deposited in table games drop boxes, plus the sum of markers issued at all table games. Slot handle and table game drop are measures of volume and/or market share. Slot win and table game hold, which mean the difference between customer wagers and customer winnings on slot machines and table games, respectively. Slot win and table game hold percentages represent the relationship between slot handle and table game drop to gaming wins and losses.



Food and beverage revenue measures:

Average guest check, which means the average amount spent per customer visit and is a measure of volume and product offerings; number of guests served ("food covers"), which is a measure of volume; and the cost per guest served, which is a measure of operating margin. Room revenue measures: Hotel occupancy rate, which measures the utilization of our available rooms; and average daily rate ("ADR"), which is a price measure.



We continue to be the leader in table games and slot market share in the Atlantic City market. Our land-based business achieved 26.7% of the table game drop and 23.1% of the slot handle market share for the six months ended June 30, 2014, which reflects the success of our focus on managing existing operations and reinvesting in our business to retain our position as the leading resort in the market.

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RESULTS OF OPERATIONS Summary of Operating Results The following provides a summary of certain key operating results: Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2014 2013 2014 2013 Net revenues $ 181,854$ 172,877$ 349,118$ 338,521 Operating income 27,596 6,944 33,918 19,148 Net income (loss) 8,762 (12,957 ) (1,902 ) (20,992 )



Net revenues Net revenues increased $9.0 million, or 5.2%, during the three months ended June 30, 2014, compared to the same period in the prior year. Our real-money online gaming website, launched in the fourth quarter of 2013, contributed $6.7 million in revenues, and the revenue for our land-based operation increased $2.3 million. Land-based gaming revenues benefited from an increase in table game hold of 1.13 percentage points, compared to the same period in the prior year. Slot handle increased 1.1% and slot hold percentage increased 0.39 percentage points compared to the same period in the prior year.

Our net revenues for the six months ended June 30, 2014, as compared to the six months ended June 30, 2013 increased by $10.6 million, or 3.1%. Our real-money online gaming website contributed $14.4 million in revenues, while the land-based operation experienced a revenue decline of $3.8 million due to increased local and regional competition and unusually severe winter weather experienced in the first quarter of 2014. Land-based table game drop decreased 3.0% but was offset by an increase in table game hold of 1.42 percentage points, compared to the same period in the prior year. Slot handle decreased 2.5%, while slot hold percentage increased 0.36 percentage points compared to the same period in the prior year. Borgata retains the position as the premiere destination in the Atlantic City market, despite the increased local and regional competition, and achieved 26.7% of the table game drop and 23.1% of the slot handle market share for the six months ended June 30, 2014. Additionally, we are the dominant leader in land-based poker win and achieved 54.3% of the market share for the six months ended June 30, 2014. We are also the leader in the New Jersey online gaming market with a 28.4% market share for the first half of 2014.

Operating income Operating income increased $20.7 million during the three months ended June 30, 2014, as compared to the corresponding period of the prior year, primarily due to the impact of an $11.8 million adjustment of our year-to-date property tax expense resulting from the recent settlement with the City of Atlantic City and the flow-through effect of the increased revenues. In addition, on May 8, 2013, we entered into an agreement with the Casino Reinvestment Development Authority ("CRDA") that included a 50% donation and a 50% refund of $45.1 million of our available deposits. As a result, the carrying values of our CRDA-related accounts were reviewed and adjusted to their net realizable values resulting in a charge of $5.0 million, which was included in impairments of assets on our condensed consolidated statements of operations during the three months ended June 30, 2013.

Operating income increased $14.8 million, or 77.1%, during the six months ended June 30, 2014, as compared to the corresponding period of the prior year, due to the $11.8 million impact of adjustment of our property-tax accrual and the inclusion in the prior year period of the $5.0 million impairment charge related to our CRDA accounts.

Net income (loss) Net income for the three months ended June 30, 2014, was $8.8 million as compared to a net loss of $13.0 million during the comparable prior year period. The $21.7 million improvement was due to the increase in operating income as described above, combined with a $3.0 million decline in interest expense resulting from the impact on interest rates of refinancing activities completed in 2013.

Net loss for the six months ended June 30, 2014, was $1.9 million as compared to net loss of $21.0 million during the comparable prior year period. The reduction in the net loss was due to the operating income improvements and a $6.1 million decline in interest expense resulting from the impact on interest rates of refinancing activities completed in 2013.

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Operating Revenues Gaming revenues are significantly comprised of the win from our slot machine operations and from table game win. We derive the majority of our gross revenues from our gaming operations. Gaming revenues produced approximately 69% and 67% of gross revenues for the three months ended June 30, 2014 and 2013, respectively, and 70% and 67% of gross revenues for the six months ended June 30, 2014 and 2013, respectively. Food and beverage gross revenues represent the next most significant revenue source, which produced approximately 14% and 16% of gross revenues for the three months ended June 30, 2014 and 2013, respectively, and 14% and 16% of gross revenues for the six months ended June 30, 2014 and 2013, respectively. Room revenue produced approximately 12% and 13% of gross revenues for the three months ended June 30, 2014 and 2013, respectively, and 12% and 13% of gross revenues for the six months ended June 30, 2014 and 2013, respectively. Other revenues (including our spa, retail, entertainment and ancillary services) separately contributed approximately 5% or less of gross revenues during each of these periods.

The following table presents our gross revenues and expenses:

Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2014 2013 2014 2013 GROSS REVENUES Gaming $ 166,599$ 149,381$ 320,285$ 295,060 Food and beverage 34,064 35,123 65,118 69,058 Room 29,602 28,475 55,171 55,149 Other 10,308 10,851 18,879 20,043 Gross revenues 240,573 223,830 459,453 439,310



Less promotional allowances 58,719 50,953 110,335 100,789 Net revenues

$ 181,854$ 172,877$ 349,118$ 338,521 OPERATING COSTS AND EXPENSES Gaming $ 65,000$ 60,617$ 128,464$ 121,762 Food and beverage 18,245 18,047 33,940 35,375 Room 3,693 3,450 6,477 6,447 Other 8,644 8,842 15,143 15,520 $ 95,582$ 90,956$ 184,024$ 179,104 MARGINS Gaming 61.0 % 59.4 % 59.9 % 58.7 % Food and beverage 46.4 % 48.6 % 47.9 % 48.8 % Room 87.5 % 87.9 % 88.3 % 88.3 % Other 16.1 % 18.5 % 19.8 % 22.6 % Gaming



Gaming revenues increased $17.2 million, or 11.5%, during the three months ended June 30, 2014, as compared to the corresponding period of the prior year, primarily due to the addition of $9.1 million of revenues from our online gaming operation that was launched in November 2013. Gaming revenues for our land-based operation increased $8.1 million as compared to the prior year primarily due an increase in slot handle of 1.1%, a 113 basis point increase in table games hold percentage and a 39 basis point increase in slot hold percentage. These increases were partially offset by a 1.5% decline in table game drop.

Gaming revenues increased $25.2 million, or 8.5%, during the six months ended June 30, 2014, as compared to the corresponding period of the prior year, primarily due to the addition of $18.3 million of revenues from our online gaming operation that was launched in November 2013. Gaming revenues for the land-based property increased $6.9 million as compared to the prior year due to a 142 basis point increase in table games hold percentage and a 36 basis point increase in slot hold percentage, partially offset by declines in table game drop and slot handle of 3.0% and 2.5%, respectively.

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Food and Beverage Food and beverage revenues decreased by $1.1 million, or 3.0%, during the three months ended June 30, 2014, compared with the corresponding period of the prior year. The decrease was primarily due to a decrease in the number of guests served during the period.

Food and beverage revenues decreased by $3.9 million, or 5.7%, during the six months ended June 30, 2014, compared with the corresponding period of the prior year. The decrease was primarily due to a 3.1% decrease in the number of guests served reflecting the impact of severe winter weather on visitation to the property, while the average guest check declined 0.5%.

Room

During the three months ended June 30, 2014, we had 220,706 occupied rooms, with an average occupancy rate of 87.7% at an average daily rate of $131.97, compared to 215,568 occupied rooms, with an average occupancy rate of 85.6% at an average daily rate of $130.18 during the comparable period in the prior year, the effect of which resulted in a 4.0% increase in room revenues.

Room revenues for the six months ended June 30, 3014, were essentially even with the comparable prior year period. During the six months ended June 30, 2014, we had 417,270 occupied rooms, with an average occupancy rate of 83.3% at an average daily rate of $129.83, compared to 421,834 occupied rooms, with an average occupancy rate of 84.2% at an average daily rate of $128.65 during the comparable period in the prior year. Other Costs and Expenses The following costs and expenses are discussed below: Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2014 2013 2014 2013 Selling, general and administrative $ 28,555$ 39,620$ 69,957$ 74,395 Maintenance and utilities 15,072 14,406 31,999 28,675 Depreciation and amortization 14,812 15,794 29,354 31,708 Impairments of assets - 5,032 - 5,032 Other operating items, net 1 71 (403 ) 405 Preopening expenses 236 54 269 54



Selling, General and Administrative Selling, general and administrative expenses, as a percentage of gross revenues, were 11.9% and 17.7% during the three months ended June 30, 2014 and 2013, respectively. Expenses decreased as a percentage of gross revenues due to the $11.8 million adjustment of our year-to-date property tax accrual in the current period. Excluding the impact of this adjustment, selling, general and administrative expenses would have been 16.8% of gross revenues.

Selling, general and administrative expenses, as a percentage of gross revenues, were 15.2% and 16.9% during the six months ended June 30, 2014 and 2013, respectively. Selling, general and administrative expenses decreased as a percentage of gross revenues as compared to the same period in the prior year due to the property tax adjustment in current year, the effect of which was partially offset by the additional marketing expenses incurred related to our online gaming operation. Maintenance and Utilities Maintenance and utilities expenses, as a percentage of gross revenues, were 6.3% and 6.4% during the three months ended June 30, 2014 and 2013, respectively.



Maintenance and utilities expenses, as a percentage of gross revenues, were 7.0% and 6.5% during the six months ended June 30, 2014 and 2013, respectively. The increase in expenses was due primarily to increased utility costs during the first quarter of 2014 related to the severe winter weather Depreciation and Amortization Depreciation and amortization expense decreased $1.0 million during the three months ended June 30, 2014 compared to the same period in 2013 due to the full depreciation of certain assets since the prior year period.

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Depreciation and amortization expense decreased $2.4 million during the six months ended June 30, 2014 compared to the same period in 2013 due to the full depreciation of certain assets since the prior year period.

Impairments of assets On May 8, 2013, we entered into an agreement with the CRDA that included a 50% donation and a 50% refund of $45.1 million of our available deposits. As a result, the carrying values of our CRDA-related accounts were reviewed and adjusted to their net realizable values resulting in a charge of $5.0 million for the three months ended June 30, 2013.

Other Operating Items, net Other operating items, net, generally includes unusual, nonrecurring charges, including recoveries resulting from the receipt of insurance proceeds. The amount of such items was not material in either period.

Preopening Expenses We expense certain costs of start-up activities as incurred. Other Expenses Interest Expense The following table summarizes information with respect to our interest expense on outstanding indebtedness: Three Months Ended Six Months Ended June 30, June 30, (In thousands) 2014 2013 2014 2013 Interest expense, net $ 17,828$ 20,844$ 35,518$ 41,618



Average outstanding long-term debt 805,364 804,500 803,363 804,129 Weighted average interest rate

8.2 % 10.4 % 8.2 % 10.4 %



Interest expense decreased $3.0 million, or 14.5%, during the three months ended June 30, 2014, and decreased $6.1 million, or 14.7%, during the six months ended June 30, 2014, due to lower average long-term debt balances and a lower weighted average interest rate compared to the corresponding period in the prior year reflecting the impact of the refinancing activities completed in 2013. State Income Taxes The effective state income tax rate for the three months ended June 30, 2014 and 2013 was 10.3% and 6.8%, respectively. The effective state income tax rate for the six months ended June 30, 2014 and 2013 was (18.9)% and 6.6%, respectively. The difference in our effective tax rate and the New Jersey statutory tax rate of 9% is due to the impact of certain recurring permanent tax adjustments and accrued interest on uncertain tax benefits. Such adjustments, which are unaffected by the level of income or loss from continuing operations, increase the statutory tax provision or reduce the statutory tax benefit on our pretax income or loss, respectively.

LIQUIDITY AND CAPITAL RESOURCES Financial Position There were no significant changes in our financial position since December 31, 2013.



Working Capital Historically, we have operated with minimal levels of working capital in order to minimize borrowings and related interest costs under our Credit Facility. As of June 30, 2014 and December 31, 2013, we had balances of cash and cash equivalents of $32.8 million and $37.5 million, respectively. In addition, we had a working capital deficit of $15.1 million as of June 30, 2014 and $21.6 million as of December 31, 2013.

Our Credit Facility generally provides us with necessary funds for our day-to-day operations and interest payments, as well as capital expenditures. On a daily basis, we evaluate our cash position and adjust the balance under our Credit Facility, as necessary, by either borrowing or paying it down with excess cash. We also plan the timing and the amounts of our capital expenditures. We believe that our cash and cash equivalents balance, our cash flows from operations and existing financing sources will be sufficient to meet our normal operating requirements and to fund capital expenditures during at least the next twelve months. The source of

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funds for the repayment of our debt or our capital expenditures is derived primarily from cash flows from operations and availability under our Credit Facility, to the extent availability exists after we meet our working capital needs, and subject to restrictive covenants.

The indenture governing the 9.875% Senior Secured Notes (the "2018 Notes") allows for the incurrence of additional indebtedness, if after giving effect to such incurrence, our coverage ratio (as defined in the indenture, essentially a ratio of Consolidated EBITDA to fixed charges, including interest) for a trailing four-quarter period on a pro forma basis would be at least 2.0 to 1.0. Should this provision prohibit the incurrence of additional debt, we may still borrow under our existing credit facility. At June 30, 2014, approximately $23.7 million of additional capacity was available under the Credit Facility.

If availability does not exist under our Credit Facility, or we are not otherwise able to draw funds on our Credit Facility, additional financing may not be available to us, and if available, may not be on terms favorable to us.

Liquidity

Our property has historically generated significant operating cash flow, with the majority of our revenue being cash-based. Our industry is capital intensive; we rely heavily on the ability of our property to generate operating cash flows in order to repay debt financing and associated interest costs, pay income taxes, fund maintenance capital expenditures, and provide excess cash for future improvements and payment of limited distributions, subject to restrictive covenants related to our debt obligations.

We generate substantial cash flows from operating activities. We use the cash flows generated by our operations to fund debt service, to reinvest in existing facilities for both refurbishment and expansion projects, to pursue additional growth opportunities and to pay allowable distributions to the members of MDDHC, subject to restrictive covenants related to our debt obligations. When necessary, we supplement the cash flows generated by our operations with funds provided by financing activities to balance our cash requirements.

Our ability to fund our operations, pay our debt obligations and fund planned capital expenditures depends, in part, upon economic and other factors that are beyond our control, and disruptions in capital markets and restrictive covenants related to our debt could impact our ability to secure additional funds through financing activities.

We cannot provide assurances that our business will generate sufficient cash flows from operations, or that future borrowings will be available to us, to fund our liquidity needs and pay our indebtedness. If we are unable to meet our liquidity needs or pay our indebtedness when it is due, we may have to reduce or delay refurbishment and expansion projects, reduce expenses, sell assets or attempt to restructure our debt. In addition, we have pledged substantially all of our assets as collateral for our senior secured notes and our Credit Facility, and if the obligation to repay such debt is accelerated, for any reason, there can be no assurance that we will have sufficient assets to repay our indebtedness.

Indebtedness

Credit Facility On July 24, 2013, MDFC entered into the Credit Facility with MDDC, certain financial institutions, and Wells Fargo Bank, National Association, as administrative agent, letter of credit issuer and swing line lender.

The Credit Facility provides for a $60 million senior secured revolving credit facility (the "Revolving Credit Facility") which matures in February 2018 (or earlier upon the occurrence or non-occurrence of certain events).

The Credit Facility includes an accordion feature, which permits: (a) an increase in the Revolving Credit Facility in an amount not to exceed $15 million and (b) the issuance of senior secured term loans to refinance the 2018 Notes outstanding pursuant to the Indenture, in each case, subject to the satisfaction of certain conditions.

The Credit Facility is guaranteed on a senior secured basis by MDDC and any future subsidiaries of MDDC and is secured by a first priority lien on substantially all of the assets of MDFC, MDDC and any future subsidiaries of MDDC, subject to certain exceptions. The obligations under the Credit Facility will have priority in payment to the payment of the 2018 Notes.

Outstanding borrowings under the Credit Facility accrue interest, at the option of MDFC, at a rate based upon either: (i) the highest of (a) the agent bank's quoted prime rate, (b) the one-month Eurodollar rate plus 1.00%, and (c) the daily federal funds rate plus 0.50%, or (ii) the Eurodollar rate, plus with respect to each of clause (i) and (ii), an applicable margin as specified in the Credit

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Facility. In addition, a commitment fee is incurred on the unused portion of the Revolving Credit Facility ranging from 0.50% per annum to 0.75% per annum.

The blended interest rate for outstanding borrowings under our Credit Facility was 4.1% and 3.9% at June 30, 2014, and December 31, 2013, respectively. At June 30, 2014, $33.1 million was outstanding under the Credit Facility, with $3.2 million allocated to support a letter of credit, leaving contractual availability of $23.7 million.

Neither BAC, its parent, its affiliates, nor the Divestiture Trust are guarantors of our Credit Facility, as amended.

The Credit Facility contains customary affirmative and negative covenants, including but not limited to, (i) establishing a minimum Consolidated EBITDA (as defined in the Credit Facility) of $110 million over each trailing twelve-month period ending on the last day of each calendar quarter; (ii) imposing limitations on MDFC's and MDDC's ability to incur additional debt, create liens, enter into transactions with affiliates, merge or consolidate, and engage in unrelated business activities; and (iii) imposing restrictions on MDDC's ability to pay dividends.

We believe we were in compliance with these covenants at June 30, 2014.

Incremental Term Loan On December 16, 2013, MDFC entered into a Lender Joinder Agreement (the "Incremental Term Loan"), among MDDC, Wells Fargo Bank, National Association, as administrative agent, and Deutsche Bank AG New York Branch, as incremental term lender. The Incremental Term Loan increases the term commitments under the Credit Facility by an aggregate amount of $380 million. The Incremental Term Loan was fully funded on December 16, 2013, and proceeds were used to repay MDFC's outstanding 2015 Notes. The interest rate per annum applicable to the Incremental Term Loan is either (a) the Effective Eurodollar Rate (the greater of the Eurodollar Rate in effect for such interest period and 1.00%) plus the Term Loan Applicable Rate (ranging from 5.50% to 5.75%) if and to the extent the Incremental Term Loan is a Eurodollar Rate Loan under the Credit Facility, or (b) the Base Rate (Effective Eurodollar Rate for one month plus 1.00%) plus the Term Loan Applicable Rate (ranging from 4.50% to 4.75%) if and to the extent the Incremental Term Loan is a Base Rate Loan under the Credit Facility. The Incremental Term Loan was issued with 1.00% of original issue discount. Original Issue Discount The original issue discount has been recorded as an offset to the principal amount of the Incremental Term Loan and is being accreted to interest expense over the term of the loan using the effective interest method. At June 30, 2014, the effective interest rate on the Incremental Term Loan was 6.8%. Senior Secured Notes Significant Terms The 2018 Notes are guaranteed on a senior secured basis by MDDC and any future restricted subsidiaries of MDDC. The 2018 Notes contain covenants that, among other things, limit MDFC's ability and the ability of MDDC to (i) incur additional indebtedness or liens; (ii) pay dividends or make distributions; (iii) make certain investments; (iv) sell or merge with other companies; and (v) enter into certain types of transactions. We believe we were in compliance with these covenants at June 30, 2014.


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