MAXLINEAR, INC 10-Q

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. We do not hold or issue financial instruments for trading purposes. Foreign Currency Risk To date, our international customer and vendor agreements have been denominated mostly in United States dollars. Accordingly, we have limited exposure to foreign currency exchange rates and do not enter into foreign currency hedging transactions. The functional currency of certain foreign subsidiaries is the local currency. Accordingly, the effects of exchange rate fluctuations on the net assets of these foreign subsidiaries’ operations are accounted for as translation gains or losses in accumulated other comprehensive income within stockholders’ equity. A hypothetical change of 100 basis points in such foreign currency exchange rates would result in a change to translation gain in accumulated other comprehensive income of approximately $0.6 million. 43 Table of Contents Interest Rate Risk On May 12, 2017, we entered into a credit agreement with certain lenders and a collateral agent in connection with the acquisition of Exar Corporation. The credit agreement provides for an initial secured term loan facility (the “Initial Term Loan”) in an aggregate principal amount of $425.0 million. As of March 31, 2021, outstanding borrowings under the Initial Term Loan were $212 million. The credit agreement permits the Company to request incremental loans in an aggregate principal amount not to exceed the sum of $160.0 million (subject to adjustments for any voluntary prepayments), plus an unlimited amount that is subject to pro forma compliance with certain secured leverage ratio and total leverage ratio tests. Incremental loans are subject to certain additional conditions, including obtaining additional commitments from the lenders then party to the credit agreement or new lenders. The term loan facility has a seven-year term and bears interest at either an Adjusted LIBOR or an Adjusted Base Rate, at our option, and, in each case, plus a fixed applicable margin. In November 2017, to hedge a substantial portion of our existing interest rate risk with respect to the term loans, we entered into a fixed-for-floating interest rate swap agreement with an amortizing notional amount to swap some of our variable rate interest payments under our term loans for fixed interest payments bearing an interest rate of 1.74685% through October 2020. As a result of entering the swap, the interest rate on a substantial portion of our long-term debt was effectively fixed at approximately 4.25% until the swap expired in October 2020. Our outstanding debt is still subject to Adjusted LIBOR Rate plus a 2.5% fixed applicable margin during the remaining term of the loan. In connection with the acquisition of the Wi-Fi and Broadband assets business, on July 31, 2020, we entered into an incremental term loan with certain lenders that amends the credit agreement dated as of May 12, 2017. The incremental term loan agreement provided for a secured incremental term loan facility in an aggregate principal amount of $175.0 million (the “Incremental Term Loan”). The Incremental Term Loan bears interest, at our option, at an Adjusted LIBOR plus a fixed applicable margin of 4.25% per annum or an Adjusted Base Rate plus a fixed applicable margin of 3.25% per annum. We are subject to a variable amount of interest on the principal balance of the loans and could be adversely impacted by rising interest rates in the future. If LIBOR interest rates had increased by 10%, or 1000 basis points, during the periods presented, the rate increase would have resulted in an immaterial increase to interest expense. 44 Table of Contents