Debt

12 Months Ended

Dec. 31, 2022

Debt Disclosure [Abstract]

Debt

Debt

Debt at December 31, 2022 and 2021 was as follows:

(In millions)	2022		2021
ATI Inc. 5.875% Senior Notes due 2027	350.0		350.0
ATI Inc. 5.125% Senior Notes due 2031	350.0		350.0
ATI Inc. 4.875% Notes due 2029	325.0		325.0
ATI Inc. 3.5% Convertible Senior Notes due 2025	291.4		291.4
ATI Inc. 4.75% Convertible Senior Notes due 2022	—		84.2
Allegheny Ludlum 6.95% Debentures due 2025 (a)	150.0		150.0
ABL Term Loan	200.0		200.0
U.S. revolving credit facility	—		—
Foreign credit agreements	19.4		27.4
Finance leases and other	79.4		85.7
Debt issuance costs	(17.2)		(20.8)
Total short-term and long-term debt	1,748.0		1,842.9
Short-term debt and current portion of long-term debt	41.7		131.3
Total long-term debt	$	1,706.3	$	1,711.6

(a)The payment obligations of these debentures issued by Allegheny Ludlum, LLC are fully and unconditionally guaranteed by ATI.

Interest expense was $92.1 million in 2022, $97.6 million in 2021, and $96.1 million in 2020. Interest expense was reduced by $5.1 million, $4.3 million, and $7.7 million, in 2022, 2021, and 2020, respectively, from interest capitalization on capital projects. Interest and commitment fees paid were $92.8 million in 2022, $97.5 million in 2021, and $95.4 million in 2020. Net interest expense includes interest income of $4.7 million in 2022, $0.7 million in 2021, and $1.7 million in 2020.

Scheduled principal payments during the next five years are $41.7 million in 2023, $19.9 million in 2024, $457.8 million in 2025, $10.5 million in 2026, and $557.4 million in 2027. See Note 11, Leases, for the portion of these scheduled principal payments that are related to finance leases.

Debt Extinguishment Charges

In October 2021, ATI recognized a $65.5 million debt extinguishment charge on the redemption of its 5.875% Senior Notes due 2023 (2023 Notes), which included a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes as required by the applicable indenture, and a $1.0 million charge for deferred debt issue costs, as further discussed below.

In June 2020, ATI recognized a $21.5 million debt extinguishment charge on the partial redemption of its 4.75% Convertible Senior Notes due 2022 (the 2022 Convertible Notes), which included a $19.1 million cash make-whole payment related to the early extinguishment of the 2022 Convertible Notes partial redemption, as required by the applicable indenture, and a $2.4 million charge for deferred debt issue costs, as further discussed below.

2029 and 2031 Notes

On September 14, 2021, ATI issued $325 million aggregate principal amount of 4.875% Senior Notes due 2029 (2029 Notes) and $350 million aggregate principal amount of 5.125% Senior Notes due 2031 (2031 Notes). Interest on the 2029 Notes is payable semi-annually in arrears at a rate of 4.875% per year, and the 2029 Notes will mature on October 1, 2029. Interest on the 2031 Notes is payable semi-annually in arrears at a rate of 5.125% per year, and the 2031 Notes will mature on October 1, 2031. Total combined net proceeds of $665.7 million from both of these issuances were primarily used to fund the full redemption of the $500 million aggregate principal amount outstanding of the 2023 Notes on October 14, 2021, including a make-whole payment and accrued interest, resulting in a $65.5 million debt extinguishment charge.

Underwriting fees and other third-party expenses for the issuance of the 2029 and 2031 Notes were $4.7 million each, and are being amortized to interest expense over the 8-year and 10-year terms of the 2029 and 2031 Notes, respectively. The 2029 and 2031 Notes are unsecured and unsubordinated obligations of the Company and equally ranked with all of its existing and future senior unsecured debt. The 2029 and 2031 Notes restrict the Company’s ability to create certain liens, to enter into sale leaseback transactions, guarantee indebtedness and to consolidate or merge all, or substantially all, of its assets. The Company has the option to redeem the 2029 and 2031 Notes, as a whole or in part, at any time or from time to time, on at least 15 days, but not more than 60 days, prior notice to the holders of the Notes at redemption prices specified in the 2029 and 2031 Notes. The 2029 and 2031 Notes are subject to repurchase upon the occurrence of a change in control repurchase event (as defined in the 2029 and 2031 Notes) at a repurchase price in cash equal to 101% of the aggregate principal amount of the Notes repurchased, plus any accrued and unpaid interest on the 2029 or 2031 Notes repurchased, as applicable.

2025 Convertible Notes

In 2020, the Company issued $291.4 million aggregate principal amount of 3.5% Convertible Senior Notes due 2025 (2025 Convertible Notes). The Company used a portion of the net proceeds from the offering of the 2025 Convertible Notes to repurchase $203.2 million aggregate principal amount of its outstanding 2022 Convertible Notes, resulting in a $21.5 million debt extinguishment charge. The Company also used $19.4 million of the net proceeds of the offering of the 2025 Convertible Notes to pay the cost of capped call transactions, described below, which was recorded as a reduction to additional paid-in-capital in stockholders’ equity on the consolidated balance sheet. The remainder of the net proceeds from the offering were used for general corporate purposes.

As of December 31, 2022 and 2021, the fair value of the 2025 Convertible Notes was $590 million and $379 million, respectively, based on the quoted market price, which is classified in Level 1 of the fair value hierarchy. The 2025 Convertible Notes have a 3.5% cash coupon rate that is payable semi-annually in arrears on each June 15 and December 15, commencing December 15, 2020. Including amortization of deferred issuance costs, the effective interest rate is 4.2% for the years ended December 31, 2022 and 2021 and 8.4% for the year ended December 31, 2020. The effective interest rate is lower in 2022 and 2021 due to the early-adoption of new accounting guidance on January 1, 2021, as described below. Remaining deferred issuance costs were $4.8 million and $6.5 million at December 31, 2022 and 2021, respectively. Interest expense on the 2025 Convertible Notes was as follows:

	Fiscal year ended December 31,
(in millions)	2022		2021		2020
Contractual coupon rate	$	10.2	$	10.2	$	5.3
Amortization of debt issuance costs	1.8		1.7		0.7
Total interest expense	$	12.0	$	11.9	$	6.0

The Company does not have the right to redeem the 2025 Convertible Notes prior to June 15, 2023. On or after June 15, 2023 and prior to the 41st scheduled trading day immediately preceding the maturity date, the Company may redeem all or any portion of the 2025 Convertible Notes, at its option, at a redemption price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest if the last reported sale price of ATI’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on the trading day immediately preceding the date on which ATI provides written notice of redemption.

The initial conversion rate for the 2025 Convertible Notes is 64.5745 shares of ATI common stock per $1,000 principal amount of the 2025 Convertible Notes, equivalent to an initial conversion price of approximately $15.49 per share (18.8 million shares). Prior to the close of business on the business day immediately preceding March 15, 2025, the 2025 Convertible Notes will be convertible at the option of the holders of 2025 Convertible Notes only upon the satisfaction of specified conditions and during certain periods. Thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2025 Convertible Notes will be convertible at the option of holders of 2025 Convertible Notes at any time regardless of these conditions. Conversions of the 2025 Convertible Notes may be settled in cash, shares of ATI’s common stock or a combination thereof, at ATI’s election.

As a result of this flexible settlement feature of the 2025 Convertible Notes, the embedded conversion option was required to be separately accounted for as a component of stockholders’ equity. The value of the embedded conversion option was determined to be $51.4 million based on the estimated fair value of comparable senior unsecured debt without the conversion feature, using an income approach of expected present value. During the 2020 fiscal year, the equity component was amortized as additional non-cash interest expense, commonly referred to as phantom yield, over the term of the 2025 Convertible Notes using the effective interest method. As a result, as of December 31, 2020, $49.8 million of the 2025 Convertible Notes was recorded in additional paid-in-capital in stockholders’ equity ($51.4 million of the gross $291.4 million net of $1.6 million of allocated offering costs). Due to the non-cash phantom yield and including debt issue cost amortization, the 2025 Convertible Notes had reported interest expense in 2020 at an 8.4% rate, higher than the 3.5% cash coupon rate. Effective January 1, 2021, ATI early-adopted new accounting guidance as discussed in Note 1 that eliminated the equity component classification of the embedded conversion option, as well as the phantom yield portion of interest expense on a prospective basis. Upon adoption on January 1, 2021, long-term debt increased by $45.4 million representing the $46.8 million equity component of convertible debt as of December 31, 2020, net of reclassified debt issue costs.

Holders of the 2025 Convertible Notes may require ATI to repurchase their 2025 Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the 2025 Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In connection with certain corporate events or if ATI issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their 2025 Convertible Notes in connection with such corporate event or during the relevant redemption period.

In connection with the pricing of the 2025 Convertible Notes, ATI entered into privately negotiated capped call transactions with certain of the initial purchasers or their respective affiliates. The capped call transactions are expected generally to reduce potential dilution to ATI’s common stock upon any conversion of the 2025 Convertible Notes and/or offset any cash payments ATI is required to make in excess of the principal amount of converted 2025 Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the capped call transactions initially is approximately $19.76 per share, and is subject to adjustments under the terms of the capped call transactions.

2022 Convertible Notes

In 2022, $82.5 million of the 2022 Convertible Senior Notes were converted into 5.7 million shares of ATI common stock, with the remaining $1.7 million of outstanding principal balance paid in cash for notes that were not converted at the July 1, 2022 maturity date. The conversion rate for the 2022 Convertible Notes was 69.2042 shares of ATI common stock per $1,000 principal amount of the 2022 Convertible Notes, equivalent to a conversion price of $14.45 per share.

As of December 31, 2021, the fair value of the 2022 Convertible Notes was $102 million based on the quoted market price, which is classified in Level 1 of the fair value hierarchy. Interest on the 2022 Convertible Notes at the 4.75% cash coupon rate was payable semi-annually in arrears on each January 1 and July 1. Including amortization of deferred issuance costs, the effective interest rate was 5.4% for the fiscal years ended December 31, 2022, 2021 and 2020. Remaining deferred issuance costs were $0.3 million at December 31, 2021. Interest expense on the 2022 Convertible Notes was as follows:

	Fiscal year ended December 31,
(in millions)	2022		2021		2020
Contractual coupon rate	$	2.0	$	4.0	$	8.6
Amortization of debt issuance costs	0.3		0.5		1.0
Total interest expense	$	2.3	$	4.5	$	9.6

2023 Notes

The 5.875% stated interest rate payable on the 2023 Notes was subject to adjustment in the event of changes in the credit ratings on the 2023 Notes by either Moody’s or Standard & Poor’s. Each notch of credit rating downgrade from the credit ratings in effect when the 2023 Notes were issued in July 2013 increased interest expense by 0.25% on the 2023 Notes, up to a maximum 4 notches by each of the two rating agencies, or a total 2.0% potential interest rate change up to 7.875%. The annual interest rate on the 2023 Notes was at the maximum 7.875% from February 2016 until their redemption in October 2021 as discussed above.

Credit Agreements

On September 9, 2022, the Company amended and restated its Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of the Company’s operations. As amended, the ABL facility also provides the Company with the option of including certain machinery and equipment as additional collateral for purposes of determining availability under the facility. This amendment and restatement extended the ABL facility through September 2027 and includes an increase of $100 million in the revolving credit facility, to $600 million. The ABL continues to include a letter of credit sub-facility of up to $200 million, a $200 million term loan (ABL Term Loan), and a swing loan facility of up to $60 million. The ABL Term Loan can be prepaid in increments of $25 million if certain minimum liquidity conditions are satisfied. In addition, as amended, the Company has the right to request an increase of up to $300 million in the maximum amount available under the revolving credit facility for the duration of the ABL. The Company has a $50 million floating-for-fixed interest rate swap which converts a portion of the ABL Term Loan to a 4.21% fixed interest rate. The swap matures in June 2024.

The ABL, as amended, has interest rates that are consistent with the previous facility, replacing LIBOR with Secured Overnight Financing Rate (SOFR) plus an applicable SOFR adjustment. The ABL Term Loan, as amended, has an interest rate of 2.0% above adjusted SOFR. As amended, the applicable interest rate for revolving credit borrowings under the ABL facility includes interest rate spreads based on available borrowing capacity that range between 1.25% and 1.75% for SOFR-based borrowings and between 0.25% and 0.75% for base rate borrowings.

The ABL facility contains a financial covenant whereby the Company must maintain a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) 10% of the then applicable maximum loan amount under the revolving credit portion of the ABL and the outstanding ABL Term Loan balance, or (ii) $60.0 million. The Company was in compliance with the fixed charge coverage ratio as of December 31, 2022. Additionally, the Company must demonstrate minimum liquidity specified by the facility during the 90-day period immediately preceding the stated maturity date of its 3.5% Convertible Senior Notes due 2025 and the 6.95% Debentures due 2025 issued by the Company’s wholly owned subsidiary, Allegheny Ludlum LLC. Costs associated with entering into the ABL amendment were $2.4 million, and are being amortized to interest expense over the extended term of the facility ending September 2027, along with $1.7 million of unamortized deferred costs previously recorded for the ABL. The ABL, as amended, also contains customary affirmative and negative covenants for credit facilities of this type, including limitations on the Company’s ability to incur additional indebtedness or liens or to enter into investments, mergers and acquisitions, dispositions of assets and transactions with affiliates, some of which are more restrictive, at any time during the term of the ABL when the Company’s fixed charge coverage ratio is less than 1.00:1.00 and its undrawn availability under the revolving portion of the ABL is less than the greater of (a) $120 million or (b) 20% of the sum of the maximum loan amount under the revolving credit portion of the ABL and the outstanding ABL Term Loan balance.

As of December 31, 2022, there were no outstanding borrowings under the revolving portion of the ABL, and $39.8 million was utilized to support the issuance of letters of credit. There were no revolving credit borrowings under the ABL during 2022 or 2021. The Company also has foreign credit facilities, primarily in China, that total $60 million based on December 31, 2022 foreign exchange rates, under which $19.4 million and $27.4 million was drawn as of December 31, 2022 and 2021, respectively.

The Company has no off-balance sheet financing relationships as defined in Item 303(a)(4) of SEC Regulation S-K, with variable interest entities, structured finance entities, or any other unconsolidated entities. At December 31, 2022, the Company had not guaranteed any third-party indebtedness.