DEBT

Derivative Instruments and Hedging Activities

We may use derivative financial instruments, including interest rate swap contracts, to manage our exposure to fluctuations in interest rates at ITC Holdings. The use of these financial instruments mitigates exposure to these risks and the variability of our operating results. We are not a party to leveraged derivatives and do not enter into derivative financial instruments for trading or speculative purposes. The interest rate swaps listed below manage interest rate risk associated with the forecasted future issuance of fixed-rate debt at ITC Holdings, the proceeds of which will be used for (a) the expected repayment of the ITC Holdings 6.05% Senior Notes, due January 31, 2018, borrowings under the ITC Holdings Term Loan, due March 24, 2018, and borrowings under ITC Holdings’ revolving credit agreement and commercial paper program, and (b) general corporate purposes. As of September 30, 2017, ITC Holdings had $385 million outstanding under the 6.05% Senior Notes and $200 million outstanding under the Term Loan. The following table outlines the details of the interest rate swaps outstanding as of September 30, 2017:



Interest Rate Swaps As of September 30, 2017 (dollars in millions)	Notional Amount		Weighted Average Fixed Rate	Original Term	Effective Date
July 2016 swaps	$	75	1.616%	10 years	January 31, 2018
August 2016 swap	25		1.599%	10 years	January 31, 2018
March 2017 swaps	100		2.661%	10 years	December 5, 2017
April 2017 swap	50		2.440%	10 years	December 5, 2017
July 2017 swap	40		2.271%	10 years	December 5, 2017
August 2017 swap	85		2.262%	10 years	December 5, 2017
August 2017 swaps	300		1.860%	5 years	December 5, 2017
September 2017 swap	75		1.796%	5 years	December 5, 2017
Total	$	750

The 10-year term interest rate swaps call for ITC Holdings to receive interest quarterly at a variable rate equal to LIBOR and pay interest semi-annually at various fixed rates effective for the 10-year period beginning January 31, 2018 for the July and August 2016 swaps and December 5, 2017 for the March, April, July, and August 2017 swaps. The 5-year term interest rate swaps call for ITC Holdings to receive interest quarterly at a variable rate equal to LIBOR and pay interest semi-annually at various fixed rates effective for the 5-year period beginning December 5, 2017. The agreements include a mandatory early termination provision and will be terminated no later than the effective date of the interest rate swaps, as shown in the table above. The interest rate swaps have been determined to be highly effective at offsetting changes in the fair value of the forecasted interest cash flows associated with the expected debt issuance, resulting from changes in benchmark interest rates from the trade date of the interest rate swaps to the issuance date of the debt obligation.

The interest rate swaps qualify for cash flow hedge accounting treatment, whereby any gain or loss recognized from the trade date to the effective date for the effective portion of the hedge is recorded net of tax in accumulated other comprehensive income (“AOCI”). This amount will be accumulated and amortized as a component of interest expense over the life of the forecasted debt. As of September 30, 2017, the fair value of the derivative instruments was a current asset of $11 million and a current liability of $4 million. None of the interest rate swaps contain credit-risk-related contingent features. Refer to Note 10 for additional fair value information.

ITC Holdings

During the nine months ended September 30, 2017, ITC Holdings reclassified long-term debt for senior notes totaling $385 million, less unamortized deferred financing fees and discount, to debt maturing within one year in the condensed consolidated statements of financial position. During the nine months ended September 30, 2017, ITC Holdings repaid $50 million of 6.23% Senior Notes, due September 20, 2017.

Commercial Paper Program

ITC Holdings has an ongoing commercial paper program for the issuance and sale of unsecured commercial paper in an aggregate amount not to exceed $400 million outstanding at any one time. As of September 30, 2017, ITC Holdings had $229 million of commercial paper issued and outstanding under the program, with a weighted-average interest rate of 1.462% and weighted average remaining days to maturity of 18 days. As of December 31, 2016, ITC Holdings had $145 million of commercial paper issued and outstanding under the program. The amount outstanding as of September 30, 2017 was classified as debt maturing within one year in the condensed consolidated statements of financial position.

Term Loan Credit Agreement

On March 23, 2017, ITC Holdings entered into an unsecured, unguaranteed term loan credit agreement due March 24, 2018, under which ITC Holdings borrowed $200 million. The proceeds were used for general corporate purposes, including the repayment of borrowings under ITC Holdings’ revolving credit agreement and commercial paper program. The weighted-average interest rate on the borrowing outstanding under this agreement was 2.15% at September 30, 2017. The amount outstanding as of September 30, 2017 was classified as debt maturing within one year in the condensed consolidated statements of financial position.

ITC Midwest

On April 18, 2017, ITC Midwest issued $200 million of 4.16% First Mortgage Bonds, Series H, due April 18, 2047. The proceeds were used for general corporate purposes, including the repayment of borrowings under the ITC Midwest revolving credit agreement. ITC Midwest’s First Mortgage Bonds were issued under its First Mortgage and Deed of Trust and secured by a first mortgage lien on substantially all of its property.

ITCTransmission

During the nine months ended September 30, 2017, ITCTransmission reclassified long-term debt for first mortgage bonds totaling $100 million, less unamortized deferred financing fees and discount, to debt maturing within one year in the condensed consolidated statements of financial position.

Term Loan Credit Agreement

On March 23, 2017, ITCTransmission entered into an unsecured, unguaranteed term loan credit agreement due March 23, 2019, under which ITCTransmission borrowed $50 million. The proceeds were used for general corporate purposes, including the repayment of borrowings under ITCTransmission’s revolving credit agreement. The weighted-average interest rate on the borrowing outstanding under this agreement was 1.90% at September 30, 2017.

Revolving Credit Agreements

At September 30, 2017, ITC Holdings and certain of its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:



(dollars in millions)	Total Available Capacity		Outstanding Balance (a)		Unused Capacity			Weighted Average Interest Rate on Outstanding Balance		Commitment Fee Rate (b)
ITC Holdings	$	400	$	7	$	393	(c)	2.5%	(d)	0.175	%
ITCTransmission	100		23		77			2.2%	(e)	0.10	%
METC	100		54		46			2.2%	(e)	0.10	%
ITC Midwest	250		21		229			2.2%	(e)	0.10	%
ITC Great Plains	150		52		98			2.2%	(e)	0.10	%
Total	$	1,000	$	157	$	843

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(a)	Included within long-term debt.


(b)	Calculation based on the average daily unused commitments, subject to adjustment based on the borrower’s credit rating.

(c)

ITC Holdings’ revolving credit agreement may be used for general corporate purposes, including to repay commercial paper issued pursuant to the commercial paper program described above, if necessary. While outstanding commercial paper does not reduce available capacity under ITC Holdings’ revolving credit agreement, the unused capacity under this agreement adjusted for the commercial paper outstanding was $164 million as of September 30, 2017.


(d)	Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.25% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1.00% above the one month LIBOR, plus an applicable margin of 0.25%, subject to adjustments based on ITC Holdings’ credit rating.


(e)	Loans bear interest at a rate equal to LIBOR plus an applicable margin of 1.00% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1.00% above the one month LIBOR, subject to adjustments based on the borrower’s credit rating.

Revolving Credit Agreement Refinancing

On October 23, 2017, ITC Holdings, ITCTransmission, METC, ITC Midwest and ITC Great Plains entered into new, unsecured, unguaranteed revolving credit agreements, which replaced the previous revolving credit agreements described above. The new revolving credit agreements (a) extend the maturity date of the revolving credit agreements from March 2019 to October 2022 and (b) reduce the total available capacity for the revolving credit agreements for ITC Great Plains and ITC Midwest by $75 million and $25 million, respectively. The determination of the applicable interest rates and commitment fee rates in the new agreements is consistent with the previous agreements as described above and remain subject to adjustment based on the borrower’s credit rating.

Covenants

Our debt instruments contain numerous financial and operating covenants that place significant restrictions on certain transactions, such as incurring additional indebtedness, engaging in sale and lease-back transactions, creating liens or other encumbrances, entering into mergers, consolidations, liquidations or dissolutions, creating or acquiring subsidiaries, selling or otherwise disposing of all or substantially all of our assets and paying dividends. In addition, the covenants require us to meet certain financial ratios, such as maintaining certain debt to capitalization ratios and, under the new revolving credit agreements, certain funds from operations to total debt levels. As of September 30, 2017, we were not in violation of any debt covenant.