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. 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. In June 2013, we settled and terminated $250.0 million and $225.0 million of 10-year and 30-year term interest rate swaps, respectively, in conjunction with the Senior Notes issued at ITC Holdings described below. A summary of the terminated interest rate swaps is provided below:



Interest Rate Swaps	Amount		Weighted Average Fixed Rate	Gain (Loss) on Derivative			Settlement Date
(amounts in millions)
10-year interest rate swaps	$	250.0	3.70%	$	(15.0	)	June 2013
30-year interest rate swaps	225.0		2.82%	26.2			June 2013
Total	$	475.0		$	11.2

The interest rate swaps qualified for hedge accounting treatment and the net gain of $11.2 million was recorded net of tax in AOCI during the second quarter of 2013. This amount is being amortized as a component of interest expense over the lives of the related debt.

ITC Holdings

Term Loan Credit Agreement

On February 15, 2013, ITC Holdings entered into an unsecured, unguaranteed term loan credit agreement (the “2013 Term Loan”), due December 31, 2013, under which ITC Holdings originally borrowed the maximum of $250.0 million available under the agreement. As of September 30, 2013, ITC Holdings had $160.0 million outstanding under the 2013 Term Loan and no further borrowings are permitted thereunder. The proceeds from the 2013 Term Loan were used for general corporate purposes, including the repayment of borrowings under the ITC Holdings’ revolving credit agreement. The weighted average interest rate on the borrowings outstanding under the 2013 Term Loan was 1.2% at September 30, 2013.

Senior Unsecured Notes

On July 3, 2013, ITC Holdings issued $250.0 million aggregate principal amount of its 4.05% Senior Notes, due July 1, 2023 and $300.0 million aggregate principal amount of its 5.30% Senior Notes, due July 1, 2043. The proceeds from these issuances were used to repay its $267.0 million of 5.25% Senior Notes due July 15, 2013, the $200.0 million borrowed under an unsecured, unguaranteed term loan credit agreement entered into in 2012, a portion of the amount borrowed under the 2013 Term Loan and for general corporate purposes.

ITC Midwest

On April 4, 2013, ITC Midwest issued $100.0 million aggregate principal amount of 4.09% First Mortgage Bonds, Series F, due April 30, 2043. The proceeds from the issuance were used to refinance existing indebtedness, partially fund capital expenditures and for general corporate purposes. ITC Midwest’s First Mortgage Bonds are issued under its First Mortgage and Deed of Trust and secured by a first mortgage lien on substantially all of ITC Midwest’s property.

ITC Great Plains

On May 30, 2013, ITC Great Plains entered into a new unsecured, unguaranteed term loan credit agreement due November 28, 2014, under which ITC Great Plains had borrowed the maximum $100.0 million as of September 30, 2013. The proceeds were used to refinance existing indebtedness, fund capital expenditures and for general corporate purposes. The weighted average interest rate on the borrowings outstanding under the term loan was 1.0% at September 30, 2013.

ITCTransmission

Term Loan Credit Agreement

On July 11, 2013, ITCTransmission entered into a new unsecured, unguaranteed term loan credit agreement due July 14, 2014, under which ITCTransmission borrowed the maximum of $185.0 million upon entering the agreement. The proceeds were used to repay its $185.0 million of 4.45% First Mortgage Bonds, Series A, due July 15, 2013. This borrowing was repaid in full as of September 30, 2013.

First Mortgage Bonds

On August 14, 2013, ITCTransmission issued $285.0 million aggregate principal amount of 4.625% First Mortgage Bonds, Series E, due August 15, 2043. The proceeds from the issuance were used to repay its term loan credit agreement of $185.0 million and $100.0 million outstanding under an intercompany advance agreement between ITCTransmission and ITC Holdings. ITCTransmission’s First Mortgage Bonds are issued under its First Mortgage and Deed of Trust and secured by a first mortgage lien on substantially all of ITCTransmission’s property.

Revolving Credit Agreements

At September 30, 2013, ITC Holdings and its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available, each of which bears interest at a variable rate based on the prime rate or LIBOR (subject to adjustment based on credit rating):



(amounts in millions)	Total Available Capacity		Outstanding Balance (a)		Unused Capacity		Weighted Average Interest Rate on Outstanding Balance		Commitment Fee Rate (b)		Original Term	Date of Maturity
Revolving Credit Agreements:
ITC Holdings	$	200.0	$	—	$	200.0	n/a	(c)	0.25	%	5 years	May 2016
ITCTransmission	100.0		28.3		71.7		1.3%		0.125	%	5 years	May 2016
METC	100.0		54.4		45.6		1.3%		0.125	%	5 years	May 2016
ITC Midwest	175.0		94.7		80.3		1.2%		0.10	%	5 years	May 2017
ITC Great Plains	150.0		36.7		113.3		1.9%		0.30	%	4 years	February 2015
Total	$	725.0	$	214.1	$	510.9

____________________________


(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)	Loan bears interest at a rate equal to LIBOR plus an applicable margin of 1.75% or at a base rate, which is defined as the higher of the prime rate, 0.50% above the federal funds rate or 1% above the one month LIBOR, plus an applicable margin of 0.75%, subject to adjustments based on ITC Holdings’ 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 maintaining certain interest coverage ratios. We are currently in compliance with all debt covenants.