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. The interest rate swaps listed below manage interest rate risk associated with the forecasted future issuance of fixed-rate debt related to the expected refinancing of the maturing ITC Holdings 6.05% Senior Notes, due January 31, 2018. As of March 31, 2017, ITC Holdings had $385 million outstanding under the 6.05% Senior Notes.



Interest Rate Swaps (in millions, except percentages)	Notional Amount		Weighted Average Fixed Rate	Original Term	Effective Date
July 2016 swaps	$	75	1.616%	10 years	January 2018
August 2016 swap	25		1.599%	10 years	January 2018
March 2017 swaps	100		2.661%	10 years	December 2017
Total	$	200

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 swaps and December 5, 2017 for the March 2017 swaps. The agreements include a mandatory early termination provision and will be terminated no later than the effective date of the interest rate swaps of January 31, 2018 for the July and August swaps and December 5, 2017 for the March 2017 swaps. 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. ITC Holdings entered into an additional 10-year interest rate swap contract on April 4, 2017 with a notional amount of $50 million and fixed rate of 2.440%. This additional interest rate swap also manages interest rate risk associated with the expected refinancing of the 6.05% Senior Notes and has terms comparable to the March 2017 swaps described above.

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 March 31, 2017, the fair value of the derivative instruments was an asset of $8 million and a liability of $1 million. None of the interest rate swaps contain credit-risk-related contingent features. Refer to Note 10 for additional fair value information.

ITC Holdings

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 March 31, 2017, ITC Holdings had $135 million of commercial paper issued and outstanding under the program, with a weighted-average interest rate of 1.3% and weighted average remaining days to maturity of 26 days. The amount outstanding as of March 31, 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 1.9% at March 31, 2017.

ITC Midwest

On March 15, 2017, ITC Midwest priced $200 million of 4.16% First Mortgage Bonds, Series H, which were issued on April 18, 2017 and are 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

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 1.6% at March 31, 2017.

Revolving Credit Agreements

At March 31, 2017, ITC Holdings and certain of its Regulated Operating Subsidiaries had the following unsecured revolving credit facilities available:



(amounts in millions, except percentages)	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)	2.1%	(d)	0.175	%
ITCTransmission	100		18		82			1.9%	(e)	0.10	%
METC	100		55		45			1.9%	(e)	0.10	%
ITC Midwest	250		181		69			1.9%	(e)	0.10	%
ITC Great Plains	150		56		94			1.9%	(e)	0.10	%
Total	$	1,000	$	317	$	683

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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 $258 million as of March 31, 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.

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. As of March 31, 2017, we were not in violation of any debt covenant.