Short-term Borrowings and Other Debt Obligations

9 Months Ended

Sep. 30, 2019

Short-term Borrowings and Other Debt Obligations

Short-Term Borrowings and Other Debt Obligations



(Dollars in millions)	September 30, 2019		December 31, 2018
Debtor in Possession Term Loan	$	986	$	—
Debtor in Possession Revolving Credit Facility	400		—
364-Day Credit Agreement	—		317
A&R Credit Agreement	305		—
Other Short-term Loans	5		9
Current Portion of Long-term Debt (included current portion of Term Loan Agreement)	10		57
Debtor in Possession Financing, Short-term Borrowings and Current Portion of Long-term Debt	$	1,706	$	383

DIP Credit Agreement, Revolving Credit Agreements and Term Loan Agreement

The DIP Credit Agreement is comprised of the DIP Term Loan and the DIP Revolving Credit Facility. On July 3, 2019, the Debtors borrowed approximately $1.4 billion under the DIP Credit Agreement and the proceeds of the borrowings under the DIP Credit Agreement were used to repay certain prepetition indebtedness, cash collateralized certain obligations with respect to letters of credit and similar instruments and financed the working capital needs and general corporate purposes of the Debtors and certain of their subsidiaries. On July 3, 2019, the Company repaid all outstanding amounts due under the secured Term Loan Agreement and 364-Day Credit Agreement totaling approximately $616 million with borrowings from our DIP Credit Agreement, leaving only the A&R Credit Agreement with total borrowings of $305 million outstanding at September 30, 2019 to be repaid in full upon emergence from Bankruptcy on the Plan effective date under the terms of the RSA. In addition, we cash collateralized approximately $271 million of letters of credit and similar instruments with borrowings from the DIP Credit Agreement. See “Note 2 – Chapter 11 Proceedings and Ability to Continue as a Going Concern” for additional details regarding interest rates and terms of the DIP Credit Agreement.

The Term Loan Agreement required a quarterly payment of $12.5 million plus interest that became due on June 30, 2019. On July 1, 2019, the Debtors and the Term Loan Lenders entered into a Term Loan Forbearance Agreement where the lenders agreed to forbear from exercising their rights and remedies available to them, including the right to accelerate any indebtedness, for a specified period of time. As mentioned above, on July 3, 2019, the Company repaid in full its outstanding indebtedness under the Term Loan.

Loans under the A&R Credit Agreement were subject to varying interest rates based on whether the loan is a Eurodollar or alternate base rate loan. We also incurred a quarterly facility fee on the amount of the A&R Credit Agreement. For the three months ended September 30, 2019, the interest rate for the A&R Credit Agreement was LIBOR plus default interest of 2.0% in addition to a margin rate of 3.55% for extending lenders and a margin rate of 2.80% for non-extending lenders. For the three months ended September 30, 2019, the interest rate for alternate base rate borrowings under the A&R Credit Agreement, was alternate base rate plus default interest of 2.0% in addition to a margin rate of 2.55% for extending lenders and a margin rate of 1.80% for non-extending lenders. Prior to the repayment of the borrowings of the Term Loan and 364-Day Credit Agreement on July 3, 2019, the interest rate for borrowings under our Term Loan Agreement and 364-Day Credit Agreement were LIBOR plus a margin rate of 2.30% and LIBOR plus a margin rate of 3.05%, respectively.

Our A&R Credit Agreement contains customary events of default, including in the event of our failure to comply with our financial covenants. We must also maintain a leverage ratio of no greater than 2.5 to 1, a leverage and letters of credit ratio of no greater than 3.5 to 1, an asset coverage ratio of at least 4.0 to 1 and a current asset coverage ratio of at least 2.1 to 1, in each case with the terms and definitions for the ratios as provided in the A&R Credit Agreement. The filing of the Cases on July 1, 2019, constituted an event of default that accelerated the Company’s obligations under our credit agreements previously mentioned in “Note 2 – Chapter 11 Proceedings and Ability to Continue as a Going Concern”, however forbearance agreements were obtained for each agreement and efforts to enforce payments under these credit agreements were automatically stayed as a result of the Cases. See “Note 2 – Chapter 11 Proceedings and Ability to Continue as a Going Concern” for additional details regarding how the Plan and Transaction will impact the A&R Credit Agreement.

Senior Notes and Tender Offers

The Debtors’ 7.75% Senior Notes due 2021, 8.25% Senior Notes due 2023 and 6.80% Senior Notes due 2037 (together, the “Certain Senior Notes”) provide for an aggregate $69 million interest payment that became due on June 15, 2019. The applicable indenture governing the Certain Senior Notes provides a 30-day grace period that extended the latest date for making this interest payment to July 16, 2019, before an event of default will occur under the applicable indenture. The Debtors elected to not make this interest payment on the due date and to utilize the 30-day grace period provided by the indentures. As of June 30, 2019, there was no event of default. As a result of filing the Cases on July 1, 2019, an event of default occurred under each indenture governing the unsecured notes, which automatically accelerated maturity of the principal, plus any accrued and unpaid interest, on such series of unsecured notes and certain other obligations of the Debtors. Any efforts to enforce such payment obligations under the unsecured notes or other accelerated obligations of the Debtors are automatically stayed as a result of the Cases, and the creditors’ rights of enforcement in respect of the unsecured notes and other accelerated obligations of the Debtors are subject to the applicable provisions of the Bankruptcy Code. The interest and principal on this indebtedness remains unpaid as of this report date. At September 30, 2019, these instruments are now classified as “Liabilities Subject to Compromise” on our Condensed Consolidated Balance Sheets, see “Note 2 – Chapter 11 Proceedings and Ability to Continue as a Going Concern” for additional details.

In February 2018, we issued $600 million in aggregate principal amount of our 9.875% senior notes due 2025. At September 30, 2019, these instruments are now classified as liabilities subject to compromise. We used part of the proceeds from our debt offering to repay in full our 6.00% senior notes due March 2018 and to fund a concurrent tender offer to purchase for cash any and all of our 9.625% senior notes due 2019. We settled the tender offer in cash for the amount of $475 million, retiring an aggregate face value of $425 million and accrued interest of $20 million. In April 2018, we repaid the remaining principal outstanding on an early redemption of the notes. We recognized a cumulative loss of $34 million on these transactions in “Bond Tender and Call Premium” on the accompanying Condensed Consolidated Statements of Operations.

Other Short-term Arrangements and Debt Activity

We have short-term borrowings with various domestic and international institutions pursuant to uncommitted credit facilities. At September 30, 2019, we have $275 million of letters of credit under various uncommitted facilities to include those cash collateralized with borrowings from the DIP Credit Agreement and $104 million of letters of credit under the A&R Credit Agreement. At September 30, 2019, we have $371 million related to letters of credit included as “Restricted Cash” in the accompanying Condensed Consolidated Balance Sheets.

Fair Value of Short and Long-term Borrowings

The carrying value of our short-term borrowings approximates their fair value due to their short maturities. These short-term borrowings are classified as Level 2 in the fair value hierarchy.

The fair value of our long-term debt fluctuates with changes in applicable interest rates among other factors including the events occurring after releasing our first quarter and second quarter 2019 Form 10-Q (see “Note 2 – Chapter 11 Proceedings and Ability to Continue as a Going Concern” for additional details). Fair value is less than the carrying value since the market interest rate is greater than the interest rate at which the debt was originally issued. At September 30, 2019, these instruments are now classified as liabilities subject to compromise and will be impaired by the Plan. The fair value of our long-term debt is classified as Level 2 in the fair value hierarchy and is established based on observable inputs in less active markets. The discussion on fair value is continued at “Note 12 – Fair Value of Financial Instruments, Assets and Other Assets.” The fair value and carrying value of our senior notes were as follows:



(Dollars in millions)	September 30, 2019		December 31, 2018
Fair Value	$	2,617	$	4,455
Carrying Value	7,427		7,285