Borrowings and Other Obligations

3 Months Ended

Mar. 31, 2020



(Dollars in millions)	3/31/2020		12/31/2019
Finance Lease Current Portion	$	11	$	10
Other Short-term Loans	15		3
Short-term Borrowings	$	26	$	13

Long-term Debt	$	2,149	$	2,151

Credit Agreements

ABL Credit Agreement

On December 13, 2019, the Company entered into a senior secured asset-based revolving credit agreement in an aggregate amount of $450 million (the “ABL Credit Agreement”) with the lenders party thereto and Wells Fargo Bank, N.A. as administrative agent. Among other things, proceeds of loans under the ABL Credit Agreement may be used to finance ongoing working capital and general corporate needs of the Company and certain of its subsidiaries. The facility may also be used for issuing letters of credit. The maturity date of loans made under the ABL Credit Agreement is June 13, 2024. At March 31, 2020, the Company did not have any borrowings under the ABL Credit Agreement, had approximately $235 million borrowing availability under the facility and had utilized $140 million related to letters of credit issued.

On May 6, 2020, the Company borrowed $100 million under its ABL Revolving Credit Agreement to strengthen its cash liquidity position.

The applicable terms, interest rates and fees for borrowings under the ABL Credit Agreement are the same as those presented in “Note 13 – Short-Term Borrowings and other Debt Obligations” in our 2019 Annual Report.

LC Credit Agreement

On December 13, 2019, the Company entered into a senior secured letter of credit agreement in an aggregate amount of $195 million (the “LC Credit Agreement,” together with the ABL Credit Agreement, the “Exit Credit Agreements”) with the lenders party thereto and Deutsche Bank Trust Company Americas as administrative agent. The LC Credit Agreement is used for the issuance of bid and performance letters of credit of the Company and certain of its subsidiaries. The maturity date under the LC Credit Agreement is June 13, 2024. At March 31, 2020, the Company had approximately $120 million in outstanding letters of credit under the LC Credit Agreement.

The applicable terms, interest rates and fees for borrowings under the LC Credit Agreement are the same as those presented in “Note 13 – Short-Term Borrowings and other Debt Obligations” in our 2019 Annual Report.

As of March 31, 2020, we were in compliance with these financial covenants as defined in the Exit Credit Agreements and in the covenants under our indentures. However, the full impact that the pandemic and the precipitous decline in oil prices will have on our results of operations, financial condition, liquidity and cash flows is uncertain. The actions taken by management to preserve liquidity and capital include the borrowing under our ABL Revolving Credit Agreement, reduction of capital expenditures, consolidation of product lines to eliminate redundancy, exiting from sub-scale locations and a higher level of headcount reductions. In addition, the precipitous decline in activity will ultimately result in a significant decline in our accounts receivable balance, particularly in North America, which comprises the most significant component of our credit facility borrowing base and will further impair our ability to comply with the covenants under the ABL Revolving Credit Agreement. Despite all the actions we have taken and are taking, we expect that a breach of our covenants under the ABL Revolving Credit Agreement is forthcoming. A breach of the financial covenants under our ABL Credit Agreement would constitute an event of default under our ABL Credit Agreement and if not cured or waived, would potentially constitute an event of default under our LC Credit Agreement and our unsecured Exit Notes. An event of default under these agreements could result in the obligations under these agreements being accelerated or cash collateralized. Either such result would constrain liquidity to the point where we would not be able to service the interest on our debt or pay other obligations and thus, raises substantial doubt on the Company’s ability to continue as a going concern within the next 12 months. See “Note1 - General” for further details.

Other Short-term Arrangements and Debt Activity

We have short-term borrowings with various domestic and international institutions pursuant to uncommitted credit facilities and other financing arrangements. At March 31, 2020, we had $15 million in short-term borrowings under these arrangements.

As of March 31, 2020, we had $361 million of letters of credit and performance and bid bonds outstanding, consisting of $140 million of letters of credit under the ABL Credit Agreement, $120 million of letters of credit under the LC Credit Agreement and $101 million of letters of credit under various uncommitted facilities. At March 31, 2020, we had cash collateral of $91 million, included in Restricted Cash supporting letters of credit under our various uncommitted facilities.

Long-term Debt

On December 13, 2019, we issued unsecured 11.00% senior notes due in 2024 (“Exit Notes “) in an aggregate principal amount of $2.1 billion. Interest on the Exit Notes accrues at the rate of 11.00% per annum and will be payable semiannually in arrears on June 1 and December 1, commencing on June 1, 2020. The Exit Notes mature on December 1, 2024.

The indenture governing the Exit Notes contains covenants that limit, among other things, the Company’s ability and the ability of certain of its subsidiaries, to: incur, assume or guarantee additional indebtedness; pay dividends or distributions on capital stock or redeem or repurchase capital stock; make investments; sell stock of its subsidiaries; transfer or sell assets; create liens; enter into transactions with affiliates; and enter into mergers or consolidations. At March 31, 2020, we are in compliance with our indenture covenants. However, as noted above, a breach under the ABL Revolving Credit Agreement that is not cured or waived, could trigger an event of default under our unsecured Exit Notes.

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. Fair value will exceed carrying value when the current market interest rate is lower than the interest rate at which the debt was originally issued and will be less than the carrying value when the market rate is greater than the interest rate at which the debt was originally issued. 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.



(Dollars in millions)	3/31/2020		12/31/2019
Fair Value	$	1,260	$	2,252
Carrying Value	2,098		2,097

The total fair value of our debt decreased significantly during the first quarter of 2020, primarily due to the negative impact on our business and industry associated with the COVID-19 pandemic, OPEC+ disagreements and credit rating agency downgrades as described in “Note 1 – General”. These events have collectively increased the credit spreads for our publicly traded bonds, thus reducing the associated fair value.