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Debt and Finance Lease Liability
 9 Months Ended
Sep. 30, 2025
Debt Disclosure [Abstract]  
Debt and Finance Lease Liability
Note 7. Debt and Finance Lease Liability
Long-term debt consisted of the following:
September 30, 2025December 31, 2024
Term Loan B due 2027 (1)
$2,102 $2,593 
Incremental Term Facility due 2028340 370 
Incremental Term Facility due 2029172 187 
Incremental Term Facility due 2031322 349 
Revolving Credit Facility (2)
— — 
Securitization Facility (3)
100 100 
4.900% Senior Notes due 2028 (4)
750 750 
Unamortized debt issuance costs(17)(28)
Total debt3,769 4,321 
Finance lease liability (5)
255 — 
4,024 4,321 
Less current portion of long-term debt and finance lease liability62 44 
Total long-term debt and finance lease liability$3,962 $4,277 
(1)On October 31, 2025, we repaid our Term Loan B due 2027 in full with the proceeds from three new debt facilities entered into on the same date (see below for further details).
(2)Our Revolving Credit Facility provides up to $750 million in borrowing capacity, bears interest at Term SOFR plus a spread dependent on our Net Total Leverage Ratio, as defined within the agreement, which was 1.60% at September 30, 2025, and matures in July 2029. During the nine months ended September 30, 2025, we drew $125 million on our Revolving Credit Facility, which we subsequently repaid with the proceeds from a draw on our Securitization Facility.
(3)Our Securitization Facility is secured and collateralized by our U.S. Net Eligible Receivables Balance. On June 25, 2025, we amended our Securitization Facility, which extended its maturity through June 2028 and made other amendments to certain covenants and other terms of the agreement. As of September 30, 2025, our Securitization Facility bears interest at Term SOFR plus 1.25%. Our borrowing capacity under our Securitization Facility is subject to monthly fluctuation based on the level of our borrowing base as reported to the lender. During the nine months ended September 30, 2025, we both drew and subsequently repaid $125 million on our Securitization Facility.
(4)Subsequent to issuance in August 2018, our 4.900% Senior Notes due 2028 have been subject to interest rate increases related to credit rating agency downgrades. As of September 30, 2025, these notes bear interest at a rate of 6.650%.
(5)In June 2025, we entered into a finance lease arrangement for our new corporate headquarters. See below for further details.
October 2025 Debt Financing
On October 31, 2025, we entered into three new debt facilities (described below) for aggregate gross proceeds of $2,106 million. We simultaneously repaid our Term Loan B due 2027 in full utilizing these proceeds, net of issuance costs and discounts of approximately $28 million, and cash on hand. With this repayment, all obligations and
commitments under our Term Loan B due 2027 have been satisfied. Further, concurrent with the repayment of our Term Loan B due 2027, we also settled previously outstanding interest rate swaps with an aggregate $500 million notional amount (see Note 8. Financial Instruments for additional information). Each of our new debt facilities are secured by a significant portion of our assets. Key terms of the new debt facilities are as follows:
Euro Term Loan A due 2029
On October 31, 2025, we entered into a Euro Term Loan A facility (the Euro Term Loan) in the amount of €400 million. The Euro Term Loan bears interest at the Euro Interbank Offered Rate (EURIBOR) plus a spread dependent on our Net Total Leverage Ratio, as defined within the agreement, which will initially be set at 1.50%, and amortizes in quarterly required principal payments of 1.875%, with a final balloon payment due on the scheduled maturity of April 1, 2029. Our Euro Term Loan has both a net total leverage ratio covenant and an interest coverage ratio covenant. The net total leverage ratio covenant requires us to maintain a net total leverage ratio (which is not subject to step-downs) as of the end of each quarter. The required level of this covenant is based on our pro forma net debt and pro forma adjusted earnings before interest, taxes, depreciation and amortization (adjusted EBITDA) not to exceed 7.71 to 1.00 of our pro forma adjusted EBITDA for the preceding four fiscal quarters. The interest coverage ratio requires us to maintain a ratio of pro forma adjusted EBITDA to cash interest expense for the preceding four fiscal quarters of no less than 2.00 to 1.00.
Term Loan B due 2032
On October 31, 2025, we entered into a new Term Loan B (the Term Loan B due 2032) in the amount of $1,100 million. The Term Loan B due 2032 bears interest at Term SOFR plus 1.75% and amortizes in quarterly required principal payments of 0.25%, with a final balloon payment due on the scheduled maturity date of October 31, 2032.
Incremental Term Facility due 2032
On October 31, 2025, we also entered into an incremental term facility with an aggregate principal amount of $540 million (the Incremental Term Facility due 2032). The Incremental Term Facility due 2032 bears interest at Term SOFR plus 2.25% and amortizes in quarterly required principal payments of 0.25%, with a final balloon payment due on the scheduled maturity date of October 31, 2032.
Subsequent to the above noted financing activities, approximately 80% of our long-term indebtedness, excluding our finance lease liability, bore interest at a fixed rate, including variable-rate debt converted to fixed-rate through the use of interest rate swaps (see Note 8. Financial Instruments for additional information). We were in compliance with all of our debt covenants as of September 30, 2025.
Finance Lease Liability
In June 2025, we commenced a five-year finance lease for our new corporate headquarters in Indianapolis, Indiana. This lease contains both an option for Elanco to purchase the headquarters facility and a put right for the landlord to put the facility to us, both of which, if exercised, would occur at the end of the five-year lease term for $250 million. It is our current expectation that we will exercise our purchase option at the end of the lease term. Based on our review of the terms of this lease, we determined classification as a finance lease to be appropriate. Minimum lease payments over the next five years will be due monthly and aggregate to $83 million in total. These payments, along with the purchase option amount, were discounted based on our incremental borrowing rate of 6.375%, and our total finance lease liability is split between current and long-term based on the timing of expected minimum lease payments. The corresponding right-of-use (ROU) asset for this lease of $224 million, as of September 30, 2025, was included within property and equipment, net in our condensed consolidated balance sheet. The liability for this finance lease exceeded the ROU asset primarily due to lease incentives, offset by prepayments made by us prior to lease commencement.
Additionally, as previously disclosed, the land for our new corporate headquarters is located in a Tax Increment Finance District, and the project was, in part, funded through Tax Incremental Financing through an incentive agreement between the City of Indianapolis and Elanco. The agreement provided for a total incentive of $64 million to be funded by the City of Indianapolis in connection with the future tax increment revenue generated from the developed property. This amount was included as an accrued incentive, principally within other noncurrent liabilities, on our condensed consolidated balance sheet at lease inception, and is being amortized over the period we expect to benefit from the use of the new headquarters. This amortization partially off-sets the depreciation associated with this finance lease ROU asset being recorded within marketing, selling and administrative expenses within our condensed consolidated statements of operations.