LONG-TERM DEBT

6 Months Ended

Jun. 30, 2022

In anticipation of our separation from International Paper, on August 16, 2021, we entered into a series of financing transactions in which we incurred long-term debt consisting of two term loans (“Term Loan F” and “Term Loan B”) and the 2029 Senior Notes. The proceeds of the debt were directly attributed to the Company and as such are reflected as long-term debt.

In addition to the debt noted above, the Company has the ability to access a five-year cash flow-based revolving credit facility with a total borrowing capacity of $450 million (“Revolving Credit Facility”). As of June 30, 2022, the Company had no outstanding borrowings on the Revolving Credit Facility. As of December 31, 2021, the Company had $20 million outstanding borrowings on the Revolving Credit Facility. The outstanding balance on the Revolving Credit Facility is recorded within “Notes payable and current maturities of long-term debt.”

Long-term debt is summarized in the following table:


In millions	June 30, 2022		December 31, 2021
Term Loan F - due 2027 (a)	$	506	$	512
Term Loan B - due 2028 (b)	348		401
7.00% Senior Notes - due 2029 (c)	443		443
Other	18		20
Less: current portion	(25)		(19)
Total	$	1,290	$	1,357

(a) As of June 30, 2022 and December 31, 2021, presented net of $4 million and $5 million in unamortized debt issuance costs, respectively.

(b) As of June 30, 2022 and December 31, 2021, presented net of $4 million and $5 million in unamortized debt issuance costs, respectively. As of June 30, 2022 and December 31, 2021, presented net of $3 million and $4 million in unamortized original issue discount paid, respectively.

(c) As of June 30, 2022 and December 31, 2021, presented net of $7 million and $7 million in unamortized debt issuance costs, respectively.

The 2029 Senior Notes are unsecured bonds with a 7.00% fixed interest rate, payable semi-annually. The obligations under the Term Loan F, Term Loan B and Revolving Credit Facility are secured by substantially all the tangible and intangible assets of Sylvamo and its subsidiaries, subject to certain exceptions, and along with the 2029 Senior Notes facility are guaranteed by Sylvamo and certain subsidiaries. The interest rates applicable to the Term Loan F, Term Loan B and revolving credit facility are based on a fluctuating rate of interest measured by reference to LIBOR plus a fixed percentage of 1.75%, 4.50% and 1.50%, respectively, payable monthly, with a LIBOR floor of 0.00% for the Term Loan F and Revolving Credit Facility and 0.50% floor for the Term Loan B.

We are receiving interest patronage credits under the Term Loan F. Patronage credits are distributions of profits from banks in the Farm Credit system, which as cooperatives are required to distribute a portion of profits to their members. Patronage distributions, which are made primarily in cash but also in equity in the lenders, are generally received in the first quarter of the year following that in which they were earned. Expected patronage credits are accrued in accounts and notes receivable as a reduction to interest expense in the period earned. After giving effect to expected patronage distributions of 90 basis points, of which 70 basis points is expected as a cash rebate, the effective net interest rate on the Term Loan F was approximately 2.52% and 1.05% as of June 30, 2022 and December 31, 2021, respectively.

In the fourth quarter of 2021 in connection with the Term Loan F, the Company entered into interest rate swaps with various counterparties with a notional amount of $400 million and maturities ranging from 2024 to 2026. These interest rate swaps allow for the Company to exchange the difference in the variable rates on Term Loan F determined in reference to LIBOR and the fixed interest rate per notional amount ranging from 1.05% to 1.40%. As of June 30, 2022, the fair value of these interest rate swaps was an asset of $26 million. As of December 31, 2021, the fair value of these interest rate swaps was immaterial. Fair values of interest rate swap assets are reflected in “Deferred charges and other assets.”

The Company is subject to certain covenants limiting, among other things, the ability of most of its subsidiaries to incur additional indebtedness or issue certain preferred shares; pay dividends on or make distributions in respect of the Company’s or its subsidiaries’ capital stock or make investments or other restricted payments; create restrictions on the ability of the Company’s restricted subsidiaries to pay dividends to the Company or make certain other intercompany transfers; sell certain assets; create liens; consolidate, merge, sell or otherwise dispose of all or substantially all of the Company’s assets; and enter into certain transactions with its affiliates.

With respect to the Revolving Credit Facility and Term Loan F Facility, the Company is required to comply with a minimum consolidated interest charge coverage ratio of 3.00 to 1.00 and a maximum consolidated total leverage ratio of 4.25 to 1.00, stepping down to 4.00 to 1.00 following the third quarter of 2022, and with a further step down to 3.50 to 1.00 on and after September 13, 2023, if and so long as certain conditions remain unsatisfied that relate to the Company’s potential liability in connection with the Brazil Tax Dispute. In addition, until certain conditions related to the Company’s potential liability in connection with the Brazil Tax Dispute have been satisfied, the Company’s ability to make certain restricted payments will be capped at an annual amount equal to $25 million, which amount shall be increased to $50 million in any calendar year if the Company’s pro forma consolidated total leverage ratio is below 2.50 to 1.00 and $75 million in any calendar year if the Company’s pro forma consolidated total leverage ratio is below 2.00 to 1.00.