CONSOLIDATED DEBT (Notes)

12 Months Ended

Dec. 31, 2019

Notes To Financial Statements [Abstract]

Consolidated Debt

NOTE 15. CONSOLIDATED DEBT

Consolidated debt is as follows (in millions):

	Average Rate(1)		December 31, 2019			December 31, 2018
LONG-TERM DEBT:
Revolving credit facility	4.17	%	$	183		$	212
Term loan, net due 2023	4.26	%	384			394
Credit Facilities Sub-total			$	567		$	606
Senior Notes			1,200			1,200
Less: deferred financing costs related to senior notes			(14		)	(16		)
Senior Notes Sub-total			$	1,186		$	1,184
Tax-exempt bonds			$	544		$	494
Less: deferred financing costs related to tax-exempt bonds			(5		)	(6		)
Tax-Exempt Bonds Sub-total			$	539		$	488
Equipment financing arrangements due 2020 through 2031			85			59
Finance Leases (2)			6			5
Total long-term debt			$	2,383		$	2,342
Less: current portion			(17		)	(15		)
Noncurrent long-term debt			$	2,366		$	2,327
PROJECT DEBT:
Project debt related to service fee structures			$	47		$	58
Union County EfW facility finance lease (tip fee structure)			84			89
Project debt related to tip fee structures			—			3
Unamortized debt premium, net			2			3
Less: deferred financing costs			—			(1		)
Total project debt			$	133		$	152
Less: Current portion			(8		)	(19		)
Noncurrent project debt			$	125		$	133
TOTAL CONSOLIDATED DEBT			$	2,516		$	2,494
Less: Current debt			(25		)	(34		)
TOTAL NONCURRENT CONSOLIDATED DEBT			$	2,491		$	2,460

(1) During the year ended December 31, 2019 we entered into pay-fixed, receive-variable swap agreements on $150 million notional amount of our variable rate debt under the Credit Facilities. See Note 13. Derivative Instruments for further information.

(2) Excludes Union County EfW facility finance lease which is presented within project debt in our consolidated balance sheets.

Credit Facility Refinancing

In August 2018, our subsidiary, Covanta Energy, refinanced its existing credit facilities with an amended $1.3 billion senior secured credit facilities consisting of a $900 million revolving credit facility expiring August 2023 (the “Revolving Credit Facility”) and a $400 million term loan (the “Term Loan”), (collectively referred to as the "Credit Facilities").

We incurred approximately $7 million in financing costs related to the refinancing which will be deferred and amortized over the five year term of the Credit Facilities. In addition, the remaining unamortized deferred costs of $4 million on the previous credit facilities will also be deferred and amortized over the revised term of 5 years. A portion of the net proceeds of the new Term Loan were used to repay direct borrowings under the previous Revolving Credit Facility and pay transaction fees and expenses.

The Revolving Credit Facility is available for the issuance of letters of credit of up to $600 million, provides for a $50 million sub-limit for the issuance of swing line loans (a loan that can be requested in US Dollars on a same day basis for a short drawing period); and is available in US Dollars, Euros, Pounds Sterling, Canadian Dollars and certain other currencies to be agreed upon, in each case for either borrowings or for the issuance of letters of credit. The proceeds under the Revolving Credit Facility are

available for working capital and general corporate purposes of Covanta Energy and its subsidiaries. We have the option to establish additional term loan commitments and/or increase the size of the Revolving Credit Facility (collectively, the “Incremental Facilities”), subject to the satisfaction of certain conditions and obtaining sufficient lender commitments, in an amount up to the greater of $500 million and the amount that, after giving effect to the incurrence of such Incremental Facilities, would not result in a leverage ratio, as defined in the credit agreement governing our Credit Facilities (the “Credit Agreement”), exceeding 2.75:1.00.

Unutilized Capacity under Revolving Credit Facility

As of December 31, 2019, we had unutilized capacity under the Revolving Credit Facility as follows (in millions):

	Total Facility Commitment		Expiring	Direct Borrowings		Outstanding Letters of Credit		Unutilized Capacity
Revolving Credit Facility	$	900	2023	$	183	$	228	$	489

Repayment Terms

As of December 31, 2019, the Term Loan has mandatory principal payments of approximately $10 million in each year through 2022 and a final repayment of $355 million due at maturity in 2023. The Credit Facilities are pre-payable at our option at any time.

Interest and Fees

Borrowings under the Credit Facilities bear interest, at our option, at either a base rate or a Eurodollar rate plus an applicable margin determined by a pricing grid based on Covanta Energy’s leverage ratio. Base rate is defined as the higher of (i) the Federal Funds Effective Rate plus 0.50%, (ii) the rate the administrative agent announces from time to time as it's per annum “prime rate” or (iii) the London Interbank Offered Rate (“LIBOR”), or a comparable or successor rate, plus 1.00%. Base rate borrowings under the Revolving Credit Facility bear interest at the base rate plus an applicable margin ranging from 0.50% to 1.50%. Eurodollar borrowings under the Revolving Credit Facility bear interest at LIBOR plus an applicable margin ranging from 1.75% to 2.75%. Fees for issuances of letters of credit include fronting fees equal to 0.15% per annum and a participation fee for the lenders equal to the applicable interest margin for LIBOR rate borrowings. We will incur an unused commitment fee ranging from 0.30% to 0.50% determined by a pricing grid based on Covanta Energy’s leverage ratio on the unused amount of commitments under the Revolving Credit Facility.

Borrowings under the Term Loan bear interest at either (i) the base rate plus an applicable margin ranging from 0.75% to 1.00% or (ii) LIBOR plus an applicable margin ranging from 1.75% to 2.00%, in each determined by a pricing grid based on Covanta Energy’s leverage ratio.

Guarantees and Securitization

The Credit Facilities are guaranteed by us and by certain of our subsidiaries. The subsidiaries that are party to the Credit Facilities agreed to secure all of the obligations under the Credit Facilities by granting, for the benefit of secured parties, a first priority lien on substantially all of their assets, to the extent permitted by existing contractual obligations. The Credit Facilities are also secured by a pledge of substantially all of the capital stock of each of our domestic subsidiaries and 65% of substantially all the capital stock of each of our directly-owned foreign subsidiaries, in each case to the extent not otherwise pledged.

Credit Agreement Covenants

The loan documentation governing the Credit Facilities contains various affirmative and negative covenants, as well as financial maintenance covenants, that limit our ability to engage in certain types of transactions. We were in compliance with all of the affirmative and negative covenants under the Credit Facilities as of December 31, 2019.

The negative covenants of the Credit Facilities limit our and our restricted subsidiaries’ ability to, among other things:

• incur additional indebtedness (including guarantee obligations);

• create certain liens against or security interests over certain property;

• pay dividends on, redeem, or repurchase our capital stock or make other restricted junior payments; 

• enter into agreements that restrict the ability of our subsidiaries to make distributions or other payments to us;

• make investments;

• consolidate, merge or transfer all or substantially all of our assets and the assets of our subsidiaries on a consolidated basis;

• dispose of certain assets; and

• make certain acquisitions.

The financial maintenance covenants of the Credit Facilities, which are measured on a trailing four quarter period basis, include the following:

• A maximum Leverage Ratio of 4.00 to 1.00 for the trailing four quarter period, which measures the principal amount of Covanta Energy’s consolidated debt less certain restricted funds dedicated to repayment of project debt principal and construction costs (“Consolidated Adjusted Debt”) to its adjusted earnings before interest, taxes, depreciation and amortization, as calculated in the Credit Agreement (“Credit Agreement Adjusted EBITDA”). The definition of Credit Agreement Adjusted EBITDA in the Credit Facilities excludes certain non-recurring and non-cash charges and may incorporate certain pro forma adjustments.

•

A minimum Interest Coverage Ratio of 3.00 to 1.00, which measures Covanta Energy’s Credit Agreement Adjusted EBITDA to its consolidated interest expense plus certain interest expense of ours, to the extent paid by Covanta Energy as calculated in the Credit Agreement.

Senior Notes

The table below summarizes our aggregate principal amount of senior unsecured notes, our ("Senior Notes"):

Maturity	Rate	December 31, 2019		December 31, 2018
2027	6.000%	$	400	$	400
2025	5.875%	400		400
2024	5.875%	400		400
		$	1,200	$	1,200

Senior Notes due 2027 (the “2027 Senior Notes”)

In October 2018, we issued $400 million aggregate principal amount of Senior Notes due 2027. The 2027 Senior Note bear interest at 6.00% per annum, payable semi-annually on January 1 and July 1 of each year, commencing on July 1, 2019. Net proceeds from the sale of the 2027 Senior Notes were approximately $394 million and were used along with cash on hand and/or direct borrowings under our Revolving Credit Facility to fund the optional redemption of all of our 2022 Senior Notes.

During the year ended December 31, 2018, as a result of the redemption, we recorded a prepayment charge of $9 million and a write-off of the remaining deferred financing costs of $3 million recognized in our consolidated statements of operations as a Loss on extinguishment of debt. The 2027 Senior Notes are governed by and issued pursuant to the Indenture dated January 18, 2007 between us and Wells Fargo Bank, National Association, as trustee, (the “Base Indenture”) and the Sixth Supplemental Indenture dated as of October 1, 2018.

Senior Notes due 2025 (the "2025 Senior Notes")

In March 2017, we issued $400 million aggregate principal amount of 5.875% Senior Notes due July 2025. The 2025 Notes bear interest at 5.875% per annum, payable semi-annually on January 1 and July 1 of each year, beginning on July 1, 2017. Net proceeds from the sale of the 2025 Senior Notes were approximately $394 million and were used to fund the redemption of our 2020 Senior Notes.

During the year ended December 31, 2017, as a result of the redemption, we recorded a prepayment charge of $9 million and a write-off of the remaining deferred financing costs of $4 million recognized in our consolidated statements of operations as a Loss

on extinguishment of debt. The 2025 Senior Notes are governed by and issued pursuant to the Base Indenture and the Fifth Supplemental Indenture dated March 16, 2017.

Senior Notes due 2024 (the "2024 Senior Notes")

In March 2014, we issued $400 million aggregate principal amount of 5.875% Senior Notes due March 2024. The 2024 Senior Notes bear interest at 5.875% per annum, payable semi-annually on March 1 and September 1 of each year, commencing on September 1, 2014. The 2024 Senior Notes are governed by and issued pursuant to the Base Indenture and the Fourth Supplemental Indenture dated March 6, 2014.

Our Senior Notes are:

• general unsecured obligations of Covanta and are not guaranteed by any of our subsidiaries;

• rank equally in right of payment with all of our existing and future senior unsecured indebtedness that is not subordinated in right of payment to the Senior Notes;

• are effectively subordinated in right of payment to any of our existing and future secured indebtedness to the extent of the value of the assets securing such indebtedness;

• are structurally subordinated to any existing and future liabilities of any of our subsidiaries, including Covanta Energy, including their guarantees under certain of our Tax-Exempt Bonds;

• governed by the Base Indenture as supplemented by the supplemental indentures;

• are subject to redemption at our option, in whole or in part, subject to the terms of their respective supplemental indentures;

• are redeemable at our option using the proceeds of certain equity offerings subject to the terms of their respective supplemental indentures.

The indentures for our Senior Notes further may limit our ability and the ability of certain of our subsidiaries to:

•incur additional indebtedness;

•pay dividends or make other distributions or repurchase or redeem their capital stock;

•prepay, redeem or repurchase certain debt;

•make loans and investments;

•sell restricted assets;

•incur liens;

•enter into transactions with affiliates;

•alter the businesses they conduct;

•enter into agreements restricting our subsidiaries’ ability to pay dividends; and

•consolidate, merge or sell all or substantially all of their assets.

Tax-Exempt Bonds

Our Tax-Exempt Bonds are summarized in the table below:

Series	Maturity	Coupon	December 31, 2019		December 31, 2018
Pennsylvania Series 2019A	2039	3.250%	$	50	$	—
New Hampshire Series 2018A	2027	4.000%	20		20
New Hampshire Series 2018B	2042	4.625%	67		67
New Hampshire Series 2018C	2042	4.875%	82		82
New York Series 2018A	2042	4.750%	130		130
New York Series 2018B	2024	3.500%	35		35
Virginia Series 2018A-1	2038	5.000%	30		30
New Jersey Series 2015A	2045	5.250%	90		90
Pennsylvania Series 2015A	2043	5.000%	40		40
			$	544	$	494

In August 2019, we entered into a loan agreement with the Pennsylvania Economic Development Financing Authority under which they agreed to issue $50 million in aggregate principal amount of tax-exempt Solid Waste Disposal Bonds for the purpose of funding qualified capital expenditures at certain of our facilities in Pennsylvania and paying related costs of issuance (the “Pennsylvania Bonds”). The Pennsylvania Bonds bear interest at a fixed rate of 3.25%, payable on February 1 and August 1 of each year, and have a legal maturity of August 1, 2039. The Pennsylvania Bonds are senior unsecured obligations of Covanta Holding Corporation and are not guaranteed by any of our subsidiaries.

In September 2018, we completed a refinancing transaction involving the issuance by the National Finance Authority, a component unit of the Business Finance Authority of the State of New Hampshire, of $170 million aggregate principal amount of Resource Recovery Bonds Series 2018A, 2018B and 2018C ( the "New Hampshire Series”) and the issuance by the Niagara Area Development Corporation of $165 million aggregate principal amount of Solid Waste Disposal Facility Refunding Revenue Bonds Series 2018A and 2018B (the “New York Series”).

The net proceeds of both issuances were loaned to us for the purpose of redeeming the outstanding principal balance of our previously outstanding Massachusetts Development Finance Agency 2012 Series bonds and Niagara Area Development Corporation Series 2012 bonds.

In connection with the 2018 refinancing transaction, we recorded deferred financing costs of $3 million, which are being amortized over the term of the New Hampshire and New York Series bonds. In addition, we recorded a $3 million write-off of unamortized issuance costs associated with the previously outstanding debt which was recognized as a Loss on extinguishment of debt in our condensed consolidated statement of operations for the year ended December 31, 2018. The New Hampshire Series and New York Series bonds are our senior unsecured obligations and are not guaranteed by any of our subsidiaries.

In June 2018, we completed a financing transaction involving the issuance by the Virginia Small Business Financing Authority (the “VSBFA”) of $30 million in aggregate principal amount of Solid Waste Disposal Bonds due 2038 (the “2018 Virginia Series”). The VSBFA has approved an aggregate principal amount of $50 million for issuance and $20 million remains reserved for potential future issuance at our option. The 2018 Virginia Series bonds are payable semi-annually on January 1 and July 1, of each year, beginning January 1, 2019. The Virginia Series bonds have a legal maturity of January 1, 2048 but, are subject to a mandatory tender for purchase on July 1, 2038. We utilized the net proceeds of the 2018 Virginia Series to fund certain capital expenditures at our facilities in Virginia and paying related costs of issuance.  The Virginia Bonds are our senior unsecured obligations and are not guaranteed by any of our subsidiaries. Our New Jersey Series and Pennsylvania Series bonds are guaranteed by Covanta Energy.

Each of the respective loan agreements for our Tax-Exempt Bonds contain customary events of default, including failure to make any payments when due, failure to perform its covenants under the respective loan agreement, and our bankruptcy or insolvency. Additionally, each of the loan agreements contains cross-default provisions that relate to our other indebtedness. Upon the occurrence of an event of default, the unpaid balance of the loan under the applicable loan agreement will become due and payable immediately. Our Tax Exempt Bonds also contain certain terms including mandatory redemption requirements in the event that (i) the respective loan agreement is determined to be invalid, or (ii) the respective bonds are determined to be taxable. In the event of a mandatory redemption of the bonds, we will have an obligation under each respective loan agreement to prepay the respective loan in order to fund the redemption.

Union County EfW Facility Finance Lease Arrangement

In June 2016, we extended the lease term related to the Union County EfW facility through 2053, which resulted in capital lease treatment for the revised lease. We recorded a lease liability of $104 million, calculated utilizing an incremental borrowing rate of 5.0% which is included in long-term project debt on our consolidated balance sheet. The lease includes certain periods of contingent rentals based upon plant performance as either a share of revenue or a share of plant profits. These contingent payments have been excluded from the calculation of the lease liability and instead will be treated as a period expense when incurred.

Equipment Financing Arrangements

In 2014, we entered into equipment financing arrangements to finance the purchase of barges, railcars, containers and intermodal equipment related to our New York City contract. During March 2019, we commenced operations at the East 91st Street Marine Transfer Station, which is the second of a pair of marine transfer stations utilized under a 20-year waste transport and disposal agreement between Covanta and New York City's Department of Sanitation ("DSNY"). In accordance with the contract, we are responsible for purchasing and maintaining a sufficient number of transportation assets to allow the DSNY owned transfer stations to effectively handle the expected volumes of waste. As such, we entered into financing arrangements for the purchase of railcars,

trailers, containers and barges (the "Equipment") to continue to meet the requirements of the DSNY contract. We commenced investing in the Equipment during 2019 and borrowed $31 million during the twelve months ended December 31, 2019. The borrowings maturity dates range from 2024 and 2031 with fixed interest rates ranging from 3.55% to 4.75%.

The outstanding borrowings under the equipment financing arrangements were $85 million as of December 31, 2019, and have mandatory payments remaining as follows (in millions):

	2020		2021		2022		2023		2024		Thereafter
Future minimum payments	$	7	$	7	$	7	$	8	$	7	$	49

Depreciation associated with these assets is included in Depreciation and amortization expense on our consolidated statement of operations. For additional information see Note 1. Organization and Summary of Significant Accounting Policies - Property, Plant and Equipment.

PROJECT DEBT

The maturities of project debt as of December 31, 2019 are as follows (in millions):

	2020		2021		2022		2023		2024		Thereafter
Project debt (1)	$	2	$	2	$	2	$	2	$	2	$	37

(1) Amounts exclude the Union County EfW facility finance lease discussed above.

Project debt associated with the financing of energy-from-waste facilities is arranged by municipal entities through the issuance of tax-exempt and taxable revenue bonds or other borrowings. For those facilities we own, that project debt is recorded as a liability on our consolidated balance sheet. Generally, debt service for project debt related to Service Fee structures is the primary responsibility of municipal entities, whereas debt service for project debt related to Tip Fee structures is paid by our project subsidiary from project revenue expected to be sufficient to cover such expense.

Payment obligations for our project debt associated with energy-from-waste facilities are generally limited recourse to the operating subsidiary and non-recourse to us, subject to operating performance guarantees and commitments. These obligations are typically secured by the revenue pledged under the respective indentures and by a mortgage lien and a security interest in the respective energy-from-waste facility and related assets. As of December 31, 2019, such revenue bonds were collateralized by property, plant and equipment with a net carrying value of $511 million and restricted funds held in trust of approximately $7 million.

Rates on our project debt as of December 31, 2019 were as follows:

	Minimum		Maximum
Project debt related to service fee structures due through 2035	5.00	%	5.00	%
Project debt related to tip fee structures due through 2053(1)	5.00	%	5.25	%

(1) Union County EfW facility finance lease discussed above.

Financing Costs

All deferred financing costs are amortized to interest expense over the life of the related debt using the effective interest method. For each of the years ended December 31, 2019, 2018 and 2017 amortization of deferred financing costs included as a component of interest expense totaled $5 million, $5 million and $7 million, respectively.

Capitalized Interest

Interest expense paid and costs amortized to interest expense related to project financing are capitalized during the construction and start-up phase of the project. Total interest expense capitalized was as follows (in millions):

	Year Ended December 31,
	2019		2018		2017
Capitalized interest	$	—	$	—	$	17

Dublin Project Refinancing

During 2014, we executed agreements for project financing totaling €375 million to fund a majority of the construction costs of the Dublin EfW facility. The project financing package included: (i) €300 million of project debt under a credit facility agreement with various lenders which consisted of a €250 million senior secured term loan (the “Dublin Senior Term Loan due 2021”) and a €50 million second lien term loan (the “Dublin Junior Term Loan due 2022”), and (ii) a €75 million convertible preferred investment (the “Dublin Convertible Preferred”), which was committed by a leading global energy infrastructure investor.

On December 14, 2017, we executed agreements for project financing totaling €446 million ($534 million) to refinance the existing project debt and the Dublin Convertible Preferred. The new financing package included: (i) €396 million ($474 million) of senior secured project debt under a credit facility agreement between Dublin Waste to Energy Limited and various lenders (the “Dublin Senior Loan”) and (ii) a €50 million ($60 million) second lien term loan between Dublin Waste to Energy Group (Holdings) Limited and various lenders (the “Dublin Junior Loan”). The proceeds of the loans, along with other sources of funds, were utilized to repay (i) Dublin Senior Term Loan due 2021, (ii) the Dublin Junior Term Loan due 2022, (iii) the Dublin Convertible Preferred and (iv) transaction related fees and expenses.

During the year ended December 31, 2017, as a result of the Dublin project refinancing, we recorded the following charges to Loss on extinguishment of debt on our consolidated statement of operations: (i) a "make whole" payment on the Dublin Convertible Preferred of $41 million, (ii) $19 million of third party fees incurred in connection with the refinance and a write-off of part of the remaining deferred financing costs and (iii) unamortized debt discount and deferred financing costs of $11 million.