Notes payable and long-term debt

9 Months Ended

Sep. 30, 2023

Debt Disclosure [Abstract]

Notes payable and long-term debt

Notes payable and long-term debt

The following table presents the components of Notes payable at September 30, 2023 and December 31, 2022:

	September 30, 2023				December 31, 2022
(millions)	Principal amount		Effective interest rate		Principal amount		Effective interest rate
U.S. commercial paper	$	—	5.44	%	$	330	4.46	%
Bank borrowings	353				137
Total	$	353			$	467

On September 29, 2023, in connection with the planned separation, WK Kellogg Co entered into a Credit Agreement (the “Credit Agreement”), consisting of a $500 million (the "Term Loan"), $250 million delayed draw term loan, and $350 million equivalent multicurrency revolving credit facility (collectively, the “Credit Facility”).

The Credit Facility has an initial term of five years and matures on September 29, 2028. Interest on the loans under the Credit Agreement are to be calculated by reference to Secured Overnight Financing Rate (“SOFR”) or an alternative base rate, plus an interest rate margin equal to (x) in the case of SOFR loans, 1.75% and (y) in the case of alternate base rate loans, 0.75%, each with related step-ups and step-downs based on WK Kellogg Co’s consolidated net leverage ratio as defined by the Credit Agreement. Interest expense for the quarter and year-to-date period ended September 30, 2023 was immaterial.

Under the Credit Facility, WK Kellogg Co has the right at any time, subject to customary conditions, to request incremental term loans or an increase to the revolving credit facility in an aggregate principal amount of (i) up to the greater of (x) $250 million and (y) 100% of Consolidated EBITDA, as defined in the Credit Agreement, for the preceding four fiscal quarters of WK Kellogg Co. Any such addition of or increase in loans will be subject to certain customary conditions precedent and other provisions.

The Credit Facility also contains customary mandatory prepayments, including with respect to asset sale proceeds and proceeds from certain occurrences of indebtedness. WK Kellogg Co may voluntarily repay outstanding loans under the Credit Facility at any time without premium or penalty.

The Term Loan amortizes in equal quarterly installments in an aggregate annual amount equal to 2.50% in year one, 5.00% in year two and three, 7.50% in year four and 10.00% in year five, of the original principal amount thereon, with the balance being payable on the date that is five years after the closing of the Credit Facility.

The obligations under the Credit Facility (collectively, “Credit Facility Obligations”) are guaranteed (the “Credit Facility Guarantees”) exclusively by the existing and future direct and indirect subsidiaries of WK Kellogg Co (in such capacity, the “Credit Facility Guarantors”). The Credit Facility Obligations are expected to be secured by first priority liens on substantially all assets, subject to customary exceptions, of WK Kellogg Co and the Credit Facility Guarantors. The Credit Facility Guarantee and security interest of a Credit Facility Guarantor may be released where such Credit Facility Guarantor ceases to be a consolidated subsidiary of WK Kellogg Co pursuant to a transaction permitted under the Credit Facility. The Credit Facility contains various covenants, including, for example, those that restrict WK Kellogg Co's ability and the ability of their consolidated subsidiaries to incur certain types of indebtedness or to grant certain liens on their respective property or assets.

WK Kellogg Co incurred $7 million of debt issuance costs, of which $5 million is related to the term loan and is reflected as a reduction in long-term debt, and $2 million is related to the revolving credit facility and is reflected in other assets.

As of September 30, 2023, WK Kellogg Co borrowings under the Credit Facility included a $500 million term loan, of which $9 million represents the current portion, and $164 million of borrowings under the revolving credit facility was recognized as notes payable.

During the first quarter of 2023, Kellanova issued $400 million of ten-year 5.25% Notes due 2033, resulting in net proceeds after discount and underwriting commissions of $396 million. The proceeds from these notes were used for general corporate purposes, including the payment of offering related fees and expenses, repayment of the $210 million 2.75% Notes when they matured on March 1, 2023, and repayment of a portion of commercial paper borrowings. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions, as well as a change of control provision.

In connection with the debt issuance, Kellanova terminated forward starting interest rate swaps with notional amounts totaling $400 million, resulting in a gain of $47 million in the first quarter of 2023. These derivatives were accounted for as cash flow hedges. The total net gain of $91 million, including those realized in prior periods, were recorded in accumulated other comprehensive income and will be amortized to interest expense over the term of the Notes. The effective interest rate on the Notes, reflecting issuance discount and hedge settlement is 3.06% at April 1, 2023.