Short-Term and Long-Term Debt

12 Months Ended

Dec. 31, 2019

Short-Term and Long-Term Debt [Abstract]

13. Short-Term and Long-Term Debt

Details underlying short-term and long-term debt (in millions) were as follows:



	As of December 31,
	2019			2018
Short-Term Debt
Current maturities of long-term debt	$	300		$	-
Total short-term debt	$	300		$	-

Long-Term Debt, Excluding Current Portion
Senior notes:
6.25% notes, due 2020 ⁽¹⁾	$	-		$	300
4.85% notes, due 2021 ⁽¹⁾		296			300
4.20% notes, due 2022 ⁽¹⁾		300			300
LIBOR + 100 bps loan, due 2023		-			200
4.00% notes, due 2023 ⁽¹⁾		500			500
LIBOR + 87.5 bps loan, due 2024		250			-
3.35% notes, due 2025 ⁽¹⁾		300			300
3.63% notes, due 2026 ⁽¹⁾		400			400
3.80% notes, due 2028 ⁽¹⁾		500			500
3.05% notes, due 2030 ⁽¹⁾		500			-
6.15% notes, due 2036 ⁽¹⁾		243			348
6.30% notes, due 2037 ⁽¹⁾⁽²⁾		375			375
7.00% notes, due 2040 ⁽¹⁾⁽²⁾		500			500
4.35% notes, due 2048 ⁽¹⁾		450			450
Total senior notes		4,614			4,473

Capital securities:
LIBOR + 236 bps, due 2066⁽³⁾		722			722
LIBOR + 204 bps, due 2067 ⁽³⁾		491			491
Total capital securities		1,213			1,213
Unamortized premiums (discounts)		(4	)		(3	)
Unamortized debt issuance costs		(34	)		(33	)
Unamortized adjustments from discontinued hedges		118			123
Fair value hedge on interest rate swap agreements		160			66
Total long-term debt	$	6,067		$	5,839

⁽¹⁾We have the option to repurchase the outstanding notes by paying the greater of 100% of the principal amount of the notes to be redeemed or the make-whole amount (as defined in each note agreement), plus in each case any accrued and unpaid interest as of the date of redemption.

⁽²⁾Categorized as operating debt for leverage ratio calculations as the proceeds were primarily used as a long-term structured solution to reduce the strain on increasing statutory reserves associated with secondary guarantee UL and term policies.

⁽³⁾To hedge the variability in rates, we purchased interest rate swaps to lock in a fixed rate of approximately 5% over the remaining terms of the capital securities.

Details underlying the recognition of a gain (loss) on the early extinguishment of debt (in millions) reported within interest expense on our Consolidated Statements of Comprehensive Income (Loss) were as follows:



	For the Years Ended December 31,
	2019			2018			2017
Principal balance outstanding prior to payoff ⁽¹⁾	$	109		$	287		$	-
Unamortized debt issuance costs and discounts		(1	)		(1	)		5
Amount paid to retire debt		(150	)		(309	)		-
Gain (loss) on early extinguishment of debt, pre-tax	$	(42	)	$	(23	)	$	5

⁽¹⁾During the third quarter of 2019, we repurchased $105 million of our 6.15% senior notes due 2036 and $4 million of our 4.85% senior notes due 2021. During the first quarter of 2018, we repurchased $287 million of our 8.75% senior notes due 2019.

Future principal payments due on long-term debt (in millions) as of December 31, 2019, were as follows:



2020	$	300
2021		296
2022		300
2023		500
2024		250
Thereafter		4,481
Total	$	6,127

For our long-term debt outstanding, unsecured senior debt, which consists of senior notes, fixed-rate notes and other notes with varying interest rates, ranks highest in priority, followed by capital securities.

Credit Facilities and Letters of Credit

Credit facilities, which allow for borrowing or issuances of letters of credit (“LOCs”), and LOCs (in millions) were as follows:



		As of December 31, 2019
	Expiration	Maximum		LOCs
	Date	Available		Issued
Credit Facilities
Five-year revolving credit facility	July 31, 2024	$	2,250	$	346
LOC facility⁽¹⁾	August 26, 2031		990		965
LOC facility⁽¹⁾	October 1, 2031		982		982
Total		$	4,222	$	2,293

⁽¹⁾Our wholly-owned subsidiaries entered into irrevocable LOC facility agreements with third-party lenders supporting inter-company reinsurance agreements.

On July 31, 2019, we refinanced our existing credit facility with a syndicate of banks. This facility (the “credit facility”) allows for the issuance of LOCs and borrowing of up to $2.25 billion. The credit facility is unsecured and has a commitment termination date of July 31, 2024. The LOCs under the credit facility are used primarily to satisfy reserve credit requirements of (i) our domestic insurance companies for which reserve credit is provided by our affiliated reinsurance companies and (ii) certain ceding companies of our legacy reinsurance business.

The credit agreement governing the credit facility contains or includes:

Customary terms and conditions, including covenants restricting our ability to incur liens, merge or consolidate with another entity where we are not the surviving entity and dispose of all or substantially all of our assets;

Financial covenants including maintenance of a minimum consolidated net worth (as defined in the credit agreement) equal to the sum of $10.6 billion plus 50% of the aggregate net proceeds of equity issuances received by us as set forth in the credit agreement; and a debt-to-capital ratio as defined in accordance with the credit facility not to exceed 0.35 to 1.00;

A cap on secured non-operating indebtedness and non-operating indebtedness of our subsidiaries equal to 7.5% of total capitalization, as defined in accordance with the credit agreement; and

Customary events of default, subject to certain materiality thresholds and grace periods for certain of those events of default.

Upon an event of default, the credit agreement provides that, among other things, the commitments may be terminated and the loans then outstanding may be declared due and payable. As of December 31, 2019, we were in compliance with all such covenants.

Our LOC facility agreements each contain customary terms and conditions, including early termination fees, covenants restricting the ability of the subsidiaries to incur liens, merge or consolidate with another entity and dispose of all or substantially all of their assets. Upon an event of early termination, the agreements require the immediate payment of all or a portion of the present value of the future LOC fees that would have otherwise been paid. Further, the agreements contain customary events of default, subject to certain materiality thresholds and grace periods for certain of those events of default. The events of default include payment defaults, covenant defaults, material inaccuracies in representations and warranties, bankruptcy and liquidation proceedings and other customary defaults. Upon an event of default, the agreements provide that, among other things, obligations to issue, amend or increase the amount of any LOC shall be terminated and any obligations shall become immediately due and payable. As of December 31, 2019, we were in compliance with all such covenants.

Shelf Registration

We currently have an effective shelf registration statement, which allows us to issue, in unlimited amounts, securities, including debt securities, preferred stock, common stock, warrants, stock purchase contracts, stock purchase units and depository shares.

Certain Debt Covenants on Capital Securities

Our $1.2 billion in principal amount of capital securities outstanding contain certain covenants that require us to make interest payments in accordance with an alternative coupon satisfaction mechanism (“ACSM”) if we determine that one of the following trigger events exists as of the 30th day prior to an interest payment date (“determination date”):

LNL’s risk-based capital (“RBC”) ratio is less than 175% (based on the most recent annual financial statement filed with the State of Indiana); or

(i) The sum of our consolidated net income for the four trailing fiscal quarters ending on the quarter that is two quarters prior to the most recently completed quarter prior to the determination date is zero or negative; and (ii) our consolidated stockholders’ equity (excluding AOCI and any increase in stockholders’ equity resulting from the issuance of preferred stock during a quarter), or “adjusted stockholders’ equity,” as of (x) the most recently completed quarter and (y) the end of the quarter that is two quarters before the most recently completed quarter, has declined by 10% or more as compared to the quarter that is 10 fiscal quarters prior to the last completed quarter, or the “benchmark quarter.”

The ACSM would generally require us to use commercially reasonable efforts to satisfy our obligation to pay interest in full on the capital securities with the net proceeds from sales of our common stock and warrants to purchase our common stock with an exercise price greater than the market price. We would have to utilize the ACSM until the trigger events no longer existed. Our failure to pay interest pursuant to the ACSM will not result in an event of default with respect to the capital securities nor will a nonpayment of interest unless it lasts for 10 consecutive years, although such breaches may result in monetary damages to the holders of the capital securities. As of December 31, 2019, we were in compliance with all such covenants.