Debt

3 Months Ended

Mar. 31, 2020

Debt Disclosure [Abstract]

Debt

Debt:

Short-term Borrowings and Borrowing Arrangements

Altria had $3.0 billion and no short-term borrowings at March 31, 2020 and December 31, 2019, respectively.

At March 31, 2020, Altria had a senior unsecured 5-year revolving credit agreement, dated August 1, 2018 (as amended, the “Credit Agreement”), that provides for borrowings up to an aggregate principal amount of $3.0 billion.

On March 23, 2020, Altria provided notice to JPMorgan Chase Bank, N.A., as administrative agent under the Credit Agreement, to borrow the entire available amount ($3.0 billion) under the Credit Agreement and, as of March 31, 2020, $3.0 billion was outstanding under the Credit Agreement. Altria typically accesses the commercial paper market early in the second quarter to help fund payments related to the 1998 Master Settlement Agreement (the “MSA”) and shareholder dividends. In light of the current uncertainty in the global capital markets, including the commercial paper markets, resulting from the COVID-19 pandemic, Altria elected to borrow the entire amount available under the Credit Agreement as a precautionary measure to increase its cash position and preserve financial flexibility. Altria used a portion of the proceeds from the borrowing under the Credit Agreement to help fund these payments and for other general corporate purposes.

All borrowings under the Credit Agreement mature on August 1, 2023, unless extended pursuant to the terms of the Credit Agreement. The Credit Agreement includes an option, subject to certain conditions, for Altria to extend the expiration date for two additional one-year periods. Altria may repay the borrowings under the Credit Agreement at any time without penalty. Altria has the intent and ability to repay the entire outstanding balance under the Credit Agreement within one year and believes it has adequate liquidity and access to financial resources to meet its anticipated obligations in the foreseeable future. As a result, Altria has classified the full amount of the borrowings as a current liability on its condensed consolidated balance sheet at March 31, 2020. Interest on the outstanding borrowings at March 31, 2020 was based on the three-month London Interbank Offered Rate (“LIBOR”) plus an applicable percentage based on the higher of the ratings of Altria’s long-term senior unsecured debt from Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services. The applicable percentage based on Altria’s long-term senior unsecured debt ratings at March 31, 2020 for borrowings under the Credit Agreement was 1.0%. At March 31, 2020, the interest rate for Altria’s current borrowings under the Credit Agreement was 2.23%. The Credit Agreement does not include any other rating triggers or any provisions that could require the posting of collateral.

The Credit Agreement includes various covenants, one of which requires Altria to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) to Consolidated Interest Expense of not less than 4.0 to 1.0, calculated as of the end of the applicable quarter on a rolling four quarters basis. At March 31, 2020, the ratio of consolidated EBITDA to Consolidated Interest Expense, calculated in accordance with the Credit Agreement, was 9.0 to 1.0. At March 31, 2020, Altria was in compliance with its covenants in the Credit Agreement. The terms “Consolidated EBITDA” and “Consolidated Interest Expense,” each as defined in the Credit Agreement, include certain adjustments.

At March 31, 2020, accrued interest on short-term borrowings under the Credit Agreement of $1 million was included in other accrued liabilities on Altria’s condensed consolidated balance sheet.

Any commercial paper issued by Altria and borrowings under the Credit Agreement are guaranteed by PM USA as further discussed in Note 12. Condensed Consolidating Financial Information.

For discussion of the fair value of Altria’s short-term borrowings, see Note 5. Financial Instruments.

Long-term Debt

During the first quarter of 2020, Altria repaid in full at maturity senior unsecured notes in the aggregate principal amount of $1,000 million.

At March 31, 2020 and December 31, 2019, accrued interest on long-term debt of $270 million and $470 million, respectively, was included in other accrued liabilities on Altria’s condensed consolidated balance sheets.

Altria designated its Euro denominated senior unsecured notes as a net investment hedge of its investment in ABI.

For discussion of Altria’s net investment hedge and the fair value of Altria’s long-term debt, see Note 5. Financial Instruments.