Debt and Borrowing Arrangements

6 Months Ended

Jun. 30, 2011

7. Debt and Borrowing Arrangements

The following table summarizes the components of Debt:


	June 30, 2011			December 31, 2010
			Wt. Avg-			Wt. Avg-
			Interest			Interest
	Balance		Rate⁽¹⁾	Balance		Rate⁽¹⁾
	(In millions)
Term notes, in amortization	$	1,627	2.0%	$	1,167	2.2%
Term notes, in revolving period		92	2.1%		989	2.0%
Variable-funding notes		1,260	1.6%		871	1.9%
Other		36	5.1%		39	5.1%

Total Vehicle Management Asset-Backed Debt		3,015			3,066


Committed warehouse facilities		1,352	2.0%		2,419	2.1%
Uncommitted warehouse facilities		—	—		1,290	1.2%
Servicing advance facility		76	2.7%		68	2.8%

Total Mortgage Asset-Backed Debt		1,428			3,777


Term notes		781	8.1%		782	8.1%
Convertible notes		447	4.0%		430	4.0%
Credit facilities		—	—		—	—

Total Unsecured Debt		1,228			1,212


Mortgage Loan Securitization Debt Certificates, at Fair Value ⁽²⁾		26	7.0%		30	7.0%


Total	$	5,697		$	8,085


⁽¹⁾		Represents the weighted-average stated interest rate of the facilities as of the respective date, which may be different from the effective rate due to the amortization of premiums, discounts, and issuance costs. Facilities are variable-rate, except for the Term notes, Convertible notes, and Mortgage Loan Securitization Debt Certificates which are fixed-rate.

⁽²⁾		Cash flows of securitized mortgage loans support payment of the debt certificates and creditors of the securitization trust do not have recourse to the Company.

Assets held as collateral that are not available to pay the Company’s general obligations as of June 30, 2011 consisted of:


	Vehicle		Mortgage
	Asset-Backed		Asset-Backed
	Debt		Debt
	(In millions)
Restricted cash and cash equivalents	$	262	$	9
Accounts receivable		74		90
Mortgage loans held for sale		—		1,390
Net investment in fleet leases		3,264		—


Total	$	3,600	$	1,489

The following table provides the contractual debt maturities as of June 30, 2011:


	Vehicle		Mortgage				Mortgage Loan
	Asset-		Asset-				Securitization
	Backed		Backed		Unsecured		Debt
	Debt⁽¹⁾		Debt		Debt		Certificates		Total
	(In millions)
Within one year	$	939	$	1,428	$	250	$	8	$	2,625
Between one and two years		862		—		420		7		1,289
Between two and three years		712		—		—		5		717
Between three and four years		426		—		250		5		681
Between four and five years		81		—		350		3		434
Thereafter		—		—		8		—		8

	$	3,020	$	1,428	$	1,278	$	28	$	5,754


⁽¹⁾		Maturities of vehicle management asset-backed notes, a portion of which are amortizing in accordance with their terms, represent estimated payments based on the expected cash inflows related to the securitized vehicle leases and related assets.

Capacity under all borrowing agreements is dependent upon maintaining compliance with, or obtaining waivers of, the terms, conditions and covenants of the respective agreements. Available capacity under asset-backed funding arrangements may be further limited by asset eligibility requirements. Available capacity under committed asset-backed debt arrangements and unsecured credit facilities as of June 30, 2011 consisted of:


			Utilized		Available
	Capacity		Capacity		Capacity
	(In millions)
Vehicle Management Asset-Backed Debt:
Term notes, in revolving period	$	92	$	92	$	—
Variable-funding notes		1,511		1,260		251
Mortgage Asset-Backed Debt:
Committed warehouse facilities		2,535		1,352		1,183
Servicing advance facility		120		76		44

Unsecured Committed Credit Facilities⁽¹⁾		530		16		514


⁽¹⁾		Utilized capacity reflects $16 million of letters of credit issued under the Amended Credit Facility, which are not included in Debt in the Condensed Consolidated Balance Sheet.

Capacity for Mortgage asset-backed debt shown above excludes $2.2 billion not drawn under uncommitted facilities.

The fair value of debt was $5.9 billion and $8.2 billion as of June 30, 2011 and December 31, 2010, respectively.

Vehicle Management Asset-Backed Debt

Vehicle management asset-backed debt primarily represents variable-rate debt issued by a wholly owned subsidiary, Chesapeake Funding LLC, to support the acquisition of vehicles by the Fleet Management Services segment’s U.S. leasing operations and debt issued by the consolidated special purpose trust, Fleet Leasing Receivables Trust (“FLRT”), the Canadian special purpose trust, used to finance leases originated by the Canadian fleet operation.

Vehicle management asset-backed debt includes term notes, which provide a fixed funding amount at the time of issuance, or Variable-funding notes under which the committed capacity may be drawn upon as needed during a commitment period, which is typically 364 days in duration. The available capacity under Variable-funding notes may be used to fund future amortization of other Vehicle management asset-backed debt or to fund growth in Net investment in fleet leases during the term of the commitment.

As with the Variable-funding notes, certain Term notes may contain provisions that allow the outstanding debt to revolve for specified periods of time. During these revolving periods, the monthly collection of lease payments allocable to each outstanding series is available to fund the acquisition of vehicles and/or equipment to be leased to customers. Upon expiration of the revolving period, the repayment of principal commences, and the monthly allocated lease payments are applied to the notes until they are paid in full.

Term Notes

As of June 30, 2011, Term notes outstanding that are revolving in accordance with their terms are Chesapeake Series 2009-3, 2010-1 Note B and 2011-1 Note B. Expiration dates of Term notes in their revolving period range from October 20, 2011 to June 27, 2013.

As of June 30, 2011, Term notes outstanding that are amortizing in accordance with their terms are Chesapeake Series 2009-1, 2009-2 and 2009-4 and the FLRT Series 2010-1. Final repayment dates of Term notes in their amortization period range from September 2012 to March 2014.

Variable-funding Notes

On June 29, 2011, Chesapeake amended and restated its Series 2010-1 Indenture Supplement and entered into a Series 2011-1 Indenture Supplement. As a result of amending the Series 2010-1 Supplement and entering into the Series 2011-1 Supplement, the maturity of the Series 2010-1 Variable-funding notes was extended and the total committed funding available to Chesapeake was increased. Pursuant to the 2010-1 and 2011-1 Supplements, Chesapeake may issue from time to time up to $700 million and $500 million, respectively, in aggregate principal under commitments provided by a syndicate of lenders. Proceeds received on June 29, 2011 under the Series 2011-1 Variable-funding notes were used to paydown the outstanding balance of the Series 2010-1 Variable-funding notes. As of June 30, 2011, commitments under the 2010-1 and 2011-1 Supplements are scheduled to expire on June 27, 2012 and June 27, 2013, respectively, but are renewable subject to agreement by the parties. If the scheduled expiration date of the commitments is not extended, the notes’ amortization period will begin.

As of June 30, 2011, Variable-funding notes outstanding also include the FLRT Series 2010-2 and commitments are scheduled to expire August 30, 2011, but are renewable subject to agreement by the parties.

Mortgage Asset-Backed Debt

Mortgage asset-backed debt primarily represents variable-rate warehouse facilities to support the origination of mortgage loans, which provide creditors a collateralized interest in specific mortgage loans that meet the eligibility requirements under the terms of the facility during the warehouse period. The source of repayment of the facilities is typically from the sale or securitization of the underlying loans into the secondary mortgage market. These facilities are typically 364-day facilities, and as of June 30, 2011, the range of maturity dates for committed facilities is October 5, 2011 to June 22, 2012.

Committed Facilities

The Company has outstanding committed mortgage warehouse facilities with the Royal Bank of Scotland, plc, Credit Suisse First Boston Mortgage Capital LLC, Ally Bank, Bank of America, and Fannie Mae.

On March 3, 2011, the variable-rate committed facility of PHH Home Loans with Ally Bank was amended to extend the maturity date from March 31, 2011 to the earliest of (i) July 31, 2011 or (ii) 90 days after either the Company or Ally Bank gives notice of termination.

On May 25, 2011, the committed variable-rate mortgage repurchase facilities with Credit Suisse First Boston Mortgage Capital, LLC were extended to May 23, 2012, with the option to renew the agreements for another year.

On June 24, 2011, the variable-rate committed mortgage repurchase facility with The Royal Bank of Scotland, plc was amended to reduce the committed capacity to $500 million and was extended to June 22, 2012, among other provisions.

Uncommitted Facilities

The Company has an outstanding uncommitted mortgage repurchase facility with Fannie Mae. The facility has total capacity of up to $3.0 billion as of June 30, 2011, less certain amounts outstanding under the $1.0 billion committed Fannie Mae facility.

On June 24, 2011, the Company entered into a $200 million variable-rate uncommitted facility with The Royal Bank of Scotland, plc.

Servicing Advance Facility

The Company has a committed facility with Fannie Mae that provides for the early reimbursement of certain servicing advances made on behalf of Fannie Mae.

Unsecured Debt

Term Notes

Term notes include $350 million of 9 1/4% Senior notes due in 2016 that have been registered under a public registration statement and $423 million of Medium-term notes. The effective interest rate of the term notes, which includes the accretion of the discount and issuance costs, was 9.4% as of June 30, 2011. The range of maturity dates for the term notes is March 1, 2013 to April 15, 2018.

Credit Facilities

Credit facilities primarily represents an Amended and Restated Competitive Advance and Revolving Credit Agreement, dated as of January 6, 2006, among PHH, a group of lenders and JPMorgan Chase Bank, N.A., as administrative agent. The facility has $525 million of commitments which are scheduled to terminate on February 29, 2012. Provided certain conditions are met, the Company may extend the commitments for an additional year at its request.

As of June 30, 2011, there were no outstanding amounts borrowed under the Amended Credit Facility and the interest rate of commitments of the facility ranged from 3.8% to 5.5%.

Convertible Notes

Convertible notes include a private offering of $250 million of 4.0% Convertible senior notes with a maturity date of April 15, 2012 and a private offering of $250 million of 4.0% Convertible senior notes with a maturity date of September 1, 2014.

As of June 30, 2011 and December 31, 2010, the carrying amount of the convertible notes is net of an unamortized discount of $53 million and $70 million, respectively. The effective interest rate of the convertible notes, which includes the accretion of the discount and issuance costs, was 12.7% as of June 30, 2011. There have been no conversions of the convertible notes since issuance.

Debt Covenants

Certain debt arrangements require the maintenance of certain financial ratios and contain affirmative and negative covenants, including, but not limited to, material adverse change, liquidity maintenance, restrictions on indebtedness of the Company and its material subsidiaries, mergers, liens, liquidations, sale and leaseback transactions, and restrictions on certain types of payments.

During the six months ended June 30, 2011, the covenants for the RBS repurchase facility and the CSFB Mortgage repurchase facility were amended to require the Company to maintain a minimum of $1.0 billion in committed mortgage repurchase or warehouse facilities, with no more than $500 million of gestation facilities included towards the minimum, excluding the uncommitted facilities provided by Fannie Mae. As of June 30, 2011, the Company was in compliance with all financial covenants related to its debt arrangements.

Under certain of the Company’s financing, servicing, hedging and related agreements and instruments, the lenders or trustees have the right to notify the Company if they believe it has breached a covenant under the operative documents and may declare an event of default. If one or more notices of default were to be given, the Company believes it would have various periods in which to cure certain of such events of default. If it does not cure the events of default or obtain necessary waivers within the required time periods, the maturity of some of its debt could be accelerated and its ability to incur additional indebtedness could be restricted. In addition, an event of default or acceleration under certain agreements and instruments would trigger cross-default provisions under certain of its other agreements and instruments.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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