Borrowings and Lines of Credit

Long-term Debt Obligations



	As of December 31,
($ in millions)	2015		2014
3.875% notes, due 2015 (€300)	$	—	$	363
1.9 % notes, due 2016⁽¹⁾	250		249
3-year variable rate bank loan, due 2017 (€500)	544		605
6.65% notes, due 2018	125		125
2.3% notes, due 2019	297		297
3.6% notes, due 2020	496		494
9% non-callable debentures, due 2021⁽¹⁾	133		133
0.875% notes, due 2022 (€600)	647		—
1.4% notes, due 2027 (€600)	641		—
2.5% note, due 2029 (€80)	86		95
7.70% notes, due 2038	174		174
5.5% notes, due 2040	246		246
3% note, due 2044 (€120)	122		136
Commercial paper	459		935
Impact of derivatives on debt⁽¹⁾	4		9
Various other non-U.S. debt, weighted average 6.1% as of December 31, 2015 and 2.3% of December 31, 2014.	42		5
Capital lease obligations	30		33
Total	4,296		3,899
Less payments due within one year	254		366
Long-term debt	$	4,042	$	3,533

(1)

PPG entered into several interest rate swaps which had the effect of converting fixed rate notes to variable rates, based on the three-month London Interbank Offered Rate (LIBOR). There were no interest rate swaps outstanding related to these instruments as of December 31, 2015 and 2014. The impact of the derivatives on debt represents the fair value adjustment of the debt while the interest rate swaps were outstanding, which is being amortized as a reduction to interest expense over the remaining term of the debt. The weighted average effective interest rate for these borrowings, including the effects of the swaps, was 3.1% and 3.9% for the years ended December 31, 2015 and 2014, respectively. Refer to Note 9 for additional information.

In January 2016, PPG’s $250 million 1.9% notes matured, and PPG repaid these obligations with cash on hand.

In December 2015, PPG entered into a five-year credit agreement (the “Credit Agreement”) with several banks and financial institutions. The Credit Agreement replaces the Company's existing Five Year Credit Agreement dated as of September 12, 2012. The Credit Agreement provides for a $1.8 billion unsecured revolving credit facility. The Company has the ability to increase the size of the Credit Agreement by up to an additional $500 million, subject to the receipt of lender commitments and other conditions. The Credit Agreement will terminate on December 18, 2020. The Company has the right, subject to certain conditions set forth in the Credit Agreement, to designate certain subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation, the Company is required to guarantee the obligations of any such subsidiaries under the Credit Agreement. There were no amounts outstanding under the Credit Agreement during the year ended December 31, 2015 and there were no amounts outstanding under the 2012 Credit Agreement during the year ended December 31, 2014. The available borrowing rate on a one month, U.S. dollar denominated borrowing was 1.43% at December 31, 2015.

Borrowings under the Credit Agreement may be made in U.S. dollars or in Euros. The Credit Agreement provides that loans will bear interest at rates based, at the Company’s option, on one of two specified base rates plus a margin based on certain formulas defined in the Credit Agreement. Additionally, the Credit Agreement contains a Commitment Fee, as defined in the Credit Agreement, on the amount of unused commitments under the Credit Agreement ranging from 0.080% to 0.225% per annum. The average Commitment Fee in 2015 was 0.10%, and PPG is committed to pay 0.09% in 2016.

The Credit Agreement also supports the Company’s commercial paper borrowings. As a result, the commercial paper borrowings as of December 31, 2015 are classified as long-term debt based on PPG’s intent and ability to refinance these borrowings on a long-term basis.

The Credit Agreement contains usual and customary restrictive covenants for facilities of its type, which include, with specified exceptions, limitations on the Company’s ability to create liens or other encumbrances, to enter into sale and leaseback transactions and to enter into consolidations, mergers or transfers of all or substantially all of its assets. The Credit Agreement maintains the same restrictive covenant as the prior revolving credit facility whereby the Company must maintain a ratio of Total Indebtedness to Total Capitalization, as defined in the Credit Agreement, of 60% or less. As of December 31, 2015, total indebtedness was 41% of the Company’s total capitalization.

The Credit Agreement also contains customary events of default, including the failure to make timely payments when due under the Credit Agreement or other material indebtedness, the failure to satisfy covenants contained in the Credit Agreement, a change in control of the Company and specified events of bankruptcy and insolvency that would permit the lenders to accelerate the repayment of any loans.

In June 2015, PPG’s €300 million 3.875%notes matured, upon which the Company paid $336 million to settle these obligations.

In March 2015, PPG completed a public offering of €600 million 0.875% Notes due 2022 and €600 million 1.400% Notes due 2027 (together, the “Notes”), or €1.2 billion ($1.26 billion) in aggregate principal amount. These Notes were issued pursuant to PPG’s existing shelf registration statement and pursuant to an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented (the “Indenture”). The Indenture governing these notes contains covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of these Notes also require the Company to make an offer to repurchase Notes upon a Change of Control Triggering Event (as defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest. The Company may issue additional debt from time to time pursuant to the Indenture.

The aggregate cash proceeds from the Notes, net of discounts and fees, was $1.24 billion. The Notes are denominated in Euro and have been designated as hedges of net investments in the Company’s European operations. For more information, refer to Note 9 “Financial Instruments, Hedging Activities and Fair Value Measurements.”

In November 2014, PPG completed a public offering of $300 million in aggregate principal amount of its 2.3% Notes due 2019 (the “2.3% Notes”). These notes were issued pursuant to its existing shelf registration statement and pursuant to an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee, as supplemented (the “Indenture”). The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture governing these notes contains covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of these notes also require the Company to make an offer to repurchase Notes upon a Change of Control Triggering Event (as defined in the Indenture) at a price equal to 101% of their principal amount plus accrued and unpaid interest.

Also in November 2014, the Company entered into three Euro-denominated borrowings as follows.

3-year €500 million bank loan

Interest on this loan is variable and is based on changes to the EURIBOR interest rate. This loan contains covenants materially consistent with the five-year credit agreement, as discussed below. At December 31, 2015, the average interest rate on this borrowing was 0.47%.

15-year €80 million 2.5% fixed interest and 30-year €120 million 3.0% fixed interest notes

PPG privately placed a 15-year €80 million 2.5% fixed interest note and a 30-year €120 million 3.0% fixed interest note. These notes contain covenants materially consistent with the 2.3% Notes discussed above.

The cash proceeds related to these borrowings net of discounts and fees were as follows:



($ in millions)	Proceeds
3-year variable rate bank loan ⁽¹⁾	$	620
2.30% notes, due 2019	297
15-year 2.5% fixed rate note⁽¹⁾	99
30-year 3.0% fixed rate note ⁽¹⁾	142
Total cash proceeds	$	1,158

(1) These debt arrangements are denominated in Euro and have been designated as net investment hedges of the Company’s European operations. For more information refer to Note 9 “Financial Instruments, Hedging Activities and Fair Value Measurements.”

In December 2014, PPG completed a debt refinancing which included redeeming approximately $1.5 billion of public notes and a tender offer for any and all of its outstanding 9% debentures, due 2021 and the 7.70% notes, due 2038 (together, the “Offers”). The consideration for each $1,000 principal amount of the 2021 debentures was approximately $1,334 and was approximately $1,506 for the 2038 notes. After the expiration of the Offers, PPG accepted for purchase all of the securities that were validly tendered. An aggregate principal amount of $90 million was redeemed through the tender offer which required $43 million of premiums to be paid to the debt holders.

The following table is a summary of the debt instruments redeemed and the tender offers completed:



($ in millions)	Amount Paid
Public notes redeemed:
7 ³/₈% notes, due 2016	$	146
6 ⁷/₈% notes, due 2017	75
6.65% notes, due 2018	575
7.4% notes, due 2019	199
2.70% notes, due 2022	400
Total of make-whole premiums paid to redeem notes	179

Tender Offer:
9% debentures, due 2021	16
7.70% notes, due 2038	74
Total of premiums paid on tender offer	43

Total cash paid for debt redemption	$	1,707

The Company recorded a charge of $317 million in 2014 for the debt redemption which consists of the aggregate make-whole cash premium of $179 million for the public notes redemption, the aggregate cash premium of $43 million for the debt redeemed through the tender offer, the net realization of the unamortized interest rate swaps and forward starting swap losses of $89 million, and a balance of unamortized fees and discounts of $6 million related to the debt redeemed. Refer to Note 9, “Financial Instruments, Hedging Activity and Fair Value Measurement,” for additional detail regarding the non-cash portion of the loss on the debt redemption.

The proceeds received from the 2.3% Notes and the three Euro-denominated borrowing arrangements were used to fund approximately $1.2 billion of the approximately $1.7 billion used for the 2014 debt redemption. Cash on hand was used to fund the remaining portion of the redemption payments.

In March 2013, the Company repaid the $600 million of 5.75% notes upon maturity, using cash on hand.

As of December 31, 2015, PPG was in full compliance with the restrictive covenants under its various credit agreements, loan agreements and indentures.

Additionally, substantially all of the Company’s debt agreements contain customary cross-default provisions. Those provisions generally provide that a default on a debt service payment of $10 million or more for longer than the grace period provided (usually 10 days) under one agreement may result in an event of default under other agreements. None of the Company’s primary debt obligations are secured or guaranteed by the Company’s affiliates.

Aggregate maturities of long-term debt during the next five years excluding commercial paper are:



($ in millions)	Maturity per year
2016	$	254
2017	544
2018	124
2019	300
2020	500
Thereafter	$	2,115

Other Debt Obligations

Short-term debt outstanding as of December 31, 2015 and 2014, was as follows:



($ in millions)	2015		2014
Various, weighted average 13.2% as of December 31, 2015 and 2.5% as of December 31, 2014	$	29	$	115
Total	$	29	$	115

Rental expense for operating leases was $266 million, $284 million and $256 million in 2015, 2014 and 2013, respectively. The primary leased assets include paint stores, transportation equipment, warehouses and other distribution facilities, and office space, including the Company’s corporate headquarters located in Pittsburgh, Pa.

Minimum lease commitments for operating leases that have initial or remaining lease terms in excess of one year are as follows:



($ in millions)	As of December 31, 2015
2016	$	177
2017	146
2018	120
2019	86
2020	60
Beyond 2020	$	198

PPG’s non-U.S. operations have uncommitted lines of credit totaling $621 million of which $29 million was used as of December 31, 2015. These uncommitted lines of credit are subject to cancellation at any time and are generally not subject to any commitment fees.

The Company had outstanding letters of credit and surety bonds of $165 million and $120 million as of December 31, 2015 and 2014, respectively. The letters of credit secure the Company’s performance to third parties under certain self-insurance programs and other commitments made in the ordinary course of business.

As of December 31, 2015 and 2014, guarantees outstanding were $24 million and $25 million, respectively. The guarantees relate primarily to debt of certain entities in which PPG has an ownership interest and selected customers of certain PPG businesses. A portion of such debt is secured by the assets of the related entities. The carrying values of these guarantees was $1 million as of December 31, 2015 and 2014 and the fair values were $1 million and $2 million, as of December 31, 2015 and 2014, respectively. The fair value of each guarantee was estimated by comparing the net present value of two hypothetical cash flow streams, one based on PPG’s incremental borrowing rate and the other based on the borrower’s incremental borrowing rate, as of the effective date of the guarantee. Both streams were discounted at a risk free rate of return. The Company does not believe any loss related to these letters of credit, surety bonds or guarantees is likely.