Debt

The following tables present the components of Notes payable and current maturities of long-term debt and Long-term debt in our Consolidated Balance Sheets:



	As of October 31,
(in millions)	2018		2017
Manufacturing operations
Senior Secured Term Loan Credit Agreement, due 2025, net of unamortized discount of $7 and unamortized debt issuance costs of $11	$	1,570	$	—
Senior Secured Term Loan Credit Facility, as amended, due 2020, net of unamortized discount of $7, and unamortized debt issuance costs of $9	—		1,003
6.625% Senior Notes, due 2026, net of unamortized debt issuance costs of $17	1,083		—
8.25% Senior Notes, due 2022, net of unamortized discount of $13 and unamortized debt issuance costs of $14	—		1,423
4.50% Senior Subordinated Convertible Notes, due 2018, net of unamortized discount of $5 and unamortized debt issuance costs of $1	—		194
4.75% Senior Subordinated Convertible Notes, due 2019, net of unamortized discount of $5 and $14, respectively, and unamortized debt issuance costs of $1 and $3, respectively	405		394
Loan Agreement related to 6.75% Tax Exempt Bonds, due 2040, net of unamortized debt issuance costs of $5 at both dates	220		220
Financed lease obligations	122		130
Other	26		43
Total Manufacturing operations debt	3,426		3,407
Less: Current portion	461		286
Net long-term Manufacturing operations debt	$	2,965	$	3,121



	As of October 31,
(in millions)	2018		2017
Financial Services operations
Asset-backed debt issued by consolidated SPEs, at fixed and variable rates, due serially through 2023, net of unamortized debt issuance costs of $4 and $5, respectively	$	948	$	849
Senior secured NFC Term Loan, due 2025, net of unamortized discount of $2, and unamortized debt issuance costs of $4	394		—
Bank credit facilities, at fixed and variable rates, due dates from 2019 through 2024, net of unamortized debt issuance costs of $2 and $2, respectively	519		616
Commercial paper, at variable rates, program matures in 2022	75		92
Borrowings secured by operating and finance leases, at various rates, due serially through 2024	105		94
Total Financial Services operations debt	2,041		1,651
Less: Current portion	485		883
Net long-term Financial Services operations debt	$	1,556	$	768

Manufacturing Operations

Senior Secured Term Loan Credit Agreement

On November 6, 2017, we signed a definitive credit agreement relating to a seven-year senior secured term loan credit facility in an aggregate principal amount of $1.6 billion (“Term Loan Credit Agreement”), guaranteed by Navistar International Corporation and twelve of its subsidiaries. Under the terms of the Term Loan Credit Agreement, the interest rate on the outstanding loan is based, at our option, on an adjusted Eurodollar Rate, plus a margin of 3.50%, or a Base Rate, plus a margin of 2.50%. The Term Loan Credit Agreement requires quarterly amortization payments of $4 million with the balance due at maturity on November 6, 2024. A portion of the proceeds from the Term Loan Credit Agreement was used to repay all outstanding loans under our previously existing Senior Secured Term Loan Credit Facility ("Term Loan"), to redeem a portion of the previously outstanding 8.25% Senior Notes and to pay accrued and unpaid interest thereon, and pay certain transaction fees and expenses incurred in connection with the new Term Loan Credit Agreement.

The remainder of the proceeds of the Term Loan Credit Agreement will be used for ongoing working capital purposes and general corporate purposes.

Senior Secured Term Loan Credit Facility

In February 2017, the Term Loan was amended, pursuant to which the Company's remaining approximately $1.0 billion loan was repriced and provisions regarding European Union bail-in legislation were inserted. The amendment reduced the interest rate applicable to the outstanding loan by 1.50%. Under the terms of the amendment, the interest rate on the outstanding loan was based, at our option, on an adjusted Eurodollar Rate, plus a margin of 4.00%, or a Base Rate, plus a margin of 3.00%. In connection with the amendment, we paid a consent fee equal to 0.25% of the aggregate principal amount, a call protection fee equal to 1.00% of the aggregate principal amount, and certain other fees. During the second quarter of 2017, we recorded a charge of $4 million related to certain third party fees and debt issuance costs associated with the repricing of our Term Loan. The remaining debt issuance costs were recorded as a direct deduction from the carrying amount of the Term Loan and amortized through Interest expense over the remaining life of the Term Loan.

Upon the full repayment in the first quarter of 2018, we recorded approximately $16 million of charges related to the extinguishment of unamortized debt issuance costs associated with the Term Loan, included in Other income, net on our Consolidated Statements of Operations.

6.625% Senior Notes

On November 6, 2017, we issued $1.1 billion in aggregate principal amount of 6.625% senior notes, due 2026 ("6.625% Senior Notes"). Interest is payable on the 6.625% Senior Notes on May 1 and November 1 of each year beginning on May 1, 2018 until the maturity date of November 1, 2025. The proceeds from the 6.625% Senior Notes offering were used to redeem a portion of our previously existing 8.25% Senior Notes, to pay accrued and unpaid interest thereon, and pay the associated prepayment premiums, certain transaction fees and expenses incurred in connection with the new 6.625% Senior Notes.

8.25% Senior Notes

In January 2017, we issued an additional $250 million principal amount of 8.25% Senior Notes, bringing the aggregate principal amount to $1.45 billion at that time. Debt issuance costs of $4 million were recorded as a direct deduction from the carrying amount and were amortized through Interest expense over the remaining life. As a result of the transaction, the effective interest rate of the 8.25% Senior Notes became 8.51%. The proceeds were used for general corporate purposes, including working capital and capital expenditures.

In November 2017, the 8.25% Senior Notes, in the full aggregate principal amount of $1.45 billion, were redeemed using proceeds from the 6.625% Senior Notes and the Senior Secured Term Loan Credit Agreement. In the first quarter of 2018, we recorded approximately $30 million of charges related to the extinguishment of unamortized debt issuance costs and tender premiums associated with the 8.25% Senior Notes, included in Other income, net on our Consolidated Statements of Operations.

4.50% Senior Subordinated Convertible Notes

In October 2013, we completed the private sale of $200 million of 4.50% senior subordinated convertible notes due October 2018 ("2018 Convertible Notes"). We received proceeds of $196 million, net of $3 million of issuance costs and a $1 million issuance discount. The 2018 Convertible Notes were senior subordinated unsecured obligations of the Company. The 2018 Convertible Notes were fully repaid upon maturity in October 2018, and none were converted into our common stock.

4.75% Senior Subordinated Convertible Notes

During the second quarter of 2014, we completed the private sale of $411 million of the 2019 Convertible Notes, including a portion of the underwriter's over-allotment option. We received proceeds of $402 million, net of $9 million of issuance costs. Interest is payable on April 15 and October 15 of each year until the maturity date. The 2019 Convertible Notes are senior subordinated unsecured obligations of the Company.

In accounting for the issuance, the 2019 Convertible Notes were separated into a debt component and an equity component, resulting in the debt component being recorded at estimated fair value without consideration given to the conversion feature. The excess of the principal amount of the liability component over the carrying amount is treated as debt discount and will be amortized to Interest expense using the effective interest method over the term of the 2019 Convertible Notes. We estimated the fair value of the liability component at $367 million. The equity component of $44 million is recorded in Additional paid-in capital and will not be remeasured as long as it continues to meet the conditions for equity classification. Issuance costs are also allocated between the debt and equity components resulting in $8 million of debt issuance costs recorded as an offset of the 2019 Convertible Notes in Long-term debt and $1 million recorded as a reduction in Additional paid-in capital. The liability component of the debt issuance costs will be amortized to Interest expense over the term of the 2019 Convertible Notes.

We have the option to redeem the 2019 Convertible Notes for cash, in whole or in part, on any business day on or after April 20, 2017 if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive), during any 30 consecutive trading day period ending within 10 trading days immediately prior to the date of the redemption notice ("Optional Redemption"). The redemption price is equal to 100% of the principal amount of the 2019 Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

Holders may convert the 2019 Convertible Notes into our common stock at any time after October 15, 2018. Prior to October 15, 2018, holders could only convert upon the occurrence of specified trigger events, as more fully described in the 2019 Convertible Notes indenture. The conversion rate is 18.4946 shares of common stock per $1,000 principal amount of 2019 Convertible Notes (equivalent to a conversion price of approximately $54.07 per share of common stock). The conversion rate may be adjusted for anti-dilution provisions and the conversion price may be decreased by the Board of Directors to the extent permitted by law and listing requirements. The 2019 Convertible Notes can be settled, at our election, in common stock, cash, or a combination of common stock and cash.

Loan Agreement related to the Tax Exempt Bonds

In October 2010, we benefited from the issuance of certain tax-exempt bond financings, of which: (i) the Illinois Finance Authority issued and sold $135 million aggregate principal amount of Recovery Zone Facility Revenue Bonds due October 15, 2040, and (ii) The County of Cook, Illinois issued and sold $90 million aggregate principal amount of Recovery Zone Facility Revenue Bonds also due October 15, 2040 (collectively the "Tax Exempt Bonds"). The Tax Exempt Bonds were issued pursuant to separate, but substantially identical, indentures of trust dated as of October 1, 2010. The proceeds of the Tax Exempt Bonds were loaned by each issuer to the Company pursuant to separate, but substantially identical, loan agreements dated as of October 1, 2010. The proceeds from the issuance of the Tax Exempt Bonds were restricted for capital expenditures related to financing the relocation of our headquarters, the expansion of an existing warehouse facility, and the development of certain industrial and testing facilities, together with related improvements and equipment. The payment of principal and interest on the Tax Exempt Bonds is guaranteed under separate, but substantially identical, bond guarantees issued by NI. The Tax Exempt Bonds are special, limited obligations of each issuer, payable out of the revenues and income derived under the related loan agreements and related guarantees. The Tax Exempt Bonds bear interest at the fixed rate of 6.50% per annum, payable each April 15 and October 15, commencing April 15, 2011. Beginning on October 15, 2020, the Tax Exempt Bonds are subject to optional redemption at the direction of the Company, in whole or in part, at the redemption price equal to 100% of the principal amount thereof, plus accrued interest, if any, to the redemption date. In November 2010, we finalized the purchase of the property and buildings that we developed into our new world headquarters site. As of October 31, 2018, none of the $225 million remains to be reimbursed under the Tax Exempt Bonds.

On November 6, 2017, the Company entered into the First Amendment to Loan Agreement with The County of Cook, Illinois and the First Amendment to Loan Agreement with the Illinois Finance Authority (“Tax Exempt Bond Amendments”) to adjust various covenants included in the loan agreements relating to the Tax Exempt Bonds, including to permit the Company to incur secured debt up to $1.7 billion, in exchange for a coupon increase from 6.50% to 6.75% and the grant of a junior priority lien on certain collateral securing the Company’s Term Loan Credit Agreement.

Financed Lease Obligations

We have accounted for as borrowings certain third-party equipment financings by BMO, our preferred source of retail customer financing for equipment offered by us and our dealers in the U.S. The initial transactions do not qualify for revenue recognition as we retain substantial risks of ownership in the leased property. As a result, the proceeds from the transfer are recorded as an obligation and amortized to revenue over the term of the financing. The remaining obligation will be amortized through 2023 with interest rates ranging from 3.98% to 12.52%.

Amended and Restated Asset-Based Credit Facility

In August 2017, we amended and extended our asset-based credit facility ("Amended and Restated Asset-Based Credit Facility") which was previously due in May 2018. The 2017 amendment extended the maturity date to August 2022 and reduced the revolving facility from $175 million to $125 million. The borrowing base of the facility is secured by a first priority security interest in certain of NI's aftermarket parts inventory locations and contains customary covenants, representations and warranties. Our borrowing capacity under the amended facility is subject to a $13 million liquidity block and is impacted by outstanding standby letters of credit issued under this facility and the amount of eligible inventory. Borrowings under the Amended and Restated Asset-Based Credit Facility accrue interest at a rate equal to a base rate or an adjusted LIBOR rate plus a spread. The spread is 175 basis points for Base Rate borrowings and 275 basis points for LIBOR borrowings. As of October 31, 2018, we had no borrowings but did have availability to borrow under the Amended and Restated Asset-Based Credit Facility.

Financial Services Operations

Asset-backed Debt

In November 2016, the maturity date of the variable funding notes ("VFN") facility was extended from May 2017 to November 2017, and the maximum capacity was reduced from $500 million to $450 million. In May 2017, the VFN facility was extended to May 2018, and the maximum capacity was reduced to $425 million. In December 2017, the maturity date of our VFN facility was extended from May 2018 to December 2018, and the maximum capacity was reduced from $425 million to $350 million. In November 2018, the maturity of the VFN facility was extended from December 2018 to May 2020. The VFN facility is secured by assets of the wholesale note owner trust.

In October 2016, Navistar Financial Securities Corporation ("NFSC") issued $300 million of two-year investor notes secured by assets of the wholesale note owner trust. Proceeds were used, in part, to replace the $250 million of investor notes that matured in October 2016.

In June 2017, NFSC issued $250 million of two-year investor notes secured by assets of the wholesale note owner trust. Proceeds were used, in part, to replace the $250 million of investor notes that matured in June 2017.

In September 2018, NFSC issued $300 million of two-year investor notes secured by assets of the wholesale note owner trust. Proceeds were used, in part, to replace the $300 million of investor notes that matured in September 2018.

Our Mexican financial services affiliate, Navistar Financial, S.A. de C.V., Sociedad Financiera de Objeto Multiple, Entidad Regulada ("NFM"), issues secured notes, denominated in Mexican pesos, which are secured by retail finance receivables. The aggregate balance of these notes was $31 million and $67 million, net of issuance costs, at October 31, 2018, and 2017, respectively. These notes mature at various dates through March 2023.

In December 2016, Truck Retail Accounts Corporation ("TRAC"), a special purpose, wholly-owned subsidiary of NFC, renewed the one-year revolving facility to October 2017. In May 2017, this facility was renewed to April 2018. In January 2018, the maturity date of our $100 million TRAC funding facility was extended from April 2018 to January 2019, and in December 2018, the maturity was further extended to January 2020. Borrowings under this facility are secured by eligible retail accounts receivable.

The majority of the above asset-backed debt is issued by consolidated SPEs and is payable out of collections on the finance receivables sold to the SPEs. This debt is the legal obligation of the SPEs and not NFC or NFM. Assets used as collateral include finance receivables, restricted cash and other assets. The carrying amount of the assets used as collateral for asset-backed debt were $1.4 billion and $1.1 billion at October 31, 2018 and 2017, respectively. See Note 3, Finance Receivables, for more information on finance receivables used to secure asset-backed debt.

Term Loan

In July 2018, NFC entered into a $400 million seven-year senior secured term loan facility ("NFC Term Loan"). The NFC Term Loan is secured by a first-priority security interest in certain assets of NFC and ranks equal to that of NFC's bank credit facility. The initial funding interest rate is LIBOR plus a margin of 3.75%. NFC has the option to use a defined alternate base rate. Debt issuance costs and the original issuance discount of $4 million and $2 million, respectively, were recorded as a direct deduction from the carrying amount and will amortize through Interest expense over the life of the loan. The NFC Term Loan requires quarterly principal amortization payments of $1 million, with the balance due at maturity.

Bank Credit Facilities

In May 2016, NFC amended and extended its bank credit facility which was originally due in December 2016. The 2016 amendment extended the maturity date to June 2018 and initially reduced the revolving portion of the facility from $500 million to $400 million. In December 2016, and in accordance with the amendment, the revolving portion of the facility was reduced to a maximum of $275 million, the term loan portion of the facility was paid down to $82 million, and the quarterly principal payments were reduced from $9 million to $2 million. The amendment allows NFC to increase revolving or term loan commitments, subject to obtaining commitments from existing or new lenders to provide additional or increased revolving commitments and/or additional term loans, to permit a maximum total facility size of $700 million after giving effect to any such increase and without taking into account the non-extended loans and commitments.

In September 2017, the revolving portion of the bank credit facility was amended and extended to a maturity date of September 2021. The capacity of the facility was reduced from $275 million to $269 million in June 2018. The borrowings on the revolving portion of the facility totaled $21 million and $127 million as of October 31, 2018 and 2017, respectively.

On June 1, 2018, in accordance with the terms of the May 2016 amended and extended bank credit facility of NFC, the term loan portion was paid in full and the revolving portion capacity was reduced from $275 million to $269 million. The balance of the term loan portion of the facility as of October 31, 2017, was $75 million. On June 12, 2018, certain leverage covenants and baskets under the NFC bank credit facility were amended to allow for completion of the NFC Term Loan in July 2018.

We borrow funds under various bank credit lines denominated in U.S. dollars and Mexican pesos to be used for investment in our Mexican financial services operations. As of October 31, 2018, borrowings outstanding under these arrangements were $498 million, of which 28% was denominated in U.S. dollars and 72% in Mexican pesos. As of October 31, 2017, borrowings outstanding under these arrangements were $414 million, of which 35% was denominated in U.S. dollars and 65% in Mexican pesos. The interest rates on the dollar-denominated debt are at a negotiated fixed rate or at a variable rate based on LIBOR, and the interest rates on peso-denominated debt are based on the Interbank Interest Equilibrium Rate.

Covenants of the NFC bank credit facility restrict certain payments such as dividends. In the years ended October 31, 2018 and 2017, NFC paid no dividends. In the year ended October 31, 2016, NFC paid cash dividends and returned capital to NI in the aggregate amount of $220 million.

Commercial Paper

Effective February 2017, our Mexican financial services operation entered into a five-year commercial paper program for up to P1.8 billion (the equivalent of approximately $91 million at October 31, 2018). This program replaced the program that matured in December 2016. In October 2018, the commercial paper program was increased to P3.0 billion (the equivalent of approximately $151 million at October 31, 2018).

Borrowings Secured by Operating and Finance Leases

International Truck Leasing Corporation ("ITLC"), a special purpose, wholly-owned subsidiary of NFC, provides NFC with another source to obtain borrowings secured by leases. The balances are classified under Financial Services operations debt as borrowings secured by leases. ITLC's assets are available to satisfy its creditors' claims prior to such assets becoming available for ITLC's use or to NFC or affiliated companies. For the years ended October 31, 2018 and 2017, ITLC issued new borrowings of $38 million and $31 million, respectively. The balance of these secured borrowings issued by ITLC totaled $105 million and $94 million as of October 31, 2018 and 2017, respectively. The carrying amount of assets used as collateral was $125 million and $117 million as of October 31, 2018 and 2017, respectively. ITLC does not have any unsecured debt.

Future Maturities

The aggregate contractual annual maturities for debt as of October 31, 2018, are as follows:



	Manufacturing Operations^(A)		Financial Services Operations		Total
(in millions)
2019	$	467	$	487	$	954
2020	41		962		1,003
2021	80		187		267
2022	31		26		57
2023	20		10		30
Thereafter	2,833		381		3,214
Total debt	3,472		2,053		5,525
Less: Unamortized discount and unamortized debt issuance costs	46		12		58
Net debt	$	3,426	$	2,041	$	5,467

Debt and Lease Covenants

We have certain public and private debt agreements, including the Senior Secured Term Loan Credit Agreement, the 6.625% Senior Notes, the loan agreements for the Tax Exempt Bonds, and the Amended and Restated Asset-Based Credit Facility, which limit our ability to incur additional indebtedness, pay dividends, buy back our stock, and take other actions. The terms of our 2019 Convertible Notes (the "Notes") do not contain covenants that could limit the amount of debt we may issue, or restrict us from paying dividends or repurchasing our other securities. However, the indentures for the Notes define circumstances under which we would be required to repurchase the Notes and include limitations on consolidation, merger, and sale of our assets. As of October 31, 2018, we were in compliance with these covenants.

We are also required under certain agreements with public and private lenders of NFC to ensure that NFC and its subsidiaries maintain their income before interest expense and income taxes at not less than 125% of their total interest expense. Under these agreements, if NFC's consolidated income, including capital contributions made by NIC or NI, before interest expense and income taxes is less than 125% of its interest expense, NIC or NI must make payments to NFC to achieve the required ratio. During the years ended October 31, 2018, 2017, and 2016, no such payments were made.

Our Mexican financial services operations also have debt covenants, which require the maintenance of certain financial ratios. As of October 31, 2018, we were in compliance with those covenants.