Debt and Interest Rate Derivatives

9 Months Ended

Sep. 30, 2020

Debt and Interest Rate Derivatives

Debt and Interest Rate Derivatives

3.    Debt and Interest Rate Derivatives

The following table summarizes the major components of debt as of each balance sheet date (in millions) and provides the maturities and interest rate ranges of each major category as of September 30, 2020:

	September 30,		December 31,
	2020		2019
Commercial paper program (weighted average interest rate of 0.5% as of September 30, 2020)	$	600	$	—
Senior notes, maturing through 2049, interest rates ranging from 2.4% to 7.75% (weighted average interest rate of 4.1% as of September 30, 2020 and 3.9% as of December 31, 2019)		6,365		9,965
Canadian senior notes, C$500 million maturing September 2026, interest rate of 2.6%		375		385
Tax-exempt bonds, maturing through 2048, fixed and variable interest rates ranging from 0.17% to 4.3% (weighted average interest rate of 1.9% as of September 30, 2020 and 2.3% as of December 31, 2019)		2,491		2,523
Financing leases and other, maturing through 2071, weighted average interest rate of 4.7%		651		710
Debt issuance costs, discounts and other		(60)		(85)
		10,422		13,498
Current portion of long-term debt		167		218
	$	10,255	$	13,280

Debt Classification

As of September 30, 2020, we had $2.2 billion of debt maturing within the next 12 months, including (i) $600 million of short-term borrowings under our commercial paper program; (ii) $400 million of 4.60% senior notes that mature in March 2021; (iii) $952 million of tax-exempt bonds with term interest rate periods that expire within the next 12 months, which is prior to their scheduled maturities, and (iv) $167 million of other debt with scheduled maturities within the next 12 months, including $63 million of tax-exempt bonds. As of September 30, 2020, we have classified $2.0 billion of debt maturing in the next 12 months as long-term because we have the intent and ability to refinance these borrowings on a long-term basis as supported by the forecasted available capacity under our $3.5 billion long-term U.S. and Canadian revolving credit facility (“$3.5 billion revolving credit facility”), as discussed below. The remaining $167 million is classified as current obligations.

As of September 30, 2020, we also had $54 million of variable-rate tax-exempt bonds with long-term scheduled maturities supported by letters of credit under our $3.5 billion revolving credit facility. The interest rates on our variable-rate tax-exempt bonds are generally reset on either a daily or weekly basis through a remarketing process. All recent tax-exempt bond remarketings have successfully placed Company bonds with investors at market-driven rates and we currently expect future remarketings to be successful. However, if the remarketing agent is unable to remarket our bonds, the remarketing agent can put the bonds to us. In the event of a failed remarketing, we have the availability under our $3.5 billion revolving credit facility to fund these bonds until they are remarketed successfully. Accordingly, we have

classified the $54 million of variable-rate tax-exempt bonds with maturities of more than one year as long-term in our Condensed Consolidated Balance Sheet as of September 30, 2020.

Access to and Utilization of Credit Facilities and Commercial Paper Program

$3.0 Billion Revolving Credit Facility — On July 28, 2020, we entered into a supplemental $3.0 billion, 364-day, U.S. revolving credit facility (“$3.0 billion revolving credit facility”) maturing July 27, 2021, to be used for general corporate purposes, including funding a portion of the Advanced Disposal acquisition as discussed further in Note 14, and refinancing of indebtedness. The facility provides the Company the option to convert outstanding balances into a term loan maturing no later than the first anniversary of the maturity date, subject to the payment of a fee and notifying the administrative agent at least 15 days prior to the original maturity date. The rates we pay for outstanding loans are generally based on LIBOR, plus a spread depending on the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. The spread above LIBOR ranges from 1.0% to 1.3%. Based on our current ratings, the rate which we expect to pay will be LIBOR plus 1.225%. As of September 30, 2020, we had no outstanding borrowings under this facility. WM Holdings, a wholly-owned subsidiary of WM, guarantees all the obligations under the $3.0 billion revolving credit facility.

$3.5 Billion Revolving Credit Facility — Our $3.5 billion revolving credit facility, maturing November 2024, provides us with credit capacity to be used for cash borrowings, to support letters of credit and to support our commercial paper program. The rates we pay for outstanding U.S. or Canadian loans are generally based on LIBOR or CDOR, respectively, plus a spread depending on the Company’s debt rating assigned by Moody’s Investors Service and Standard and Poor’s. As of September 30, 2020, we had no outstanding borrowings under this facility. We had $269 million of letters of credit issued and $600 million of outstanding borrowings under our commercial paper program, both supported by this facility, leaving unused and available credit capacity of $2.6 billion as of September 30, 2020. WM Holdings, a wholly-owned subsidiary of WM, guarantees all of the obligations under the $3.5 billion revolving credit facility.

Commercial Paper Program — We have a commercial paper program that enables us to borrow funds for up to 397 days at competitive interest rates. The rates we pay for outstanding borrowings are based on the term of the notes. The commercial paper program is fully supported by our $3.5 billion revolving credit facility. As of September 30, 2020, we had $600 million of outstanding borrowings under our commercial paper program.

Other Letter of Credit Facilities — As of September 30, 2020, we utilized $528 million of other letter of credit facilities, which are both committed and uncommitted, with terms maturing through September 2021.

Debt Borrowings and Repayments

Commercial Paper Program — During the three months ended September 30, 2020, we had net cash borrowings of $597 million (net of related discount on issuance), the proceeds of which were primarily used for the redemption of senior notes discussed further below. We did not have any borrowing or repayment activity under our commercial paper program during the first six months of 2020.

Senior Notes — In June 2020, we repaid $600 million of 4.75% senior notes with available cash at their scheduled maturity.

In May 2019, we issued $4.0 billion of senior notes, $3.0 billion of which were due 2024, 2026, 2029 and 2039 and included a special mandatory redemption feature (the “SMR Notes”). The SMR Notes were issued with the intention of paying a portion of the consideration related to our acquisition of Advanced Disposal, which is discussed further in Notes 8 and 14. Pursuant to the terms of the SMR Notes, we were required to redeem all of such outstanding notes paying debt holders 101% of the aggregate principal amounts of such notes, plus accrued but unpaid interest, as a result of the acquisition not being completed by July 14, 2020. Accordingly, the redemption was completed on July 20, 2020 using

available cash on hand and, to a lesser extent, commercial paper borrowings. The cash paid included the $3.0 billion principal amount of debt redeemed, $30 million of related premiums and $8 million of accrued interest. We recognized a $52 million loss on early extinguishment of debt in our Consolidated Statement of Operations related to the redemption during the three months ended September 30, 2020, including $30 million of premiums paid and $22 million of unamortized discounts and debt issuance costs.

Tax-Exempt Bonds — We issued $51 million of new tax-exempt bonds in 2020. The proceeds from the issuance of these bonds were deposited directly into a restricted trust fund and may only be used for the specific purpose for which the money was raised, which is generally to finance expenditures for landfill and solid waste disposal facility construction and development. In the third quarter of 2020, we elected to refund and reissue $130 million of tax-exempt bonds. Additionally, during the nine months ended September 30, 2020, we repaid $82 million of our tax-exempt bonds with available cash at their scheduled maturities.

Financing Leases and Other — The decrease during the nine months ended September 30, 2020 is due to $80 million of cash repayments primarily related to our federal low-income housing investments, financing leases and other obligations, partially offset by an increase of $21 million primarily associated with financing leases and, to a lesser extent, non-cash financing arrangements.

Interest Rate Derivatives

Active Hedges — During the third quarter of 2020, we entered into treasury rate locks with a notional value of $500 million to secure an underlying interest rate of a debt issuance which is currently being evaluated for the fourth quarter of 2020, subject to market conditions and other considerations. We designated our treasury locks as cash flow hedges. As of September 30, 2020, the fair value of these active interest rate derivatives was an asset of $4 million, classified as current assets.

Terminated Hedges — During the first half of 2020, we entered into treasury rate locks with a total notional value of $400 million to secure an underlying interest rate in anticipation of a debt issuance previously anticipated in the second quarter of 2020. We designated our treasury locks as cash flow hedges. In June 2020, we terminated these treasury rate locks and upon termination received $1 million in cash. As noted above, we are evaluating a debt issuance in the fourth quarter of 2020, subject to market conditions and other considerations, which we believe is still probable to occur. As such, the gain associated with these treasury rate locks has been deferred as a component of “Accumulated other comprehensive income” and will be amortized to interest expense over the debt term once the issuance occurs.

All financial statement impacts associated with these financial hedges were immaterial as of and for the three and nine months ended September 30, 2020. There was no significant ineffectiveness associated with our cash flow hedges during the three or nine months ended September 30, 2020. Refer to Note 10 for information regarding the impacts of our cash flow derivatives on our comprehensive income and results of operations.