Borrowings and Credit Arrangements

9 Months Ended

Sep. 30, 2019

NOTE E – BORROWINGS AND CREDIT ARRANGEMENTS

We had total debt of $10.888 billion as of September 30, 2019 and $7.056 billion as of December 31, 2018. The debt maturity schedule for our long-term debt obligations is presented below:



(in millions, except interest rates)	Issuance Date	Maturity Date	As of						Semi-annual Coupon Rate
(in millions, except interest rates)	Issuance Date	Maturity Date	September 30, 2019			December 31, 2018			Semi-annual Coupon Rate
January 2020 Notes	December 2009	January 2020	$	—		$	850		6.000%
May 2020 Notes	May 2015	May 2020	—			600			2.850%
August 2021 Term Loan	August 2019	August 2021	1,000			—
May 2022 Notes	May 2015	May 2022	500			500			3.375%
August 2022 Term Loan	August 2019	August 2022	1,000			—
October 2023 Notes	August 2013	October 2023	450			450			4.125%
March 2024 Notes	February 2019	March 2024	850			—			3.450%
May 2025 Notes	May 2015	May 2025	750			750			3.850%
March 2026 Notes	February 2019	March 2026	850			—			3.750%
March 2028 Notes	February 2018	March 2028	1,000			1,000			4.000%
March 2029 Notes	February 2019	March 2029	850			—			4.000%
November 2035 Notes	November 2005	November 2035	350			350			7.000%
March 2039 Notes	February 2019	March 2039	750			—			4.550%
January 2040 Notes	December 2009	January 2040	300			300			7.375%
March 2049 Notes	February 2019	March 2049	1,000			—			4.700%
Unamortized Debt Issuance Discount and Deferred Financing Costs		2020 - 2049	(79		)	(29		)
Unamortized Gain on Fair Value Hedges		2020 - 2023	14			26
Finance Lease Obligation (1)		Various	6			6
Long-term debt			$	9,590		$	4,803

Note: The table above does not include unamortized amounts related to interest rate contracts designated as cash flow hedges.


(1)	Effective January 1, 2019, we adopted FASB ASC Topic 842, which requires that we recognize finance lease obligations in our unaudited condensed consolidated balance sheet. As of December 31, 2018, these leases were referred to as capital lease obligations in accordance with FASB ASC Topic 840. Please refer to Note A – Basis of Presentation for additional information.

Revolving Credit Facility

As of September 30, 2019 and December 31, 2018, we maintained a $2.750 billion revolving credit facility (2018 Facility) with a global syndicate of commercial banks that matures on December 19, 2023 with one-year extension options subject to certain conditions. This facility provides backing for the commercial paper program. The 2018 Credit Agreement for the 2018 Facility requires that we comply with certain covenants, including financial covenants as described within Debt Covenants below. There were no amounts outstanding under our revolving credit facility as of September 30, 2019 and December 31, 2018.

Term Loans

On February 25, 2019, upon the closing of our senior notes offering in aggregate principal amount of $4.300 billion described below, we terminated the $1.000 billion Term Loan Credit Agreement, entered into on August 20, 2018 and amended on December 19, 2018 (August 2019 Term Loan). The August 2019 Term Loan was scheduled to mature on August 19, 2019. As of December 31, 2018, we had $1.000 billion outstanding under our August 2019 Term Loan, which was presented within Current debt obligations on our accompanying unaudited condensed consolidated balance sheets.

On December 19, 2018, we entered into a $2.000 billion senior unsecured delayed-draw term loan facility consisting of a $1.000 billion two-year delayed draw term loan credit facility maturing in two years from the date of the closing of the BTG Acquisition (Two-Year Delayed Draw Term Loan) and a $1.000 billion three-year delayed draw term loan credit facility maturing in three years from the date of the closing of the BTG Acquisition (Three-Year Delayed Draw Term Loan). Borrowings are available in U.S. dollars and bear interest at LIBOR or a base rate, in each case plus an applicable margin based on our public debt ratings. We are required to pay customary ticking fees on the average daily unused commitments based on our public debt ratings. The facilities contain customary representations and covenants, as described within Debt Covenants below. The facilities contain customary events of default, which may result in the acceleration of any outstanding commitments, and also contain customary U.K. certain funds provisions. Any proceeds from the facilities will be available to finance the BTG Acquisition and pay related transaction costs, as defined by the facilities. On August 19, 2019, for the purpose of funding the BTG Acquisition, we borrowed $1.000 billion under the Two-Year Delayed Draw Term Loan and $1.000 billion under the Three-Year Delayed Draw Term Loan. As of September 30, 2019, our average interest rates on the borrowings were 3.37 percent for the Two-Year Delayed Draw Term Loan and 3.47 percent for the Three-Year Delayed Draw Term Loan.

Debt Covenants

As of and through September 30, 2019, we were in compliance with all the required covenants related to our debt obligations. For additional information regarding the terms of our debt agreements, refer to Note E – Borrowings and Credit Arrangements to our consolidated financial statements in our most recent Annual Report on Form 10-K.

All existing credit arrangements described above require that we maintain certain financial covenants, as follows:



	Covenant Requirement	Actual
	as of September 30, 2019	as of September 30, 2019
Maximum leverage ratio (1)	4.75 times	4.27 times


(1)	Ratio of total debt to consolidated EBITDA, as defined by the credit agreements, for the preceding four consecutive fiscal quarters.

Our covenants require that we maintain a maximum leverage ratio of 3.75 times, provided, however, that for the two consecutive fiscal quarters ended immediately following the consummation of a Qualified Acquisition, as defined by each agreement, the maximum leverage ratio shall be 4.75 times, and then subject to a step-down for each succeeding fiscal quarter end to 4.50 times, 4.25 times, 4.00 times and then back to 3.75 times for each fiscal quarter end thereafter. On August 19, 2019, we announced the closing of our acquisition of BTG, a Qualified Acquisition, and our maximum leverage ratio was 4.75 times as of September 30, 2019. Refer to Note B – Acquisitions and Strategic Investments for more information.

Our covenants provide for an exclusion from the calculation of consolidated EBITDA, as defined by the agreements, through maturity, of any non-cash charges and up to $500 million in restructuring charges and restructuring-related expenses related to our current or future restructuring plans. As of September 30, 2019, we had $314 million of the restructuring charge exclusion remaining. In addition, any cash litigation payments (net of any cash litigation receipts), as defined by the agreements, are excluded from the calculation of consolidated EBITDA, as defined by the agreements, provided that the sum of any excluded net cash litigation payments do not exceed $2.624 billion in the aggregate. As of September 30, 2019, we had $1.262 billion of the litigation exclusion remaining.

Any inability to maintain compliance with these covenants could require us to seek to renegotiate the terms of our credit facility or seek waivers from compliance with these covenants, both of which could result in additional borrowing costs. Further, there can be no assurance that our lenders would agree to such new terms or grant such waivers on terms acceptable to us. In this case, all credit facility commitments would terminate, and any amounts borrowed under the facility would become immediately due and payable. Furthermore, any termination of our credit facility may negatively impact the credit ratings assigned to our commercial paper program which may impact our ability to refinance any then outstanding commercial paper as it becomes due and payable.

Commercial Paper



	As of
(in millions, except maturity and yield)	September 30, 2019			December 31, 2018
Commercial paper outstanding (at par)	$	1,293		$	1,248
Maximum borrowing capacity	2,750			2,750
Borrowing capacity available	1,457			1,502
Weighted average maturity	40 days			27 days
Weighted average yield	2.43		%	3.04		%

Senior Notes

We had senior notes outstanding of $7.650 billion as of September 30, 2019 and $4.800 billion as of December 31, 2018.

In February 2019, we completed an offering of $4.300 billion in aggregate principal amount of senior notes comprised of $850 million of 3.450% senior notes due March 2024, $850 million of 3.750% senior notes due March 2026, $850 million of 4.000% senior notes due March 2029, $750 million of 4.550% senior notes due March 2039 and $1.000 billion of 4.700% senior notes due March 2049. We used a portion of the net proceeds from the offering to repay the $850 million plus accrued interest and premium of our 6.000% senior notes due in January 2020, the $600 million plus accrued interest and premium of our 2.850% senior notes due in May 2020 and the $1.000 billion plus accrued interest of our August 2019 Term Loan. In the third quarter of 2019, the remaining proceeds were used to finance a portion of the BTG Acquisition.

Our senior notes were issued in public offerings, are redeemable prior to maturity and are not subject to sinking fund requirements. Our senior notes are unsecured, unsubordinated obligations and rank on parity with each other. These notes are effectively junior to liabilities of our subsidiaries (see Other Arrangements below).

On October 22, 2019, we announced the commencement of a cash tender offer (Tender Offer) for up to $1.000 billion combined aggregate principal amount (Aggregate Maximum Principal Amount) of our outstanding 4.125% senior notes due October 2023, 4.000% senior notes due March 2028, 3.850% senior notes due May 2025 and 3.375% senior notes due May 2022 (collectively, Tender Offer Notes). The Tender Offer is being made exclusively pursuant to an offer to purchase dated October 22, 2019, which sets forth the terms and conditions of the Tender Offer. Consummation of the Tender Offer is subject to satisfaction or waiver of the conditions described in the offer to purchase, including the financing condition that we shall have closed one or more debt financings resulting in net proceeds in an amount, together with cash on hand, not less than the amount required, upon the terms and subject to the conditions of the Tender Offer, to purchase all the securities validly tendered and accepted for purchase in the Tender Offer and to pay accrued interest thereon and fees and expenses associated therewith.

The Tender Offer will expire at midnight, Eastern Standard Time, on November 19, 2019, unless extended or terminated by us. However, because the aggregate principal amount of Tender Offer Notes validly tendered and not validly withdrawn as of the early tender date at 5:00 p.m. Eastern Standard Time, on November 4, 2019, would cause the Aggregate Maximum Principal Amount to be exceeded and we do not expect to increase the Aggregate Maximum Principal Amount, we do not expect to accept any further tenders of Tender Offer Notes.

Bridge Facility

On February 25, 2019, upon the closing of our senior notes offering in aggregate principal amount of $4.300 billion described above, we terminated the Bridge Facility entered into on November 20, 2018. The termination was pursuant to the terms of the Bridge Facility, which required full termination upon the refinancing of the January 2020 Notes and May 2020 Notes discussed above. There were no amounts borrowed under the Bridge Facility as of December 31, 2018.

Other Arrangements

We have accounts receivable factoring programs in certain European countries and with commercial banks in Japan which include promissory notes discounting programs. We account for our factoring programs as sales under FASB ASC Topic 860, Transfers and Servicing. We have no retained interest in the transferred receivables, other than collection and administration, and once sold, the accounts receivable are no longer available to satisfy creditors in the event of bankruptcy. Amounts de-recognized for accounts and notes receivable, which are excluded from Trade accounts receivable, net in the accompanying unaudited condensed consolidated balance sheets, are aggregated by contract denominated currency below (in millions):



Factoring Arrangements	As of September 30, 2019				As of December 31, 2018
Factoring Arrangements	Amount De-recognized		Average Interest Rate		Amount De-recognized		Average Interest Rate
Euro denominated	$	146	1.7	%	$	165	2.7	%
Yen denominated	210		0.6	%	195		0.9	%

Refer to Note E – Borrowing and Credit Arrangements to our audited financial statements contained in Item 8 of our most recent Annual Report on Form 10-K for additional information on our borrowings and credit agreements.