United Parcel Service, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

DEBT AND FINANCING ARRANGEMENTS

DEBT AND FINANCING ARRANGEMENTS

9 Months Ended

Sep. 30, 2015

The carrying value of our outstanding debt as of September 30, 2015 and December 31, 2014 consists of the following (in millions):



	Principal Amount			Carrying Value
	Principal Amount		Maturity	2015			2014
Commercial paper	$	4,402	2015	$	4,401		$	772
Fixed-rate senior notes:
1.125% senior notes	375		2017	374			370
5.50% senior notes	750		2018	798			802
5.125% senior notes	1,000		2019	1,082			1,076
3.125% senior notes	1,500		2021	1,641			1,617
2.45% senior notes	1,000		2022	1,006			977
6.20% senior notes	1,500		2038	1,482			1,481
4.875% senior notes	500		2040	489			489
3.625% senior notes	375		2042	368			367
8.375% Debentures:
8.375% debentures	424		2020	483			480
8.375% debentures	276		2030	283			283
Pound Sterling notes:
5.50% notes	101		2031	97			99
5.125% notes	690		2050	655			673
Floating rate senior notes	567		2049-2065	562			459
Capital lease obligations	431		2015-3005	431			505
Facility notes and bonds	420		2015-2045	420			320
Other debt	29		2015-2022	29			17
Total Debt	$	14,340		14,601			10,787
Less: Current Maturities				(4,557		)	(923		)
Long-term Debt				$	10,044		$	9,864

Debt Issuances

In September 2015, we issued floating rate senior notes with principal balances of $104 million that bear interest at three-month LIBOR less 30 basis points. These notes mature in 2065.

In September 2015, we entered into an agreement with the Delaware County, Pennsylvania Industrial Development Authority, associated with our Philadelphia, Pennsylvania airport facilities, for bonds issued with a principal balance of $100 million. These bonds, which are due September 2045, bear interest at a variable rate.

Sources of Credit

We are authorized to borrow up to $10.0 billion under the U.S. commercial paper program we maintain. We had $4.060 billion outstanding under this program as of September 30, 2015, with an average interest rate of 0.14%. We also maintain a European commercial paper program under which we are authorized to borrow up to €5.0 billion in a variety of currencies. We had £225 million ($342 million) outstanding under this program as of September 30, 2015 with an average interest rate of 0.50%. As of September 30, 2015, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheet.

We maintain two credit agreements with a consortium of banks. One of these agreements provides revolving credit facilities of $1.5 billion, and expires on March 26, 2016. Generally, amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an applicable margin. Alternatively, a fluctuating rate of interest equal to the highest of (1) JPMorgan Chase Bank’s publicly announced prime rate; (2) the Federal Funds effective rate plus 0.50%; and (3) LIBOR for a one month interest period plus 1.00%, plus an applicable margin, may be used at our discretion. In each case, the applicable margin for advances bearing interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd. for our 1-year credit default swap spread, subject to a minimum rate of 0.10% and a maximum rate of 0.75%. The applicable margin for advances bearing interest based on the prime rate is 1.00% below the applicable margin for LIBOR advances (but not lower than 0.00%). We are also able to request advances under this facility based on competitive bids for the applicable interest rate. There were no amounts outstanding under this facility as of September 30, 2015.

The second agreement provides revolving credit facilities of $3.0 billion, and expires on March 27, 2020. Generally, amounts outstanding under this facility bear interest at a periodic fixed rate equal to LIBOR for the applicable interest period and currency denomination, plus an applicable margin. Alternatively, a fluctuating rate of interest equal to the highest of (1) JPMorgan Chase Bank’s publicly announced prime rate; (2) the Federal Funds effective rate plus 0.50%; and (3) LIBOR for a one month interest period plus 1.00%, plus an applicable margin, may be used at our discretion. In each case, the applicable margin for advances bearing interest based on LIBOR is a percentage determined by quotations from Markit Group Ltd. for our 1-year credit default swap spread, interpolated for a period from the date of determination of such credit default swap spread in connection with a new interest period until the latest maturity date of this facility then in effect (but not less than a period of one year). The minimum applicable margin rate is 0.10% and the maximum applicable margin rate is 0.75% per annum. The applicable margin for advances bearing interest based on the prime rate is 1.00% below the applicable margin for LIBOR advances (but not less than 0.00%). We are also able to request advances under this facility based on competitive bids. There were no amounts outstanding under this facility as of September 30, 2015.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of September 30, 2015 and for all prior periods, we have satisfied these financial covenants. These covenants limit the amount of secured indebtedness that we may incur, and limit the amount of attributable debt in sale-leaseback transactions, to 10% of net tangible assets. As of September 30, 2015, 10% of net tangible assets was equivalent to $2.217 billion; however, we have no covered sale-leaseback transactions or secured indebtedness outstanding. We do not expect these covenants to have a material impact on our financial condition or liquidity.

Fair Value of Debt

Based on the borrowing rates currently available to the Company for long-term debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately $15.697 and $12.257 billion as of September 30, 2015 and December 31, 2014, respectively. We utilized Level 2 inputs in the fair value hierarchy of valuation techniques to determine the fair value of all of our debt instruments.