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

3 Months Ended

Mar. 31, 2016

The carrying value of our outstanding debt as of March 31, 2016 and December 31, 2015 consists of the following (in millions):



	Principal Amount			Carrying Value
	Principal Amount		Maturity	2016			2015
Commercial paper	$	3,810	2016	$	3,809		$	2,965
Fixed-rate senior notes:
1.125% senior notes	375		2017	374			372
5.50% senior notes	750		2018	787			787
5.125% senior notes	1,000		2019	1,075			1,064
3.125% senior notes	1,500		2021	1,648			1,613
2.45% senior notes	1,000		2022	1,028			991
6.20% senior notes	1,500		2038	1,481			1,481
4.875% senior notes	500		2040	489			489
3.625% senior notes	375		2042	367			367
8.375% Debentures:
8.375% debentures	424		2020	480			474
8.375% debentures	276		2030	282			282
Pound Sterling notes:
5.50% notes	96		2031	89			92
5.125% notes	654		2050	623			638
Euro Senior notes:
1.625% notes	797		2025	790			759
Floating rate senior notes	569		2020	567			544
Floating rate senior notes	725		2049-2066	717			600
Capital lease obligations	479		2016-3005	479			475
Facility notes and bonds	320		2016-2045	320			319
Other debt	33		2016-2022	33			22
Total Debt	$	15,183		15,438			14,334
Less: Current Maturities				(3,869		)	(3,018		)
Long-term Debt				$	11,569		$	11,316

Debt Issuances

In March 2016, we issued floating rate senior notes with a principal balance of $118 million. As the proceeds for these notes were not received until April 2016, we recognized a receivable in other current assets in our consolidated balance sheet as of March 31, 2016. These notes bear interest at three-month LIBOR less 30 basis points and mature in 2066. These notes are callable at various times after 30 years at a stated percentage of par value, and putable by the note holders at various times after one year at a stated percentage of par value.

Sources of Credit

We are authorized to borrow up to $10.0 billion under a U.S. commercial paper program and €5.0 billion (in a variety of currencies) under an European commercial paper program. We had the following amounts outstanding under these programs as of March 31, 2016: $2.926 billion with an average interest rate of 0.41%, €630 million ($718 million) with an average interest rate of -0.18% and £115 million ($165 million) with an average interest rate of 0.54%. As of March 31, 2016, 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 24, 2017. 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 March 31, 2016.

The second agreement provides revolving credit facilities of $3.0 billion, and expires on March 25, 2021. 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 March 31, 2016.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of March 31, 2016 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 March 31, 2016, 10% of net tangible assets was equivalent to $2.306 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 $17.243 and $15.524 billion as of March 31, 2016 and December 31, 2015, 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.