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, 2017

The carrying value of our outstanding debt as of March 31, 2017 and December 31, 2016 consists of the following (in millions):



	Principal Amount			Carrying Value
	Principal Amount		Maturity	2017			2016
Commercial paper	$	4,242	2017	$	4,242		$	3,250
Fixed-rate senior notes:
1.125% senior notes	375		2017	374			374
5.50% senior notes	750		2018	764			769
5.125% senior notes	1,000		2019	1,036			1,043
3.125% senior notes	1,500		2021	1,575			1,584
2.40 % senior notes	500		2026	497			497
2.45% senior notes	1,000		2022	983			986
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	367			367
3.40% senior notes	500		2046	491			491
8.375% Debentures:
8.375% debentures	424		2020	458			461
8.375% debentures	276		2030	282			282
Pound Sterling notes:
5.50% notes	83		2031	78			76
5.125% notes	566		2050	543			535
Euro senior notes:
1.625% notes	748		2025	742			732
1.000% notes	534		2028	530			523
Floating rate senior notes	534		2020	532			525
Floating rate senior notes	979		2049-2067	969			824
Capital lease obligations	466		2017-3005	466			447
Facility notes and bonds	320		2029-2045	319			319
Other debt	21		2017-2022	21			20
Total debt	$	17,193		17,240			16,075
Less: Current maturities				(4,302		)	(3,681		)
Long-term debt				$	12,938		$	12,394

Debt Classification

We have classified our 1.125% senior notes due October 2017 and our 5.50% senior notes due January 2018 with a principal balance of $375 and $750 million, respectively, as a long-term liability, based on our intent and ability to refinance the debt as of March 31, 2017. We have also classified certain floating rate senior notes that are putable by the note holders as a long-term liability, due to our intent and ability to refinance the debt if the put option is exercised by the note holders.

Debt Issuances

During the first quarter we issued floating rate senior notes with a principal balance of $147 million, which obligated us to the note holders as of March 31, 2017. As the proceeds for these notes were not received from the depository trust until April 2017, we recorded a receivable in "Other current assets" in our consolidated balance sheet as of March 31, 2017. These notes bear interest at three-month LIBOR less 30 basis points and mature in 2067. 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.

Commercial Paper

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 a European commercial paper program. We had the following amounts outstanding under these programs as of March 31, 2017: $3.405 billion with an average interest rate of 0.77% and €784 million ($837 million) with an average interest rate of -0.38%. As of March 31, 2017, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheet.

Sources of Credit

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 23, 2018. 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, 2017.

The second agreement provides revolving credit facilities of $3.0 billion, and expires on March 24, 2022. 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, 2017.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of March 31, 2017 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, 2017, 10% of net tangible assets was equivalent to $2.142 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 $18.193 and $17.134 billion as of March 31, 2017 and December 31, 2016, 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.