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, 2019

The carrying value of our outstanding debt as of March 31, 2019 and December 31, 2018 consists of the following (in millions):



	Principal Amount			Carrying Value
	Principal Amount		Maturity	2019			2018
Commercial paper	$	1,644	2019-2020	$	1,644		$	2,662
Fixed-rate senior notes:

5.125% senior notes	1,000		2019	1,000			998
3.125% senior notes	1,500		2021	1,522			1,492
2.050% senior notes	700		2021	698			698
2.450% senior notes	1,000		2022	983			1,023
2.350% senior notes	600		2022	598			597
2.500% senior notes	1,000		2023	994			994
2.800% senior notes	500		2024	496			496
2.400% senior notes	500		2026	498			498
3.050% senior notes	1,000		2027	991			991
3.400% senior notes	750		2029	745			—
6.200% senior notes	1,500		2038	1,482			1,482
4.875% senior notes	500		2040	490			490
3.625% senior notes	375		2042	368			368
3.400% senior notes	500		2046	491			491
3.750% senior notes	1,150		2047	1,136			1,136
4.250% senior notes	750		2049	742			—
Floating-rate senior notes:
Floating-rate senior notes	350		2021	349			349
Floating-rate senior notes	400		2022	399			399
Floating-rate senior notes	500		2023	499			499
Floating-rate senior notes	1,041		2049-2067	1,028			1,029
8.375% Debentures:
8.375% debentures	424		2020	432			419
8.375% debentures	276		2030	281			274
Pound Sterling notes:
5.500% notes	87		2031	86			84
5.125% notes	595		2050	564			546
Euro senior notes:
0.375% notes	786		2023	782			797
1.625% notes	786		2025	782			798
1.000% notes	562		2028	558			570
1.500% notes	562		2032	558			569
Floating-rate senior notes	562		2020	561			572
Canadian senior notes:
2.125% notes	558		2024	555			548
Finance lease obligations	525		2019-3005	525			534
Facility notes and bonds	320		2029-2045	320			320
Other debt	9		2019-2022	9			13
Total debt	$	23,312		23,166			22,736
Less: Current maturities				(2,789		)	(2,805		)
Long-term debt				$	20,377		$	19,931

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, 2019: $1.119 billion with an average interest rate of 2.43% and €468 million ($525 million) with an average interest rate of -0.35%. As of March 31, 2019, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheets.

Debt Classification

We have classified certain floating-rate senior notes that are putable by the note holders as long-term debt, due to our intent and ability to refinance the debt if the put option is exercised by the note holders.

Debt Issuance

On March 13, 2019 we issued two series of notes, both in the principal amounts of $750 million. These fixed rate notes bear interest at the rates of 3.400% and 4.250% and will mature on March 15, 2029 and March 15, 2049, respectively. Interest on the fixed-rate senior notes is payable semi-annually, beginning September 2019. The 3.400% fixed-rate senior notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of remaining scheduled payments of principal and interest thereon discounted to the redemption date (three months prior to maturity) on a semi-annual basis at the discount rate of the Treasury Rate plus 15 basis points and accrued and unpaid interest. The 4.250% fixed-rate senior notes are callable at our option at a redemption price equal to the greater of 100% of the principal amount, or the sum of the present values of remaining scheduled payments of principal and interest thereon discounted to the redemption date (six months prior to maturity) on a semi-annual basis at the discount rate of the Treasury Rate plus 20 basis points and accrued and unpaid interest.

Sources of Credit

We maintain two credit agreements with a consortium of banks. One of these agreements provided revolving credit facilities of $3.0 billion as of March 31, 2019, and expires on December 10, 2019. On April 4, 2019, we elected to reduce this 364 day revolving credit facility by $1.5 billion. 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, 2019.

The second agreement provides revolving credit facilities of $3.0 billion, and expires on December 11, 2023. 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, 2019.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of March 31, 2019 and for all periods presented, we were in compliance with all applicable 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, 2019, 10% of net tangible assets was equivalent to $3.295 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 us for debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately $24.102 and $23.293 billion as of March 31, 2019 and December 31, 2018, 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.