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

6 Months Ended

Jun. 30, 2020

The carrying value of our outstanding debt as of June 30, 2020 and December 31, 2019 consists of the following (in millions):


	Principal Amount				Carrying Value
				Maturity			2020			2019
Commercial paper	$	1,909	2020		$	1,908		$	3,234

Fixed-rate senior notes:
3.125% senior notes	1,500		2021		1,524			1,524
2.050% senior notes	700		2021		699			699
2.450% senior notes	1,000		2022		1,035			1,003
2.350% senior notes	600		2022		599			598
2.500% senior notes	1,000		2023		996			995
2.800% senior notes	500		2024		497			497
2.200% senior notes	400		2024		398			398
3.900% senior notes	1,000		2025		995			—
2.400% senior notes	500		2026		498			498
3.050% senior notes	1,000		2027		992			992
3.400% senior notes	750		2029		745			745
2.500% senior notes	400		2029		397			397
4.450% senior notes	750		2030		743			—
6.200% senior notes	1,500		2038		1,483			1,483
5.200% senior notes	500		2040		493			—
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		1,137			1,136
4.250% senior notes	750		2049		742			742
3.400% senior notes	700		2049		688			688
5.300% senior notes	1,250		2050		1,230			—
Floating-rate senior notes:
Floating-rate senior notes	350		2021		350			349
Floating-rate senior notes	400		2022		399			399
Floating-rate senior notes	500		2023		499			499
Floating-rate senior notes	1,039		2049-2067		1,027			1,028
8.375% Debentures:
8.375% debentures	—		2020		—			426
8.375% debentures	276		2030		281			281
Pound Sterling notes:
5.500% notes	82		2031		81			86
5.125% notes	560		2050		531			566
Euro senior notes:
0.375% notes	786		2023		783			779
1.625% notes	786		2025		782			779
1.000% notes	561		2028		559			556
1.500% notes	561		2032		558			556
Floating-rate senior notes	561		2020		561			559
Canadian senior notes:
2.125% notes	549		2024		547			571
Finance lease obligations	515		2020-2210		515			498
Facility notes and bonds	320		2029-2045		320			320
Other debt	7		2020-2025		7			8
Total debt	$	27,087			26,948			25,238
Less: Current maturities					(3,749)			(3,420)
Long-term debt					$	23,199		$	21,818

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 June 30, 2020: $1.7 billion with an average interest rate of 0.54% and €228 million ($256 million) with an average interest rate of -0.41%. As of June 30, 2020, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheets.

Debt Classification

We have classified a portion of our debt instruments that mature within twelve months and certain floating-rate senior notes with put options as long-term due to our intent and ability to refinance the debt.

Debt Repayments

On April 1, 2020, our 8.375% senior notes with a principal balance of $424 million matured and were repaid in full.

Debt Issuances

On March 24, 2020 we issued four series of notes, in the following principal amounts: $1.0 billion, $750 million, $500 million and $1.25 billion. These notes bear interest at 3.90%, 4.45%, 5.20% and 5.30%, respectively, and will mature on April 1, 2025, April 1, 2030, April 1, 2040 and April 1, 2050, respectively. Interest on the notes is payable semi-annually, beginning October 2020. Each series of notes is 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 scheduled payments of principal and interest, plus accrued and unpaid interest.

In such event, the present values of scheduled principal and interest payments are discounted to the redemption date on a semi-annual basis at the discount rate of the Treasury Rate plus 50 basis points, and are determined as follows:

•On the 3.90% notes, payments from the redemption date until one month prior to maturity

•On the 4.45% notes, payments from the redemption date until three months prior to maturity

•On the 5.20% and 5.30% notes, payments from the redemption date until six months prior to maturity

Sources of Credit

We maintain two credit agreements with a consortium of banks. One of these agreements provides revolving credit facilities of $2.0 billion, and expires on December 8, 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) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States; (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 one-year credit default swap spread, subject to a minimum rate of 0.25% and a maximum rate of 1.00%. 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%). 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 June 30, 2020.

The second agreement provides revolving credit facilities of $2.5 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) the rate of interest last quoted by The Wall Street Journal as the prime rate in the United States; (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 one-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%). We are also able to request advances under this facility based on competitive bids. There were no amounts outstanding under this facility as of June 30, 2020.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of June 30, 2020, and for all periods presented, 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 June 30, 2020, 10% of net tangible assets was equivalent to $4.0 billion; however, we had 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 $30.6 and $26.9 billion as of June 30, 2020 and December 31, 2019, 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.