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, 2018

The carrying value of our outstanding debt as of September 30, 2018 and December 31, 2017 consists of the following (in millions):



	Principal Amount			Carrying Value
	Principal Amount		Maturity	2018			2017
Commercial paper	$	2,815	2018 - 2019	$	2,815		$	3,203
Fixed-rate senior notes:
5.500% senior notes	750		2018	—			751
5.125% senior notes	1,000		2019	1,004			1,019
3.125% senior notes	1,500		2021	1,509			1,549
2.050% senior notes	700		2021	697			696
2.450% senior notes	1,000		2022	952			979
2.350% senior notes	600		2022	597			597
2.500% senior note	1,000		2023	994			992
2.800% senior note	500		2024	496			495
2.400% senior note	500		2026	497			497
3.050% senior note	1,000		2027	991			990
6.200% senior notes	1,500		2038	1,482			1,482
4.875% senior notes	500		2040	490			489
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			1,135
Floating-rate senior notes:
Floating-rate senior notes	350		2021	348			348
Floating-rate senior notes	400		2022	399			398
Floating-rate senior notes	500		2023	499			496
Floating-rate senior notes	1,043		2049-2067	1,030			1,032
8.375% Debentures:
8.375% debentures	424		2020	434			447
8.375% debentures	276		2030	281			282
Pound Sterling notes:
5.500% notes	87		2031	86			84
5.125% notes	593		2050	561			586
Euro senior notes:
0.375% notes	811		2023	805			832
1.625% notes	811		2025	806			833
1.000% notes	579		2028	575			595
1.500% notes	579		2032	575			594
Floating-rate senior notes	579		2020	578			598
Canadian senior notes:
2.125% notes	575		2024	572			593
Capital lease obligations	900		2018-3005	900			500
Facility notes and bonds	320		2029-2045	320			319
Other debt	13		2018-2022	13			19
Total debt	$	24,230		23,301			24,289
Less: Current maturities				(3,200		)	(4,011		)
Long-term debt				$	20,101		$	20,278

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 September 30, 2018: $2.267 billion with an average interest rate of 2.01% and €473 million ($548 million) with an average interest rate of -0.37%. As of September 30, 2018, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheets.

Debt Classification

We have classified our 5.125% senior notes due April 2019 with a principal balance of $1.0 billion as long-term debt based on our intent and ability to refinance the debt as of September 30, 2018. 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 Repayments

On January 15, 2018, our $750 million 5.500% senior notes matured and were repaid in full.

Sources of Credit

We maintain two credit agreements with a consortium of banks. One of these agreements provides revolving credit facilities of $4.5 billion, and expires on March 22, 2019. 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, 2018.

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 September 30, 2018.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of September 30, 2018 and for all prior 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 September 30, 2018, 10% of net tangible assets was equivalent to $2.857 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 debt with similar terms and maturities, the fair value of long-term debt, including current maturities, was approximately $23.857 and $25.206 billion as of September 30, 2018 and December 31, 2017, 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.