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, 2019

The carrying value of our outstanding debt as of September 30, 2019 and December 31, 2018 consists of the following (in millions):



	Principal Amount			Carrying Value
	Principal Amount		Maturity	2019			2018
Commercial paper	$	2,054	2019-2020	$	2,054		$	2,662

Fixed-rate senior notes:
5.125% senior notes	1,000		2019	—			998
3.125% senior notes	1,500		2021	1,528			1,492
2.050% senior notes	700		2021	698			698
2.450% senior notes	1,000		2022	1,007			1,023
2.350% senior notes	600		2022	598			597
2.500% senior notes	1,000		2023	995			994
2.800% senior notes	500		2024	497			496
2.200% senior notes	400		2024	398			—
2.400% senior notes	500		2026	498			498
3.050% senior notes	1,000		2027	992			991
3.400% senior notes	750		2029	745			—
2.500% senior notes	400		2029	396			—
6.200% senior notes	1,500		2038	1,483			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			—
3.400% senior notes	700		2049	687			—
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	429			419
8.375% debentures	276		2030	281			274
Pound Sterling notes:
5.500% notes	82		2031	81			84
5.125% notes	559		2050	530			546
Euro senior notes:
0.375% notes	763		2023	759			797
1.625% notes	763		2025	759			798
1.000% notes	545		2028	542			570
1.500% notes	545		2032	541			569
Floating-rate senior notes	545		2020	544			572
Canadian senior notes:
2.125% notes	566		2024	564			548
Finance lease obligations	466		2019-3005	466			534
Facility notes and bonds	320		2029-2045	319			320
Other debt	8		2019-2022	8			13
Total debt	$	25,032		23,901			22,736
Less: Current maturities				(2,161		)	(2,805		)
Long-term debt				$	21,740		$	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 September 30, 2019: $1.020 billion with an average interest rate of 2.24% and €949 million ($1.034 billion) with an average interest rate of -0.37%. As of September 30, 2019, we have classified the entire commercial paper balance as a current liability on our consolidated balance sheets.

Debt Classification

We have classified both our 8.375% debentures due April 2020 with a principal balance of $424 million, and our €500 million ($545 million) floating-rate senior notes due July 2020, as long-term debt based on our intent and ability to refinance the debt as of September 30, 2019. 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 3.40% and 4.25% 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 3.40% 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 due from the redemption date until three months prior to maturity, discounted to the redemption date on a semi-annual basis at the discount rate of the Treasury Rate plus 15 basis points, plus accrued and unpaid interest. The 4.25% 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 due from the redemption date until six months prior to maturity discounted to the redemption date on a semi-annual basis at the discount rate of the Treasury Rate plus 20 basis points, plus accrued and unpaid interest.

On August 13, 2019 we issued three series of notes, two with principal amounts of $400 million and one in the principal amount of $700 million. These notes bear interest at the rates of 2.20%, 2.50% and 3.40%, respectively, and will mature on September 1, 2024, September 1, 2029 and September 1, 2049, respectively. Interest on the notes is payable semi-annually, beginning March 2020. The 2.20% 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 scheduled payments of principal and interest due from the redemption date until one month prior to maturity, discounted to the redemption date on a semi-annual basis at the discount rate of the Treasury Rate plus 10 basis points, plus accrued and unpaid interest. The 2.50% 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 scheduled payments of principal and interest due from the redemption date until three months prior to maturity discounted to the redemption date on a semi-annual basis at the discount rate of the Treasury Rate plus 15 basis points, plus accrued and unpaid interest. The 3.40% 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 scheduled payments of principal and interest due from the redemption date until six months prior to maturity, discounted to the redemption date on a semi-annual basis at the discount rate of the Treasury Rate plus 20 basis points, plus accrued and unpaid interest.

Sources of Credit

We maintain two credit agreements with a consortium of banks. One of these agreements provides a revolving credit facility of $1.5 billion and expires on December 10, 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. The applicable margin is 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, 2019.

The second agreement provides a revolving credit facility 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. 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 for the applicable interest rate. There were no amounts outstanding under this facility as of September 30, 2019.

Debt Covenants

Our existing debt instruments and credit facilities subject us to certain financial covenants. As of September 30, 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 September 30, 2019, 10% of net tangible assets was equivalent to $3.453 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 $25.668 and $23.293 billion as of September 30, 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.