Annual report pursuant to Section 13 and 15(d)

DEBT

v3.22.4
DEBT
 12 Months Ended
Dec. 31, 2022
Debt Disclosure [Abstract]  
DEBT
NOTE 13. DEBT
Loans Payable
Loans payable at December 31, 2022 and 2021 were $210 million and $208 million, respectively, and consisted primarily of notes payable to financial institutions. The weighted-average interest rate for notes payable, bank overdrafts and current maturities of long-term debt at December 31 was as follows:
2022 2021
Weighted-average interest rate 4.02  % 2.71  %
Commercial Paper
We can issue up to $4.0 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board of Directors (the Board) authorized commercial paper programs. The programs facilitate the private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for acquisitions and general corporate purposes. We had $2.6 billion and $313 million in outstanding borrowings under our commercial paper programs at December 31, 2022 and 2021, respectively. The weighted-average interest rate for commercial paper at December 31 was as follows:
2022 2021
Weighted-average interest rate 4.27  %
(1)
 (0.01) %
(2)
 (1) The weighted-average interest rate, inclusive of all brokerage fees, was 4.27 percent at December 31, 2022. This included $107 million of borrowings under the Europe program at a weighted-average interest rate of 1.86 percent and $2.5 billion of borrowings under the U.S. program at a weighted-average interest rate of 4.38 percent.
(2) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2021. This included $113 million of borrowings under the Europe program that were at a negative weighted-average interest rate of 0.39 percent and $200 million of borrowings under the U.S. program at a weighted-average interest rate of 0.21 percent.
Revolving Credit Facilities
On August 17, 2022, we entered into an amended and restated 364-day credit agreement, which allows us to borrow up to $1.5 billion of unsecured funds at any time prior to August 16, 2023. This credit agreement amended and restated the prior $1.5 billion 364-day credit facility that matured on August 17, 2022. On August 17, 2022, we also entered into an incremental 364-day credit agreement, which allows us to borrow up to $500 million of unsecured funds at any time prior to August 16, 2023.
On August 18, 2021, we entered into an amended and restated 5-year revolving credit agreement, which allows us to borrow up to $2 billion of unsecured funds at any time prior to August 18, 2026. In connection with the new credit agreements, on August 17, 2022, we entered into an amendment to our $2.0 billion five-year facility to replace LIBOR with Secured Overnight Financing Rate (SOFR) as an interest rate benchmark and to make other conforming changes to interest rate determinations. Amounts payable under our revolving credit facility rank pro rata with all of our unsecured, unsubordinated indebtedness. Up to $300 million under this credit facility is available for swingline loans. Based on our current long-term debt ratings, the applicable margin on SOFR rate loans was 0.85 percent per annum including a 0.10 percent LIBOR to SOFR adjustment as of December 31, 2022. Advances under the facility may be prepaid without premium or penalty, subject to customary breakage costs.
Our credit agreements include various covenants, including, among others, maintaining a net debt to total capital ratio of no more than 0.65 to 1.0. At December 31, 2022, we were in compliance with the financial debt covenants. We intend to maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and general corporate purposes. There were no outstanding borrowings under these facilities at December 31, 2022.
The total combined borrowing capacity under the revolving credit facilities and commercial programs should not exceed $4.0 billion. At December 31, 2022, our $2.6 billion of commercial paper outstanding effectively reduced the $4.0 billion available capacity under our revolving credit facilities to $1.4 billion.
At December 31, 2022, we also had $226 million available for borrowings under our international and other domestic credit facilities.
Long-term Debt
A summary of long-term debt was as follows:
  December 31,
In millions Interest Rate 2022 2021
Long-term debt    
Senior notes, due 2023 (1)
3.65% $ 500  $ 500 
Term loan, due 2025 Variable 1,550  — 
Senior notes, due 2025 (2)
0.75% 500  500 
Debentures, due 2027 6.75% 58  58 
Debentures, due 2028 7.125% 250  250 
Senior notes, due 2030 (2)
1.50% 850  850 
Senior notes, due 2043 4.875% 500  500 
Senior notes, due 2050 2.60% 650  650 
Debentures, due 2098 (3)
5.65% 165  165 
Other debt 121  110 
Unamortized discount and deferred issuance costs (64) (68)
Fair value adjustments due to hedge on indebtedness (122) 34 
Finance leases 113  89 
Total long-term debt 5,071  3,638 
Less: Current maturities of long-term debt 573  59 
Long-term debt $ 4,498  $ 3,579 
(1) Senior notes, due 2023, are classified as current maturities of long-term debt at December 31, 2022.
(2) In 2021 we entered into a series of interest rate swaps to effectively convert from a fixed rate to floating rate. See "Interest Rate Risk" section of NOTE 22, "DERIVATIVES," for additional information.
(3) The effective interest rate is 7.48 percent.
Principal payments required on long-term debt during the next five years are as follows:
In millions 2023 2024 2025 2026 2027
Principal payments $ 573  $ 44  $ 2,061  $ 56  $ 64 
On July 13, 2022, we entered into a loan agreement under which we may obtain delayed-draw loans in an amount up to $2.0 billion in the aggregate prior to October 13, 2022. We drew down the entire $2.0 billion balance on August 2, 2022, to help fund the acquisition of Meritor. During the fourth quarter of 2022, we paid down $450 million of the term loan. The interest rate is based on SOFR for the one-month interest period plus the relevant spread. The loan will mature on August 1, 2025. The agreement contains customary events of default and financial and other covenants, including maintaining a net debt to capital ratio of no more than 0.65 to 1.0.
The $250 million 7.125 percent debentures and $165 million 5.65 percent debentures are unsecured and are not subject to any sinking fund requirements. We can redeem these debentures at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture holders are not penalized by the early redemption.
Our debt agreements contain several restrictive covenants. The most restrictive of these covenants applies to our revolving credit facility which will upon default, among other things, limit our ability to incur additional debt or issue preferred stock, enter into sale-leaseback transactions, sell or create liens on our assets, make investments and merge or consolidate with any other entity. At December 31, 2022, we were in compliance with all of the financial debt covenants under our borrowing agreements.
Shelf Registration
As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the Securities and Exchange Commission (SEC) on February 8, 2022. Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units. Our current shelf is scheduled to expire in February 2025.
Interest Expense
For the years ended December 31, 2022, 2021 and 2020, total interest incurred was $204 million, $113 million and $102 million, respectively, and interest capitalized was $5 million, $2 million and $2 million, respectively.
Fair Value of Debt
Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair values and carrying values of total debt, including current maturities, were as follows:
December 31,
In millions 2022 2021
Fair values of total debt (1)
$ 7,400  $ 4,461 
Carrying value of total debt 7,855  4,159 
(1) The fair value of debt is derived from Level 2 input measures.
Filtration Contingent Debt Agreement
On September 30, 2022, certain of our subsidiaries entered into a $1.0 billion credit agreement (Credit Agreement), consisting of a $400 million revolving credit facility and a $600 million term loan facility (Facilities), in anticipation of the separation of our filtration business. Borrowings under the Credit Agreement will not become available under the Credit Agreement unless and until, among other things, there is a sale to the public of shares in our subsidiary that holds the filtration business (Parent Borrower). The Credit Agreement will automatically terminate if no such public sale of shares of Parent Borrower occurs on or prior to March 30, 2023. Borrowings under the Credit Agreement would be available to Parent Borrower and one or more of its subsidiaries (Borrower). If borrowings become available under the Credit Agreement, the Facilities would mature on September 30, 2027.
Borrowings under the Credit Agreement would bear interest at varying rates, depending on the type of loan and, in some cases, the rates of designated benchmarks and the applicable Borrower’s election. Generally, U.S. dollar-denominated loans would bear interest at adjusted term SOFR (which includes a 0.10 percent credit spread adjustment to term SOFR) for the applicable interest period plus a rate ranging from 1.125 percent to 1.75 percent depending on Parent Borrower's net leverage ratio.