Quarterly report pursuant to Section 13 or 15(d)

DEBT

v3.22.2.2
DEBT
 9 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
DEBT
NOTE 11. DEBT
Loans Payable and Commercial Paper
Loans payable, commercial paper and the related weighted-average interest rates were as follows:
In millions September 30,
2022		 December 31,
2021
Loans payable (1)
$ 217  $ 208 
Commercial paper 2,393 
(2)(3)
 313 
(4)
(1) Loans payable consist primarily of notes payable to various domestic and international financial institutions. It is not practicable to aggregate these notes and calculate a quarterly weighted-average interest rate.
(2) The weighted-average interest rate, inclusive of all brokerage fees, was 2.82 percent at September 30, 2022. This included $97 million of borrowings under the Europe program at a weighted-average interest rate of 0.87 percent and $2,296 million of borrowings under the U.S. program at a weighted-average interest rate of 2.91 percent.
(3) Additional commercial paper borrowings were primarily used for the Meritor acquisition. See NOTE 16, "ACQUISITIONS," for additional information.
(4) 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.
We can issue up to $4.0 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board authorized commercial paper programs. These programs facilitate the private placement of unsecured short-term debt through third-party brokers. We use the net proceeds from the commercial paper borrowings for acquisitions and general corporate purposes.
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.
We have access to committed credit facilities totaling $4.0 billion, including the $1.5 billion 364-day facility that expires August 16, 2023, $500 million incremental 364-day facility that expires August 16, 2023, and our $2.0 billion five-year facility that expires on August 18, 2026. 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 September 30, 2022 and December 31, 2021. At September 30, 2022, the $2,393 million of outstanding commercial paper effectively reduced the $4.0 billion of revolving credit capacity to $1.6 billion.
At September 30, 2022, we also had an additional $230 million available for borrowings under our international and other domestic credit facilities.
Long-term Debt
A summary of long-term debt was as follows:
In millions Interest Rate September 30,
2022		 December 31,
2021
Long-term debt    
Senior notes, due 2023 3.65% $ 500  $ 500 
Term loan, due 2025 Variable 2,000  — 
Senior notes, due 2025(1)
0.75% 500  500 
Debentures, due 2027 6.75% 58  58 
Debentures, due 2028 7.125% 250  250 
Senior notes, due 2030(1)
1.50% 850  850 
Senior notes, due 2043 4.875% 500  500 
Senior notes, due 2050 2.60% 650  650 
Debentures, due 2098(2)
5.65% 165  165 
Other debt 121  110 
Unamortized discount and deferred issuance costs (65) (68)
Fair value adjustments due to hedge on indebtedness (133) 34 
Finance leases 109  89 
Total long-term debt 5,505  3,638 
Less: Current maturities of long-term debt 55  59 
Long-term debt $ 5,450  $ 3,579 
(1) 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" below for additional information.
(2) The effective interest rate is 7.48 percent.
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. The interest rate is based on Secured Overnight Financing Rate (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.
Principal payments required on long-term debt during the next five years are as follows:
In millions 2022 2023 2024 2025 2026
Principal payments $ 13  $ 563  $ 43  $ 2,509  $ 55 
Interest Rate Risk
Beginning in the second half of 2021, we entered into a series of interest rate swaps to effectively convert our $500 million senior notes, due in 2025, from a fixed rate of 0.75 percent to a floating rate equal to the three-month LIBOR plus a spread, and we also entered into a series of interest rate swaps to effectively convert $765 million of our $850 million senior notes, due in 2030, from a fixed rate of 1.50 percent to a floating rate equal to the three-month LIBOR plus a spread.
The following table summarizes the gains and losses:
Three months ended Nine months ended
In millions September 30, 2022 October 3, 2021 September 30, 2022 October 3, 2021
Type of Swap Gain (Loss) 
on Swaps		 Gain (Loss) on Borrowings Gain (Loss) 
on Swaps		 Gain (Loss) on Borrowings Gain (Loss) 
on Swaps		 Gain (Loss) on Borrowings Gain (Loss) 
on Swaps		 Gain (Loss) on Borrowings
Interest rate swaps(1)
$ (47) $ 45  $ —  $ —  $ (158) $ 159  $ —  $ — 
(1) The difference between the gain (loss) on swaps and borrowings represents hedge ineffectiveness.
We have interest rate lock agreements to reduce the variability of the cash flows of the interest payments on a total of $500 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity. The following table summarizes the gains, net of tax, recognized in other comprehensive income:
In millions Three months ended Nine months ended
Type of Swap September 30,
2022		 October 3,
2021		 September 30,
2022		 October 3,
2021
Interest rate locks $ 21  $ —  $ 103  $ 28 
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:
 
In millions September 30,
2022		 December 31,
2021
Fair value of total debt (1)
$ 7,635  $ 4,461 
Carrying value of total debt 8,115  4,159 
(1) The fair value of debt is derived from Level 2 input measures.
Shelf Registration
As a well-known seasoned issuer, we filed an automatic shelf registration of an undetermined amount of debt and equity with the 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.
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.