Annual report pursuant to Section 13 and 15(d)

Long-Term Debt and Borrowing Arrangements

v3.22.4
Long-Term Debt and Borrowing Arrangements
 12 Months Ended
Dec. 31, 2022
Debt Disclosure [Abstract]  
Long-Term Debt and Borrowing Arrangements
13. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
The Company’s indebtedness consisted of:
As of December 31,
2022 2021
Long-term debt: (a)
Amount
Weighted Average Rate (b)
Amount
Weighted Average Rate (b)
$750 million revolving credit facility (due April 2027)
 $ —  $ — 
$400 million term loan A (due April 2027)
399  5.92% — 
$1.6 billion term loan B (due May 2025)
1,139  3.70% 1,541  3.07%
4.375% senior unsecured notes (due August 2028)
 494  4.38% 493  4.38%
Finance leases 45  4.50% 50  4.50%
Total long-term debt 2,077  2,084 
Less: Current portion of long-term debt 20  21 
Long-term debt $ 2,057  $ 2,063 
_____________________
(a)    The carrying amount of the term loan and senior unsecured notes are net of deferred debt issuance costs of $11 million and $15 million as of December 31, 2022 and 2021, respectively.
(b)    Weighted average interest rate based on year-end balances, including the effects from hedging.
Maturities and Capacity
The Company’s outstanding debt as of December 31, 2022 matures as follows:
Long-Term Debt
Within 1 year $ 20 
Between 1 and 2 years 26 
Between 2 and 3 years 1,173 
Between 3 and 4 years 37 
Between 4 and 5 years 313 
Thereafter 508 
Total $ 2,077 

As of December 31, 2022, the available capacity under the Company’s revolving credit facility was as follows:
Revolving Credit Facility
Total capacity $ 750 
Less: Letters of credit 9 
Available capacity $ 741 
Long-Term Debt
$750 million Revolving Credit Facility 
During May 2018, the Company entered into an agreement for a $750 million revolving credit facility expiring in May 2023. This facility is subject to an interest rate per annum equal to, at the Company’s option, either a base rate plus a margin ranging from 0.50% to 1.00% or LIBOR plus a margin ranging from 1.50% to 2.00%, in either case based upon the total leverage ratio of the Company and its restricted subsidiaries. In addition, the Company will pay a commitment fee on the unused portion of the revolving credit facility of 0.20% per annum.
In April 2020, the Company completed an amendment to its revolving credit facility agreement to waive the quarterly-tested leverage covenant until April 1, 2021. The covenant was also modified for the second, third and fourth quarters of 2021 to use a form of annualized EBITDA, as defined in the credit agreement, rather than the last twelve months EBITDA, as
previously required. In return for this modification, the Company agreed to temporarily maintain minimum liquidity of $200 million, which is defined in the credit agreement as the total of unrestricted cash on hand and available capacity under the Company’s revolving credit facility, pay a higher interest rate on outstanding borrowings, restrict share repurchases and reduce payment of dividends, or restrict dividends to $0.01 per share in the event the Company’s liquidity was below $300 million. As of December 31, 2021 all restrictions have been lifted.
In April 2022, the Company entered into the Third Amendment to the Credit Agreement dated May 30, 2018 which amended its original five-year $750 million revolver to extend the term to April 2027. The benchmark rate applicable to the revolver has changed from LIBOR to Secured Overnight Funding Rate (“SOFR”). The revolver is subject to an interest rate equal to, at the Company’s option, either (i) a base rate plus a margin ranging from 0.50% to 1.00% or (ii) SOFR, plus a margin ranging from 1.50% to 2.00% and an additional 0.10% SOFR adjustment, in either case based upon the total leverage ratio of the Company and its restricted subsidiaries. The revolver is subject to the same prepayment provisions and covenants applicable to the previous revolver.
$400 million Term Loan A Agreement
In April 2022, the Company entered into the Third Amendment to the Credit Agreement dated May 30, 2018. The amendment provides for a new senior secured term loan A facility (“Term Loan A”) in an aggregate principal amount of $400 million maturing in April 2027, the proceeds of which were used to repay a portion of the existing Term Loan B facility. The Term Loan A is subject to an interest rate equal to, at the Company’s option, either (i) a base rate plus a margin ranging from 0.50% to 1.00% or (ii) SOFR, plus a margin ranging from 1.50% to 2.00% and an additional 0.10% SOFR adjustment, in either case based upon the total leverage ratio of the Company and its restricted subsidiaries. The term loan A is subject to the same prepayment provisions and covenants applicable to the existing Term Loan B. The Term Loan A is subject to quarterly principal payments as follows: (i) 0.0% per year of the initial principal amount during the first year, (ii) 5.0% per year of the initial principal amount payable in equal quarterly installments during the second and third years and (iii) 7.5% per year of the initial principal amount payable in equal quarterly installments during the fourth and fifth years, with final payments of all amounts outstanding, plus accrued interest, being due on the maturity date in April 2027.
$1.6 billion Term Loan B Agreement
During May 2018, the Company entered a credit agreement for a $1.6 billion term loan (the “Term Loan B”) expiring in May 2025. The interest rate per annum applicable to the Term Loan B is equal to, at the Company’s option, either a base rate plus a margin of 0.75% or LIBOR plus a margin of 1.75%. The LIBOR rate with respect to the Term Loan B is subject to a “floor” of 0.00%. The Term Loan B began amortizing in equal quarterly installments beginning in the fourth quarter of 2018 in aggregate annual amounts equal to 1.00% of the original principal amount thereof. The Term Loan B is subject to standard mandatory prepayment provisions including (i) 100% of the net cash proceeds from issuances or incurrence of debt by the Company or any of its restricted subsidiaries (other than with respect to certain permitted indebtedness); (ii) 100% (with step-downs to 50% and 0% based upon achievement of specified first-lien leverage ratios) of the net cash proceeds from certain sales or other dispositions of assets by the Company or any of its restricted subsidiaries in excess of a certain amount and subject to customary reinvestment provisions and certain other exceptions; and (iii) 50% (with step-downs to 25% and 0% based upon achievement of specified first-lien leverage ratios) of annual (commencing with the 2019 fiscal year) excess cash flow of the Company and its restricted subsidiaries, subject to customary exceptions and limitations. During 2022, the Company prepaid $400 million of the Term Loan B with proceeds from the issuance of the Term Loan A and as a result, the Company is no longer subject to quarterly principal payments on Term Loan B.
The revolving credit facility and term loan (the “Credit Facilities”) are guaranteed, jointly and severally, by certain of the Company’s wholly-owned domestic subsidiaries and secured by a first-priority security interest in substantially all of the assets of the Company and those subsidiaries. The Credit Facilities were initially guaranteed by former Parent, which guarantee was released immediately prior to the consummation of the spin-off. The Credit Facilities contain customary covenants that, among other things, restrict, subject to certain exceptions, the Company and its restricted subsidiaries’ ability to grant liens on the Company and its restricted subsidiaries’ assets, incur indebtedness, sell assets, make investments, engage in acquisitions, mergers or consolidations and pay certain dividends and other restricted payments. The Credit Facilities require the Company to comply with financial maintenance covenants to be tested quarterly, consisting of a maximum first-lien leverage ratio.
Subject to customary conditions and restrictions, the Company may obtain incremental term loans and/or revolving loans in an aggregate amount not to exceed (i) the greater of $550 million and 100% of EBITDA, plus (ii) the amount of all voluntary prepayments and commitment reductions under the Credit Facilities, plus (iii) additional amounts subject to certain leverage-based ratio tests.
The Credit Facilities also contain certain customary events of default, including, but not limited to: (i) failure to pay principal, interest, fees or other amounts under the Credit Facilities when due, taking into account any applicable grace period; (ii) any representation or warranty proving to have been incorrect in any material respect when made; (iii) failure to perform or observe covenants or other terms of the Credit Facilities subject to certain grace periods; (iv) a cross-default and cross-acceleration with certain other material debt; (v) bankruptcy events; (vi) certain defaults under ERISA; and (vii) the invalidity or impairment of security interests.
5.375% Senior Unsecured Notes
On April 15, 2021, the Company redeemed all of its $500 million 5.375% senior unsecured notes due 2026, which was primarily funded through cash on hand. Due to this redemption, the Company incurred an $18 million charge in the second quarter of 2021, including $13 million of call premiums and $5 million from the acceleration of deferred financing fees. Such charge is reported as early extinguishment of debt on the Consolidated Statements of Income/(Loss).
4.375% Senior Unsecured Notes
In August 2020, the Company issued $500 million of senior unsecured notes, which mature in 2028 and bear interest at a rate of 4.375% per year, for net proceeds of $492 million. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2021. The notes are redeemable in whole or in part at various times and premiums per their indenture, with the first call date of August 15, 2023 at a price of 102.188%. The Company used the net cash proceeds from the notes to reduce the borrowings outstanding under its revolving credit facility.
Finance Leases
The Company’s finance leases primarily consist of the lease of its corporate headquarters. In connection with the Company’s separation from former Parent, it was assigned the lease for its corporate headquarters located in Parsippany, New Jersey from its former Parent, which resulted in the Company recording a finance lease obligation and asset.
Deferred Debt Issuance Costs
The Company classifies deferred debt issuance costs related to its revolving credit facility within other non-current assets on the Consolidated Balance Sheets. Such deferred debt issuance costs were $4 million and $2 million as of December 31, 2022 and 2021, respectively.
Cash Flow Hedge
In 2018, the Company hedged a portion of its $1.6 billion term loan. The pay-fixed/receive-variable interest rate swaps hedge $1.1 billion of the Company’s term loan interest rate exposure, of which $600 million expires in the second quarter of 2024 and has a weighted average fixed rate of 2.58% and $500 million expires in the fourth quarter of 2024 and has a weighted average fixed rate of 0.99%. The variable rates of the swap agreements are based on one-month LIBOR. The aggregate fair value of these interest rate swaps was an asset of $53 million and a liability of $23 million as of December 31, 2022 and 2021, respectively, which was included within other non-current assets and other non-current liabilities on the Consolidated Balance Sheets, respectively. The effect of interest rate swaps on interest expense, net on the Consolidated Statements of Income/(Loss) were $2 million, $26 million and $22 million of expense during 2022, 2021 and 2020, respectively.
There was no hedging ineffectiveness recognized in 2022, 2021 or 2020. The Company expects to reclassify approximately $34 million of gains from AOCI to interest expense during the next 12 months.
Interest Expense, Net
The Company incurred interest expense of $85 million, $94 million and $114 million in 2022, 2021 and 2020, respectively. Cash paid related to such interest was $82 million, $96 million and $101 million for 2022, 2021 and 2020, respectively. Interest income was $5 million, $1 million and $2 million for 2022, 2021 and 2020, respectively.
Early Extinguishment of Debt
The Company incurred non-cash early extinguishment of debt costs of $2 million in 2022 relating to the credit agreement amendment and $400 million partial pay down of its term loan B, as discussed above, for the year ended December 31, 2022. For the year ended December 31, 2021 the Company incurred early extinguishment of debt costs of $18 million relating to the redemption of its $500 million 5.375% senior unsecured notes redeemed in 2021.