Annual report pursuant to Section 13 and 15(d)

Long-Term Debt and Borrowing Arrangements

v3.24.0.1
Long-Term Debt and Borrowing Arrangements
 12 Months Ended
Dec. 31, 2023
Debt Disclosure [Abstract]  
Long-Term Debt and Borrowing Arrangements
12. LONG-TERM DEBT AND BORROWING ARRANGEMENTS
The Company’s indebtedness consisted of:
As of December 31,
2023 2022
Long-term debt: (a)
Amount
Weighted Average Rate (b)
Amount
Weighted Average Rate (b)
$750 million revolving credit facility (due April 2027)
 $ 160  7.30% $ — 
$400 million term loan A (due April 2027)
384  6.82% 399  5.92%
$1.6 billion term loan B (due May 2025)
—  1,139  3.70%
$1.1 billion term loan B (due May 2030)
 1,123  4.10% — 
$500 million 4.375% senior unsecured notes (due August 2028)
 495  4.38% 494  4.38%
Finance leases 39  4.50% 45  4.50%
Total long-term debt 2,201  4.77% 2,077  3.79%
Less: Current portion of long-term debt 37  20 
Long-term debt $ 2,164  $ 2,057 
_____________________
(a)    The carrying amount of the term loans and senior unsecured notes are net of deferred debt issuance costs of $16 million and $11 million as of December 31, 2023 and 2022, respectively. The carrying amount of the term loan B is net of unamortized discounts of $5 million as of December 31, 2023.
(b)    Weighted average interest rates are based on the stated interest rate for the year-to-date periods and include the effects from hedging.
Maturities and Capacity
The Company’s outstanding debt as of December 31, 2023 matures as follows:
Long-Term Debt
Within 1 year $ 37 
Between 1 and 2 years 45 
Between 2 and 3 years 48 
Between 3 and 4 years 485 
Between 4 and 5 years 514 
Thereafter 1,072 
Total $ 2,201 

As of December 31, 2023, the available capacity under the Company’s revolving credit facility was as follows:
Revolving Credit Facility
Total capacity $ 750 
Less: Borrowings 160 
Less: Letters of credit 9 
Available capacity $ 581 
Long-Term Debt
$750 million Revolving Credit Facility 
In April 2022, the Company entered into the Third Amendment to the Credit Agreement dated May 30, 2018 (“Third Amendment”) 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.
During 2023, the Company borrowed $160 million, net of repayments, on its revolving credit facility. Such borrowings are included within long-term debt on the Consolidated Balance Sheet.
$400 million Term Loan A Agreement
The Third 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 in 2022. 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.
$1.1 billion Term Loan B Agreement
On May 25, 2023, the Company entered into a Fourth Amendment to the Credit Agreement dated May 30, 2018 (the “Fourth Amendment”), which, prior to giving effect to the Fourth Amendment, provided for senior secured credit facilities in an aggregate principal amount of $2.35 billion, consisting of (i) a term loan B facility in an aggregate principal amount of $1.6 billion maturing in May 2025 and (ii) a revolving credit facility in an aggregate principal amount of $750 million maturing in April 2027. The Fourth Amendment provides for a new senior secured term loan B facility (the “New Term Loan B”) in an aggregate principal amount of $1.14 billion maturing in May 2030, the proceeds of which were used to repay the existing Term Loan B facility. The interest rate per annum applicable to the New Term Loan B facility is equal to, at our option (a) Base Rate (as defined in the Credit Agreement), plus an applicable rate of 1.25% or (b) Term SOFR, inclusive of the SOFR Adjustment (defined as 0.10% per annum in the Credit Agreement), plus an applicable rate of 2.25%.
The Term SOFR with respect to the New Term Loan B is subject to a “floor” of 0.00%. The New Term Loan B is subject to the same prepayment provisions and covenants applicable to the existing Term Loan B facility, subject to customary exceptions and limitations. These provisions include a 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.
The revolving credit facility and term loans (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 $650 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.
The New Term Loan B is subject to equal quarterly amortization of principal of 0.25% of the initial principal amount, starting in the third quarter of 2023, the first full fiscal quarter after the closing date.
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.
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 $3 million and $4 million as of December 31, 2023 and 2022, respectively.
Cash Flow Hedge
The Company has pay-fixed/receive-variable interest rate swaps which hedge the interest rate exposure on $1.1 billion of its outstanding variable-rate debt, effectively representing more than 97% of the outstanding term loan B, as of December 31, 2023. The interest rate swaps consist of $600 million of swaps that expire in the second quarter of 2024 and have a weighted average fixed rate of 2.33% (plus applicable spreads) and $500 million of swaps that expire in the fourth quarter of 2024 and have a weighted average fixed rate of 0.91% (plus applicable spreads). As a result of the Fourth Amendment, as well as the discontinuance of LIBOR as a benchmark interest rate, during the second quarter of 2023 the Company amended its interest rate swaps to align with the change in the benchmark interest rate of the underlying debt. As such, the variable rates of such swap agreements are based on one-month SOFR. During the third quarter of 2023, the Company entered into new pay-fixed/receive-variable interest rate swaps that hedges the interest rate exposure on $600 million of its variable-rate debt with an effective date in the second quarter of 2024 and an expiration date in the second quarter of 2028. The fixed rate associated with the new swaps is 3.84% (plus applicable spreads). Additionally, during the fourth quarter of 2023, the Company entered into new pay-fixed/receive-variable interest rate swaps that hedges the interest rate exposure on $200 million of its variable-rate debt with an effective date in the fourth quarter of 2024 and an expiration date in the fourth quarter of 2027. The fixed rate associated with the new swaps is 3.55% (plus applicable spreads). The aggregate fair value of these interest rate swaps was an asset of $13 million and $53 million as of December 31, 2023 and 2022, respectively, which was included within other non-current assets on the Consolidated Balance Sheets, respectively. The effect of interest rate swaps on interest expense, net on the Consolidated Statements of Income were $36 million of income during 2023 and $2 million and $26 million of expense during 2022 and 2021, respectively.
There was no hedging ineffectiveness recognized in 2023, 2022 or 2021. The Company expects to reclassify approximately $29 million of gains from AOCI to interest expense during the next 12 months.
Interest Expense, Net
The Company incurred interest expense of $108 million, $85 million and $94 million in 2023, 2022 and 2021, respectively. Cash paid related to such interest was $103 million, $82 million and $96 million for 2023, 2022 and 2021, respectively. Interest income was $6 million, $5 million and $1 million for 2023, 2022 and 2021, respectively.
Early Extinguishment of Debt
The Company incurred non-cash early extinguishment of debt costs of $3 million, $2 million and $18 million during 2023, 2022 and 2021 respectively. The 2023 amount relates to the refinancing of the Company’s term loan B during the second quarter of 2023. The 2022 amount relates to the Third Amendment and $400 million partial pay down of its term loan
B, as discussed above. The 2021 amount related to the redemption of its $500 million 5.375% senior unsecured notes redeemed in 2021.