Summary
Caterpillar Inc. (CAT) filed an 8-K on September 22, 2008, reporting on significant updates to its credit facilities. The most notable event is the establishment of a new US$2.350 billion, 364-day unsecured revolving credit facility, which serves as an alternative funding source for its commercial paper program. The company also amended two existing five-year credit agreements, dated 2006 and 2007, to introduce more flexibility in its financing arrangements.
Key Highlights
- 1Established a new US$2.350 billion unsecured revolving credit facility with a 364-day term, expiring September 17, 2009.
- 2The new facility is intended as a backup for Caterpillar's commercial paper program.
- 3Amended existing five-year credit agreements from 2006 (US$2.975 billion) and 2007 (US$1.625 billion).
- 4Amendments allow for assignment of accounts receivables arising from sales or securitization.
- 5Increased CFSC's leverage ratio to 10.0 to 1 from 8.5 to 1, effective December 31, 2008.
- 6Exclusions were made for certain foreign subsidiary proceedings from being considered events of default.
- 7Banks can now pledge or assign their rights under the facilities for payment of their own obligations, particularly concerning Federal Reserve Bank loans.
Frequently Asked Questions
The new US$2.350 billion, 364-day unsecured revolving credit facility is primarily intended to serve as an alternative source of funds for Caterpillar's commercial paper program, particularly at the maturity of its commercial paper.
The amendments to the 2006 and 2007 five-year credit agreements introduced greater flexibility. Key changes include allowing borrowers to assign accounts receivables, increasing the leverage ratio for Caterpillar Financial Services Corporation (CFSC) to 10.0:1, excluding certain foreign subsidiary events from defaults, and permitting banks to pledge their rights under the facilities for their own obligations.
According to the filing, Caterpillar had not drawn on the new 364-day facility or its existing 2006 and 2007 five-year credit facilities as of the report date (September 18, 2008).
The increase in CFSC's leverage ratio from 8.5:1 to 10.0:1, effective December 31, 2008, provides greater financial flexibility for Caterpillar's financial services arm, potentially allowing it to take on more debt relative to its equity to support its operations and growth.