8-KRegulation FDOther EventsExhibits & Filings

Merck & Co., Inc. 8-K Report, Regulation FD Disclosure (Dec 2, 2004)

Filed December 2, 2004For Securities:MRK

Summary

Schering-Plough Corporation (MRK) filed an 8-K on December 2, 2004, primarily to disclose amendments to its interest rate swap arrangements. The company and its counterparty bank agreed to a phased termination of existing swap contracts, involving prepayments totaling $1.9 billion as of September 30, 2004. This termination is scheduled to occur between March 30, 2005, and January 15, 2009. The amendments also adjusted credit rating triggers. The original 36-month grace period following a credit downgrade triggering termination has been extended to January 15, 2009. Additionally, a previous 10th-anniversary rating trigger was eliminated and replaced with a lower 'BBB'/'Baa2' senior unsecured debt rating requirement for termination, with termination occurring on the later of November 16, 2007, or 60 days after notice.

Key Highlights

  • 1Schering-Plough has amended its interest rate swap agreements with a counterparty bank.
  • 2The company and the bank have agreed to a phased termination of the swap arrangements, set to conclude by January 15, 2009.
  • 3Approximately $1.9 billion in prepayments are involved in the swap arrangement as of September 30, 2004.
  • 4The termination process will involve the repayment of these prepayments by the company's U.S. subsidiary and the bank's repayment of funds to Schering-Plough's foreign subsidiary.
  • 5The credit rating triggers for potential termination of the swap contracts have been modified, extending the grace period and lowering the minimum rating requirement.
  • 6The company has the option to accelerate scheduled terminations and associated payments for a nominal fee.
  • 7The "American Jobs Creation Act of 2004" may allow for tax-advantaged repatriation of funds to finance the U.S. subsidiary's repayment obligation.

Frequently Asked Questions

The main purpose of this 8-K filing is to disclose material amendments to Schering-Plough's interest rate swap arrangements with a counterparty bank. These amendments focus on the phased termination of the swap contracts and modifications to credit rating triggers.

The phased termination requires the repayment of approximately $1.9 billion in prepayments. The company's U.S. subsidiary will need to repay funds it received, while the counterparty bank will repay funds received by Schering-Plough's foreign subsidiary. The financial impact of the U.S. subsidiary's repayment will depend on how it is financed, either through new debt, equity, or repatriation of foreign-held funds, which could have U.S. income tax consequences.

The original 36-month grace period following a notice of termination due to credit rating downgrades has been extended to January 15, 2009. Additionally, a previous stringent anniversary-based rating trigger was replaced with a lower requirement: the counterparty can terminate if the company's senior unsecured debt rating falls below 'BBB' by S&P or 'Baa2' by Moody's.

Yes, the filing mentions that under the 'American Jobs Creation Act of 2004,' Schering-Plough may be able to repatriate funds held by its foreign subsidiary to the U.S. to help finance its repayment obligation, potentially at a significantly reduced tax cost compared to previous tax laws.