8-KMaterial AgreementsFinancial Events

UNITED PARCEL SERVICE INC 8-K Report, Material Agreement (Apr 21, 2010)

Filed April 21, 2010For Securities:UPS

Summary

United Parcel Service, Inc. (UPS) filed an 8-K on April 20, 2010, to disclose the establishment of a new $1.5 billion 364-day revolving credit facility, effective April 15, 2010. This new facility replaces a previous $3.0 billion 364-day revolving credit facility that was set to expire on April 15, 2010. The primary purpose of the new credit facility is for general corporate purposes, including serving as a backstop for commercial paper issuance, which is a key liquidity management tool for the company. The new credit facility offers flexibility in interest rate options, including LIBOR-based rates or a base rate, with applicable margins tied to UPS's credit default swap spread and public debt ratings from S&P and Moody's. The facility also includes provisions for competitive bid advances and an option to convert outstanding amounts into a term loan for up to one year, subject to certain fees. Covenants within the agreement are standard, focusing on maintaining corporate existence, compliance with laws, and financial health metrics such as a minimum consolidated net worth of $5.0 billion. The report indicates that UPS plans to use the proceeds for general corporate purposes.

Key Highlights

  • 1Establishment of a new $1.5 billion 364-day revolving credit facility on April 15, 2010.
  • 2The new facility replaces a $3.0 billion 364-day revolving credit facility that was scheduled to expire on April 15, 2010.
  • 3Proceeds from the new facility are intended for general corporate purposes, including commercial paper backstop.
  • 4Interest rates are variable, based on LIBOR or a base rate, with margins linked to UPS's credit ratings and credit default swap spreads.
  • 5The facility includes competitive bid options for advances and an option to convert to a one-year term loan.
  • 6Key covenants include maintaining a minimum consolidated net worth of $5.0 billion and restrictions on secured indebtedness and sale-leaseback transactions.
  • 7The new credit facility matures on April 14, 2011, with an option for renewal or conversion to a term loan.

Frequently Asked Questions

The new $1.5 billion 364-day revolving credit facility provides UPS with continued access to liquidity for general corporate purposes, including supporting its commercial paper program. This is a standard practice for large corporations to ensure short-term funding needs are met and to maintain financial flexibility.

The interest rate structure is similar, offering choices between LIBOR-based rates or a base rate. However, the applicable margin is now more directly tied to UPS's credit default swap spread and public debt ratings, meaning the cost of borrowing could fluctuate based on market perception of UPS's creditworthiness and its actual credit ratings. There are also specific minimum and maximum margins based on public debt ratings.

The facility contains standard covenants requiring UPS to maintain its corporate existence, comply with laws, and pay taxes. Importantly, it requires a minimum consolidated net worth of $5.0 billion and includes restrictions on incurring significant secured indebtedness without equal and ratable security for the facility, engaging in certain sale-leaseback transactions, and limits on asset transfers or mergers where UPS is not the surviving entity.

A commercial paper backstop is a type of credit facility that acts as a safety net for a company's commercial paper issuance. Commercial paper is short-term unsecured debt that companies use to finance immediate needs. If UPS is unable to roll over its commercial paper in the market due to adverse conditions, it can draw on this credit facility to meet its obligations, thus ensuring its short-term liquidity.