8-KMaterial AgreementsFinancial Events

UNITED PARCEL SERVICE INC 8-K Report, Material Agreement (Apr 19, 2011)

Filed April 19, 2011For Securities:UPS

Summary

United Parcel Service Inc. (UPS) has announced the establishment of two new credit facilities to enhance its financial flexibility. The company secured a $1.5 billion 364-day revolving credit facility and a $1.0 billion four-year revolving credit facility, both with Citibank, N.A. as the administrative agent. These facilities are intended to support general corporate purposes and act as a backstop for commercial paper issuance, providing a crucial liquidity cushion. The terms of these facilities include variable interest rates tied to LIBOR or a base rate, with margins influenced by UPS's credit default swap spreads and public debt ratings. While the 364-day facility offers short-term liquidity and flexibility with an option to convert to a term loan, the four-year facility provides longer-term funding. Both facilities include customary covenants and events of default, ensuring sound financial practices and stability.

Key Highlights

  • 1UPS secured a new $1.5 billion 364-day revolving credit facility, maturing April 12, 2012.
  • 2UPS also established a new $1.0 billion four-year revolving credit facility, maturing April 14, 2015.
  • 3Both facilities are with a syndicate of banks led by Citibank, N.A. as administrative agent.
  • 4Proceeds from both facilities are designated for general corporate purposes, including commercial paper backstop.
  • 5Interest rates are variable, based on LIBOR or a base rate, with margins determined by credit default swap spreads and debt ratings.
  • 6The 364-day facility includes an option to convert outstanding amounts into a one-year term loan, maturing by April 12, 2013.
  • 7Both facilities contain customary covenants and events of default, including financial covenants such as a minimum consolidated net worth requirement.

Frequently Asked Questions

The primary purpose of these new credit facilities is to provide UPS with enhanced financial flexibility for general corporate purposes and to serve as a backstop for its commercial paper program. This means the facilities can be used to provide liquidity if UPS cannot issue new commercial paper or needs to repay maturing commercial paper.

The main difference lies in their maturity. The 364-day facility offers short-term liquidity and matures in just over a year, with an option to extend or convert to a term loan. The four-year facility provides longer-term funding and matures in four years. The associated fees and margin structures also differ slightly, reflecting their respective time horizons and potential uses.

The facilities include customary covenants to ensure UPS maintains its corporate existence, complies with laws, pays taxes, and maintains its properties and insurance. Importantly, they also contain financial covenants, such as a requirement to maintain a minimum consolidated net worth of $5.0 billion. There are also restrictions on incurring additional secured indebtedness beyond a certain threshold and on certain sale-leaseback or merger transactions.

Interest rates are generally based on either the London Interbank Offered Rate (LIBOR) for the relevant currency and interest period, or a fluctuating base rate (such as Citibank's publicly announced base rate). Both options include an 'applicable margin.' For LIBOR-based advances, this margin is primarily determined by UPS's 1-year credit default swap spread, with minimum and maximum limits. For the four-year facility, the margin is also influenced by UPS's public debt ratings from S&P and Moody's.