8-KMaterial AgreementsFinancial Events

UNITED PARCEL SERVICE INC 8-K Report, Material Agreement (Apr 13, 2012)

Filed April 13, 2012For Securities:UPS

Summary

This 8-K filing from United Parcel Service, Inc. (UPS) on April 12, 2012, primarily announces the establishment of two new credit facilities, replacing existing ones. The company has entered into a $1.5 billion 364-day revolving credit facility and a $1.0 billion five-year revolving credit facility. Both facilities, managed by Citibank, N.A. as administrative agent, will be used for general corporate purposes, including working capital. These new credit agreements indicate UPS's proactive approach to managing its liquidity and financial flexibility. The structure of these facilities, including interest rate mechanisms tied to LIBOR and credit default swap spreads, and provisions for competitive bid advances, suggests a focus on optimizing borrowing costs and operational efficiency. The covenants and covenants, while standard, provide insight into UPS's financial health and operational parameters maintained with its lenders.

Key Highlights

  • 1UPS established a new $1.5 billion 364-day revolving credit facility on April 12, 2012.
  • 2UPS also entered into a new $1.0 billion five-year revolving credit facility on April 12, 2012.
  • 3These new facilities replace prior credit agreements set to expire in 2012 and 2015.
  • 4Both facilities are with a syndicate of lenders, with Citibank, N.A. serving as the administrative agent.
  • 5Proceeds from both credit facilities are designated for working capital and general corporate purposes.
  • 6The new credit agreements feature interest rates tied to LIBOR or Citibank's base rate, with applicable margins influenced by UPS's credit default swap spreads and public debt ratings.
  • 7Standard covenants regarding financial health, operational compliance, and debt incurrence are included in both agreements.

Frequently Asked Questions

The primary purpose of both the $1.5 billion 364-day facility and the $1.0 billion five-year facility is to provide UPS with financial flexibility for working capital and other general corporate purposes. This ensures the company has access to funds for its ongoing operations and strategic initiatives.

The main difference lies in their maturity: the first is a short-term facility expiring in 364 days (with an option for renewal or conversion to a term loan), while the second is a longer-term facility with a five-year maturity (and options for annual extensions). The commitment fees on unused amounts also differ, with the five-year facility having potentially higher rates based on UPS's debt ratings.

Interest rates are generally based on either the LIBOR rate for the applicable currency and interest period, or Citibank's publicly announced base rate. Both options include an 'applicable margin' which is influenced by UPS's credit default swap spread (for the 364-day facility) or a combination of credit default swap spreads and public debt ratings from S&P and Moody's (for the five-year facility).

The agreements include customary covenants such as maintaining corporate existence, complying with laws, paying taxes, and maintaining insurance. They also restrict the incurrence of secured indebtedness above certain thresholds, limit sale-leaseback transactions, and require UPS to maintain a minimum consolidated net worth of $5.0 billion on a quarterly basis under the 364-day facility. Additionally, there are restrictions on asset transfers and mergers where UPS is not the surviving entity.