Business Context and Reporting Period
This Form 8-K Current Report was filed by Philip Morris International Inc. (PMI) on May 11, 2011, with the earliest event reported on that date. The filing primarily addresses the entry into a material definitive credit agreement and the issuance of senior unsecured notes.
Key Financial Metrics and Agreements
Revolving Credit Facility
- Amount: Up to US$2.5 billion (or Euro equivalent).
- Expiration: March 31, 2015.
- Outstanding Borrowings: None as of May 11, 2011.
- Covenant: Maintenance of an EBITDA to interest ratio of not less than 3.5 to 1.0.
- Purpose: General corporate purposes, including as a commercial paper backstop.
Debt Issuance
- 2016 Notes: US$650 million aggregate principal amount at 2.500% interest, maturing May 16, 2016.
- 2021 Notes: US$350 million aggregate principal amount at 4.125% interest, maturing May 17, 2021.
- Total Issuance: US$1 billion in senior unsecured obligations.
- Interest Payment Dates: Semiannual payments commencing November 2011.
Material Changes Versus Prior Period
The new Credit Agreement amends and restates the existing US$2.5 billion revolving credit facility (the "2010 Facility") which was set to expire on September 30, 2013. The new agreement extends the maturity date to March 31, 2015. Additionally, the company executed a new debt issuance of US$1 billion in notes, which represents a material increase in long-term debt obligations compared to the prior period.
Outlook, Risks, and Contingencies
Covenants and Restrictions: The Notes are subject to customary covenants, including limitations on incurring debt secured by liens and engaging in sale/leaseback transactions. The Credit Agreement includes standard events of default, such as nonpayment, bankruptcy, and breach of covenants.
Default Consequences: If events of default occur and are not cured, outstanding loans may be accelerated and lender commitments terminated. A bankruptcy or insolvency event will result in automatic termination and acceleration.
Redemption: PMI may redeem all, but not part, of the Notes of each series upon the occurrence of specified tax events.
Related Party Transactions: Several underwriters and their affiliates act as lenders under the new Facility and the existing 5-Year Revolving Credit Facility, and may provide other financial services to PMI.
Investor Verification Checklist
- Verify the full text of the Amended and Restated Credit Agreement (Exhibit 10.1) for specific definitions of EBITDA and interest ratio calculations.
- Review the Prospectus Supplement dated May 10, 2011, for detailed terms regarding the 2016 and 2021 Notes.
- Confirm the current status of the commercial paper program to understand the utilization of the new credit facility as a backstop.
- Monitor future filings for any amendments to the debt covenants or changes in the company's leverage ratios.