Annual report pursuant to Section 13 and 15(d)

Debt

v3.19.3.a.u2
Debt
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Debt Debt
 
Debt consists of the following ($ in millions):
 
December 31, 2019
 
December 31, 2018
$1,400 million 5.625% Senior notes, due February 15, 2021
$

 
$
1,400

$1,000 million 4.75% Senior notes, due May 15, 2022
1,004

 
1,005

$1,000 million 6.125% Senior notes, due February 15, 2024
1,000

 
1,000

$2,200 million 4.75% Senior notes, due January 15, 2025
2,228

 
1,200

$1,800 million 5.375% Senior notes, due June 1, 2026
1,800

 
1,800

$2,500 million 4.25% Senior notes due December 15, 2027
2,479

 

$3,500 million 4.625% Senior notes due December 15, 2029
3,500

 

Fair value of interest rate swap agreements
(1
)
 
(95
)
Total senior notes
12,010

 
6,310

Term Loan Credit Facility
1,450

 

Revolving Credit Facility
93

 
284

Mortgage notes payable
54

 
57

Construction loan payable
140

 
63

Capital leases and other
122

 
47

Debt issuance costs
(143
)
 
(75
)
Total debt
13,726

 
6,686

Less current portion
(88
)
 
(38
)
 Long-term debt
$
13,638

 
$
6,648



Senior Notes

In February 2020, the Company issued $2,000 million 3.375% Senior Notes due 2030 (the 2030 Notes). The Company intends to use the net proceeds from the 2030 Notes, together with available cash on hand, to redeem all of its outstanding $1,000 million 4.75% Senior Notes due 2022 and all of its outstanding $1,000 million 6.125% Senior Notes due 2024, including all premiums, accrued interest and costs and expenses related to the redemption.

In connection with the WellCare Acquisition, in January 2020, the Company completed an exchange offer for 5.25% Senior Notes due 2025 and 5.375% Senior Notes due 2026 (collectively, the WellCare Notes) issued by WellCare and issued $1,146 million aggregate principal amount of 5.25% Senior Notes due 2025 and $747 million aggregate principal amount of 5.375% Senior Notes due 2026. Additionally, our wholly owned subsidiary, WellCare Health Plans, Inc., assumed the remaining WellCare Notes.

In December 2019, the Company issued approximately $1,000 million 4.75% Senior Notes due 2025 (the Additional 2025 Notes), $2,500 million 4.25% Senior Notes due 2027 (the 2027 Notes), and $3,500 million 4.625% Senior Notes due 2029 (the 2029 Notes). The Company used the net proceeds of the 2027 Notes and the 2029 Notes and a portion of the net proceeds of the Additional 2025 Notes to fund the cash consideration of the WellCare acquisition, which closed on January 23, 2020.

In October 2019, the Company redeemed the outstanding principal balance on the $1,400 million 5.625% Senior Notes due February 15, 2021, plus applicable premium for early redemption and accrued and unpaid interest through the redemption date. The Company recognized a pre-tax loss on extinguishment of $30 million on the redemption of the $1,400 million 5.625% Senior Notes in the fourth quarter of 2019, including the call premium, the write-off of unamortized debt issuance costs and a loss on the termination of the $600 million interest rate swap agreement associated with the notes.

In May 2018, a wholly-owned unrestricted subsidiary of the Company (Escrow Issuer) issued $1,800 million in aggregate principal amount of 5.375% senior notes due 2026 at par. In connection with the closing of the Fidelis Care acquisition, the Escrow Issuer merged with and into the Company and the Company assumed the obligations of the Escrow Issuer under the 5.375% senior notes due 2026. The Company used the net proceeds of the offering to finance a portion of the cash consideration for the Fidelis Care acquisition, which closed in July 2018, to pay related fees and expenses, and for general corporate purposes, including the repayment of outstanding indebtedness.

The indentures governing the senior notes listed in the table above contain restrictive covenants of Centene Corporation. At December 31, 2019, the Company was in compliance with all covenants.

Interest Rate Swaps

The Company uses interest rate swap agreements to convert a portion of its interest rate exposure from fixed rates to floating rates to more closely align interest expense with interest income received on its cash equivalent and variable rate investment balances. The following is a summary of the notional amounts of the Company's interest rate swap agreements as of December 31, 2019 and 2018 ($ in millions):
Expiration Date
 
December 31, 2019
 
December 31, 2018
February 15, 2021
 
$

 
$
600

May 15, 2022
 
500

 
500

February 15, 2024
 
1,000

 
1,000

January 15, 2025
 
600

 
600

     Total
 
$
2,100

 
$
2,700



The fair value of the swap agreements shown above are recorded in other long-term assets and other long-term liabilities in the Consolidated Balance Sheets. Under the swap agreements, the Company receives a fixed rate of interest and pays an average variable rate of either the one or three month LIBOR plus 3.44% adjusted monthly or quarterly, based on the terms of the individual swap agreements. At December 31, 2019, the weighted average rate was 5.30%.

The swap agreements are formally designated and qualify as fair value hedges. Gains and losses due to changes in fair value of the interest rate swap agreements completely offset changes in the fair value of the hedged portion of the underlying debt. Therefore, no gain or loss has been recognized due to hedge ineffectiveness. Offsetting changes in fair value of both the interest rate swaps and the hedged portion of the underlying debt both were recognized in interest expense in the Consolidated Statements of Operations. The Company does not hold or issue any derivative instrument for trading or speculative purposes.

In connection with the redemption of the $1,400 million 5.625% Senior Notes in October 2019, the Company terminated the $600 million interest rate swap agreement associated with those notes. In connection with the February 2020 senior note issuance and anticipated redemptions, the Company terminated the remaining $2,100 million interest rate swap agreements.

The fair value of the Swap Agreements excludes accrued interest and takes into consideration current interest rates and current likelihood of the swap counterparties' compliance with its contractual obligations.

Revolving Credit Facility and Term Loan Credit Facility

On May 7, 2019, the Company amended and restated its existing credit agreement by and among Centene, Wells Fargo Bank, National Association, as administrative agent, and the lenders from time to time party thereto (as amended, restated, amended and restated or otherwise modified , the Company Credit Agreement), to, among other things, increase the revolving commitments available under its unsecured multi-currency revolving credit facility from $1.5 billion to $2.0 billion. (the Revolving Credit Facility), which includes a $300 million sub-limit for letters of credit and a $200 million sub-limit for swingline loans. On September 11, 2019, the Company further amended and restated the Company Credit Agreement, to provide for a new $1.45 billion unsecured delayed-draw term loan facility (the Term Loan Facility, the credit agreement, as amended, the Company Credit Facility). On November 14, 2019, the Company amended the Company Credit Agreement to exclude the indebtedness issued for the purpose of financing the WellCare Acquisition in the calculation of certain financial covenants until the earlier of the consummation of the WellCare Acquisition and September 20, 2020. Borrowings under the Company's Revolving Credit Facility bear interest, at the Company's option, at LIBOR, EURIBOR, CDOR, BBR or base rates plus, in each case, an applicable margin based on total debt to EBITDA ratio. Borrowings under the Term Loan Facility bear interest, at the Company's option, at LIBOR or base rates plus, in each case, an applicable margin based on the total debt to EBITDA ratio. The Company has an uncommitted option to increase its Company Credit Facility by an additional $500 million plus certain additional amounts based on its total debt to EBITDA ratio.

The Company Credit Agreement contains financial covenants including maintenance of a minimum fixed charge coverage ratio and a restriction on the Company's maximum total debt to EBITDA ratio exceeding 3.5 to 1.0. It also contains certain non-financial covenants including: limitations on incurrence of additional indebtedness; restrictions on incurrence of liens; restrictions on dividends and other restricted payments; restrictions on investments, mergers, consolidations and asset sales; and limitations on transactions with affiliates. As of December 31, 2019, the Company was in compliance with all financial and non-financial covenants under the Company Credit Facility.

As of December 31, 2019, the Company had $93 million of borrowings outstanding under the Revolving Credit Facility, with a weighted average interest rate of 1%. In October 2019, the Company borrowed $1.45 billion under the Term Loan Facility. The proceeds of the Term Loan Facility were used to fund the redemption of certain senior notes discussed below and pay fees and expenses in connection therewith, with any remaining proceeds to be used for general corporate purposes.

The Revolving Credit Facility will mature on May 7, 2024. The Term Loan Facility will mature on September 11, 2022.

Mortgage Notes Payable

The Company has a non-recourse mortgage note of $54 million at December 31, 2019 collateralized by its corporate headquarters building. The mortgage note is due January 1, 2021 and bears a 5.14% interest rate. The collateralized property had a net book value of $130 million at December 31, 2019.

Construction Loan

The Company has a $200 million non-recourse construction loan to fund the expansion of the Company's corporate headquarters. The loan bears interest based on the one month LIBOR plus 2.70% and matures in April 2021 with an optional one-year extension. The agreement contains financial and non-financial covenants aligning with the Company Credit Facility. The Company has guaranteed completion of the construction project associated with the loan. As of December 31, 2019, the Company had $140 million in borrowings outstanding under the loan.

Letters of Credit & Surety Bonds

The Company had outstanding letters of credit of $68 million as of December 31, 2019, which were not part of the Revolving Credit Facility. The Company also had letters of credit for $27 million (valued at December 31, 2019 conversion rate), or €24 million, representing its proportional share of the letters of credit issued to support Ribera Salud's outstanding debt, which are a part of the Revolving Credit Facility. Collectively, the letters of credit bore interest at 0.9% as of December 31, 2019. The Company had outstanding surety bonds of $611 million as of December 31, 2019.

Aggregate maturities for the Company's debt are as follows ($ in millions):
2020
  
$
88

2021
  
201

2022
  
2,469

2023
  
6

2024
  
1,094

Thereafter
  
10,001

Total
  
$
13,859



The fair value of outstanding debt was approximately $14,160 million and $6,619 million at December 31, 2019 and 2018, respectively.