Note 12
Debt

The Company’s total debt at December 31, 2016 and 2015, amounted to $6,803 million and $7,439 million, respectively.

Short-term debt and current maturities of long-term debt

The Company’s “Short-term debt and current maturities of long-term debt” consisted of the following:

December 31, ($ in millions)

2016

2015

Short-term debt (weighted-average interest rate of 3.3% and 4.2%, respectively)

135

278

Current maturities of long-term debt (weighted-average nominal interest rate of 2.8% and 2.0%, respectively)

868

1,176

Total

1,003

1,454

Short-term debt primarily represents short-term loans from various banks and issued commercial paper.

At December 31, 2016, the Company had in place two commercial paper programs: a $2 billion Euro-commercial paper program for the issuance of commercial paper in a variety of currencies, and a $2 billion commercial paper program for the private placement of U.S. dollar denominated commercial paper in the United States. At December 31, 2016 and 2015, $57 million and $132 million, respectively, was outstanding under the $2 billion program in the United States.

In addition, during 2016, the Company exercised its option to further extend the maturity of its $2 billion multicurrency revolving credit facility to 2021. The facility is for general corporate purposes. Interest costs on drawings under the facility are LIBOR or EURIBOR (depending on the currency of the drawings) plus a margin of 0.20 percent, while commitment fees (payable on the unused portion of the facility) amount to 35 percent of the margin, which represents commitment fees of 0.07 percent per annum. Utilization fees, payable on drawings, amount to 0.075 percent per annum on drawings up to one-third of the facility, 0.15 percent per annum on drawings in excess of one-third but less than or equal to two-thirds of the facility, or 0.30 percent per annum on drawings over two-thirds of the facility. No amount was drawn at December 31, 2016 and 2015. The facility contains cross-default clauses whereby an event of default would occur if the Company were to default on indebtedness as defined in the facility, at or above a specified threshold.

Long-term debt

The Company utilizes derivative instruments to modify the interest characteristics of its long-term debt. In particular, the Company uses interest rate swaps to effectively convert certain fixed-rate long-term debt into floating rate obligations. The carrying value of debt, designated as being hedged by fair value hedges, is adjusted for changes in the fair value of the risk component of the debt being hedged.

The following table summarizes the Company’s long-term debt considering the effect of interest rate swaps. Consequently, a fixed-rate debt subject to a fixed-to-floating interest rate swap is included as a floating rate debt in the table below:

 

2016

2015

December 31, ($ in millions, except % data)

Balance

Nominal rate

Effective rate

Balance

Nominal rate

Effective rate

Floating rate

1,745

2.0%

1.3%

2,285

2.7%

0.8%

Fixed rate

4,923

2.9%

2.9%

4,876

3.2%

3.2%

 

6,668

 

 

7,161

 

 

Current portion of long-term debt

(868)

2.8%

2.4%

(1,176)

2.0%

1.4%

Total

5,800

 

 

5,985

 

 

At December 31, 2016, the principal amounts of long-term debt repayable (excluding capital lease obligations) at maturity were as follows:

($ in millions)

 

2017

843

2018

379

2019

1,321

2020

4

2021

1,251

Thereafter

2,736

Total

6,534

Details of the Company’s outstanding bonds were as follows:

 

2016

2015

December 31, (in millions)

Nominal
outstanding

Carrying
value(1)

Nominal
outstanding

Carrying
value(1)

(1)

USD carrying values include unamortized debt issuance costs, bond discounts or premiums, as well as adjustments for fair value hedge accounting, where appropriate.

Bonds:

 

 

 

 

 

 

 

 

2.5% USD Notes, due 2016

 

 

 

USD

600

$

599

1.25% CHF Bonds, due 2016

 

 

 

CHF

500

$

510

1.625% USD Notes, due 2017

USD

500

$

500

USD

500

$

499

4.25% AUD Notes, due 2017

AUD

400

$

291

AUD

400

$

297

1.50% CHF Bonds, due 2018

CHF

350

$

342

CHF

350

$

352

2.625% EUR Instruments, due 2019

EUR

1,250

$

1,311

EUR

1,250

$

1,363

4.0% USD Notes, due 2021

USD

650

$

643

USD

650

$

641

2.25% CHF Bonds, due 2021

CHF

350

$

368

CHF

350

$

383

5.625% USD Notes, due 2021

USD

250

$

274

USD

250

$

279

2.875% USD Notes, due 2022

USD

1,250

$

1,261

USD

1,250

$

1,275

0.625% EUR Notes, due 2023

EUR

700

$

732

 

 

 

4.375% USD Notes, due 2042

USD

750

$

722

USD

750

$

722

Total

 

 

$

6,444

 

 

$

6,920

During 2016, the Company repaid at maturity the 2.5% USD Notes, due 2016, and the 1.25% CHF Bonds, due 2016. The Company had entered into interest rate swaps to hedge its interest obligation on the 1.25% CHF Bonds, due 2016. After considering the impact of such swaps, these bonds effectively became floating rate Swiss franc obligations and consequently have been shown as floating rate debt at December 31, 2015, in the table of long-term debt above.

The 4.0% USD Notes, due 2021, pay interest semi-annually in arrears, at a fixed annual rate of 4.0 percent, respectively. The Company may redeem these notes prior to maturity, in whole or in part, at the greater of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of the present values of remaining scheduled payments of principal and interest (excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest accrued at the redemption date.

The 2.25% CHF Bonds, due 2021, pay interest annually in arrears, at a fixed annual rate of 2.25 percent, respectively. The Company has the option to redeem the bonds prior to maturity, in whole, at par plus accrued interest, if 85 percent of the aggregate principal amount of the bonds has been redeemed or purchased and cancelled. The Company entered into interest rate swaps to hedge its interest obligations on these bonds. After considering the impact of such swaps, these bonds effectively became floating rate Swiss franc obligations and consequently have been shown as floating rate debt in the table of long-term debt above.

The 1.50% CHF Bonds, due 2018, pay interest annually in arrears at a fixed annual rate of 1.5 percent. The Company has the option to redeem the bonds prior to maturity, in whole, at par plus accrued interest, if 85 percent of the aggregate principal amount of the bonds has been redeemed or purchased and cancelled.

The 2.625% EUR Instruments, due 2019, pay interest annually in arrears at a fixed rate of 2.625 percent per annum.

The 1.625% USD Notes, due 2017, pay interest semi-annually in arrears at a fixed annual rate of 1.625 percent. The 2.875% USD Notes, due 2022, pay interest semi-annually in arrears at a fixed annual rate of 2.875 percent. The 4.375% USD Notes, due 2042, pay interest semi-annually in arrears at a fixed annual rate of 4.375 percent. The Company may redeem any of these notes prior to maturity, in whole or in part, at the greater of (i) 100 percent of the principal amount of the notes to be redeemed and (ii) the sum of the present values of remaining scheduled payments of principal and interest (excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest accrued at the redemption date. These notes, registered with the U.S. Securities and Exchange Commission, were issued by ABB Finance (USA) Inc., a 100 percent owned finance subsidiary, and were fully and unconditionally guaranteed by ABB Ltd. There are no significant restrictions on the ability of the parent company to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 3-10 of Regulation S-X, the separate financial statements of ABB Finance (USA) Inc. are not provided. The Company has entered into interest rate swaps for an aggregate nominal amount of $1,050 million to partially hedge its interest obligations on the 2.875% USD Notes, due 2022. After considering the impact of such swaps, $1,050 million of the outstanding principal is shown as floating rate debt in the table of long-term debt above.

The 5.625% USD Notes, due 2021, pay interest semi-annually in arrears at a fixed annual rate of 5.625 percent. The Company has the option to redeem the notes prior to maturity at the greater of (i) 100 percent of the principal amount of the notes to be redeemed, and (ii) the sum of the present values of remaining scheduled payments of principal and interest (excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest accrued at the redemption date.

The 4.25% AUD Notes, due 2017, pay fixed interest of 4.25 percent semi-annually in arrears. The Company entered into interest rate swaps to hedge its interest obligations on these bonds. After considering the impact of such swaps, these bonds effectively became floating rate Australian dollar obligations and consequently have been shown as floating rate debt in the table of long-term debt above.

In May 2016, the Company issued notes with an aggregate principal of EUR 700 million, due 2023. The notes pay interest annually in arrears at a fixed rate of 0.625 percent per annum. The Company recorded net proceeds of EUR 697 million (equivalent to approximately $807 million on date of issuance).

The Company’s bonds contain cross-default clauses which would allow the bondholders to demand repayment if the Company were to default on any borrowing at or above a specified threshold. Furthermore, all such bonds constitute unsecured obligations of the Company and rank pari passu with other debt obligations.

In addition to the bonds described above, included in long-term debt at December 31, 2016 and 2015, are capital lease obligations, bank borrowings of subsidiaries and other long-term debt, none of which is individually significant.