Debt and Other Financing Arrangements

6 Months Ended

Jun. 30, 2020

Debt Disclosure [Abstract]

Debt and Other Financing Arrangements

10. Debt and Other Financing Arrangements

Long-Term Debt

A summary of the Company's long-term debt obligations at June 30, 2020 and December 31, 2019 is set forth in the following table:

	June 30, 2020				December 31, 2019
	Principal		Carrying Amount (a)		Principal		Carrying Amount (a)
Credit Facilities
Revolver Borrowings
Due 2023	$	1,500	$	1,500	$	183	$	183
Term Loans
LIBOR plus 2.00% Term Loan A due 2019 through 2023(b)	1,572		1,561		1,615		1,608
LIBOR plus 3.00% Term Loan B due 2019 through 2025	1,675		1,614		1,683		1,623
Senior Unsecured Notes
$225 million of 5.375% Senior Notes due 2024	225		223		225		222
$500 million of 5.000% Senior Notes due 2026	500		494		500		494
Senior Secured Notes
€415 million 4.875% Euro Fixed Rate Notes due 2022	466		477		465		479
€300 million of Euribor plus 4.875% Euro Floating Rate Notes due 2024	337		340		336		340
€350 million of 5.000% Euro Fixed Rate Notes due 2024	393		412		392		413
Other debt, primarily foreign instruments	13		12		14		13
			6,633				5,375
Less - maturities classified as current			4				4
Total long-term debt			$	6,629			$	5,371

^(a)  Carrying amount is net of unamortized debt issuance costs and debt discounts or premiums. Total unamortized debt issuance costs were $80 million and $76 million at June 30, 2020 and December 31, 2019. Total unamortized debt (premium) discount, net was $(32) million and $(37) million at June 30, 2020 and December 31, 2019.

^(b)  The interest rate on Term Loan A at December 31, 2019 was LIBOR plus 1.75%.

Short-Term Debt

The Company's short-term debt at June 30, 2020 and December 31, 2019 consists of the following:

	June 30,		December 31,
	2020		2019
Maturities classified as current	$	4	$	4
Short-term borrowings(a)	157		179
Bank overdrafts	61		2
Total short-term debt	$	222	$	185

^(a) Includes borrowings under both committed credit facilities and uncommitted lines of credit and similar arrangements.

Amortization of debt issuance costs and original issue discounts (premiums)

Interest expense associated with the amortization of the debt issuance costs and original issue discounts (premiums) recognized in the Company's condensed consolidated statements of income (loss) for the three and six months ended June 30, 2020 and 2019 is as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2020			2019		2020			2019
Amortization of debt issuance fees	$	5		$	4	$	10		$	9
Accretion of debt premium	$	(2	)	$	—	$	(6	)	$	(6	)

Included in the table above is the amortization of debt issuance costs on the revolver of $1 million in both the three months ended June 30, 2020 and 2019, and $3 million and $2 million in the six months ended June 30, 2020 and 2019. The unamortized debt issuance costs related to the revolver is included in other assets in the condensed consolidated balance sheets.

Credit Facilities

Financing Arrangements

The table below shows the Company's borrowing capacity on committed credit facilities at June 30, 2020:

	Committed Credit Facilities at June 30, 2020
	Term	Available(b)
		(in billions)
Tenneco Inc. revolving credit facility (a)	2023	$	—
Tenneco Inc. Term Loan A	2023	—
Tenneco Inc. Term Loan B	2025	—
Subsidiaries’ credit agreements	2020 - 2028	—
		$	—

^(a)  The Company is required to pay commitment fees under the revolving credit facility on the unused portion of the total commitment.

^(b)  Letters of credit reduce the available borrowings under the revolving credit facility.

The Company also had $65 million of outstanding letters of credit under uncommitted facilities at June 30, 2020.

At June 30, 2020, the Company had liquidity of $1.4 billion comprised entirely of cash. At June 30, 2020, the Company has fully utilized its $1.5 billion revolving credit facility.

Term Loans

On October 1, 2018, the Company entered into a new credit agreement with JPMorgan Chase Bank, N.A., as administrative agent and other lenders (the "New Credit Facility") in connection with the Federal-Mogul Acquisition, which has been amended by the first amendment, dated February 14, 2020 ("the "First Amendment"), by the second amendment, dated February 14, 2020 ("the Second Amendment"), and by the third amendment, dated May 5, 2020 (the "Third Amendment"). The New Credit Facility provides $4.9 billion of total debt financing, consisting of a five-year $1.5 billion revolving credit facility, a five-year $1.7 billion term loan A facility ("Term Loan A"), and a seven-year $1.7 billion term loan B facility ("Term Loan B"). The Company paid $8 million in one-time fees in connection with the First Amendment and Second Amendment, and $10 million in one-time fees in connection with the Third Amendment.

New Credit Facility — Interest Rates and Fees

The Third Amendment provides for an increase to the margin applicable to borrowings under the revolving credit facility and

the Term Loan A facility at certain leverage levels as set forth below as one of several conditions for obtaining the less restrictive financial maintenance covenants described below under New Credit Facility — Other Terms and Conditions:

Consolidated net leverage ratio	Interest rate
greater than 6.0 to 1	LIBOR plus 2.50%
less than 6.0 to 1 and greater than 4.5 to 1	LIBOR plus 2.25%

Initially, and so long as the Company’s corporate family rating is Ba3 (with a stable outlook) or higher from Moody’s Investors Service, Inc. (“Moody’s”) and BB- (with a stable outlook) or higher from Standard & Poor’s Financial Services LLC (“S&P”), the interest rate on borrowings under the Term Loan B facility will be LIBOR plus 2.75%; at any time the foregoing conditions are not satisfied, the interest rate on the Term Loan B facility will be LIBOR plus 3.00%. When the Term Loan B facility is no longer outstanding and the Company and its subsidiaries have no other secured indebtedness (with certain exceptions set forth in the New Credit Facility), and upon the Company achieving and maintaining two or more corporate credit and/or corporate family ratings higher than or equal to BBB- from S&P, BBB- from Fitch Ratings Inc. (“Fitch”) and/or Baa3 from Moody’s (in each case, with a stable or positive outlook), the collateral under the New Credit Facility may be released. On June 3, 2019, Moody’s lowered our corporate family rating to B1 and the interest rate on borrowings under the term loan B was raised to LIBOR plus 3.00%.

New Credit Facility — Other Terms and Conditions — After giving effect to the Third Amendment, the Company must comply with certain less restrictive financial maintenance covenants for the revolving credit facility and the Term Loan A facility. The financial maintenance covenants are subject to several covenant reset triggers (“Covenant Reset Triggers”) that limit certain activities of the Company by implementing more restrictive affirmative and negative covenants, as more fully described below. If a Covenant Reset Trigger occurs, the financial maintenance covenants revert back to the previous financial maintenance covenants in effect immediately prior to the Third Amendment (and described above) (the “Prior Financial Covenants”). The financial maintenance covenants include (i) a requirement to have a senior secured leverage ratio (as defined in the New Credit Facility), with step-downs, as detailed in the table below; (ii) a requirement to have a consolidated net leverage ratio (as defined in the New Credit Facility), with step-downs, as follows:

(i) Senior secured net leverage ratio		(ii) Consolidated net leverage ratio
not greater than 6.75 to 1	at June 30, 2020	not greater than 4.50 to 1	at March 31, 2020
not greater than 9.50 to 1	at September 30, 2020	not greater than 5.25 to 1	at March 31, 2022
not greater than 8.75 to 1	at December 31, 2020	not greater than 4.75 to 1	at June 30, 2022
not greater than 8.25 to 1	at March 31, 2021	not greater than 4.25 to 1	at September 30, 2022
not greater than 4.50 to 1	at June 30, 2021	not greater than 3.75 to 1	thereafter
not greater than 4.25 to 1	at September 30, 2021
not greater than 4.00 to 1	at December 31, 2021

and (iii) a requirement to maintain a consolidated interest coverage ratio (as defined in the New Credit Facility) for any period of four consecutive fiscal quarters of not less than 2.00 to 1 as of June 30, 2020, 1.50 to 1 through March 31, 2021, and 2.75 to 1 thereafter.

The Company may make a one-time election to revert back to the Prior Financial Covenants and terminate the Covenant Reset Triggers upon delivery of a covenant reset certificate that attests to compliance with the Prior Financial Covenants as of the end of the relevant fiscal period (“Covenant Reset Certificate”).

The Covenant Reset Triggers include certain limitations on the ability of the Company and its restricted subsidiaries to, among other things, (a) incur additional indebtedness, (b) enter into additional sales and leasebacks, (c) create additional liens over their assets, (d) pay dividends or distributions to Tenneco’s stockholders, (e) prepay certain unsecured indebtedness of the Company or its restricted subsidiaries (as more fully described below), (f) make additional investments, (g) dispose of material intellectual property, and (h) reinvest the proceeds of certain asset sales in the business in lieu of repaying indebtedness, each as more specifically described in the Third Amendment. These limitations are in addition to other affirmative and negative covenants (with customary exceptions, materiality qualifiers and limitations) in the New Credit Agreement, including with respect to: financial reporting; payment of taxes; maintenance of existence; compliance with law and material contractual obligations; maintenance of property and insurance; inspection of property, books and records; notices of certain events; compliance with environmental laws; provision and maintenance of collateral perfection; satisfaction of the financial maintenance covenants described above; incurrence of indebtedness; permitting liens over assets; mergers, consolidations, dispositions or other fundamental transactions; dispositions and asset sales; restricted payments; investments; compliance with limitations on certain transactions with nonconsolidated affiliates; sale and leaseback transactions; changes in fiscal periods; negative pledge clauses in certain contracts; changes to lines of business; prepayments and modifications of certain subordinated indebtedness (as more fully described below); use of proceeds; transactions involving special purpose finance subsidiaries; and transactions related to effectuating a spin-off (as defined in the New Credit Agreement), each as more specifically described in the New Credit Agreement.

After giving effect to the Third Amendment, so long as no default exists under its New Credit Facility, the Company would be permitted to (i) make regularly scheduled interest and principal payments as and when due in respect of the Senior Unsecured Notes, (ii) refinance the Senior Unsecured Notes with the net cash proceeds of permitted refinancing indebtedness (as defined in the New Credit Facility); (iii) make payments in respect of the Senior Unsecured Notes in an amount equal to the net cash proceeds of qualified capital stock (as defined in the New Credit Facility) issued after May 5, 2020; (iv) convert any Senior Unsecured Notes into qualified capital stock issued after May 5, 2020; and (v) make additional payments of the Senior Unsecured Notes provided that after giving effect to such additional payments the consolidated leverage ratio would be equal to or less than 2.00 to 1 after giving effect to such additional payments. The foregoing limitations regarding repayment and refinancing of the Senior Unsecured Notes and such incremental equivalent debt apply from the effectiveness of the Third Amendment until delivery of a Covenant Reset Certificate.

The covenants in the New Credit Facility generally prohibit the Company from repaying certain subordinated indebtedness. So long as no default exists, the Company would, under its New Credit Facility, be permitted to repay or refinance its subordinated indebtedness (i) with the net cash proceeds of permitted refinancing indebtedness (as defined in the New Credit Facility); (ii) in an amount equal to the net cash proceeds of qualified capital stock (as defined in the New Credit Facility) issued after October 1, 2018; (iii) in exchange for qualified capital stock issued after October 1, 2018; and (iv) with additional payments provided that such additional payments are capped based on a pro forma consolidated leverage ratio after giving effect to such additional payments.

Such additional payments on subordinated indebtedness (x) will not be permitted at any time the pro forma consolidated leverage ratio is greater than 2.00 to 1 after giving effect to such additional payments and (y) will be permitted in an unlimited amount at any time the pro forma consolidated leverage ratio is equal to or less than 2.00 to 1 after giving effect to such additional payments.

The New Credit Facility contains customary representations and warranties, including, as a condition to future revolver borrowings, that all such representations and warranties are true and correct, in all material respects, on the date of borrowing, including representations (with customary exceptions, materiality qualifiers and limitations) as to: existence; compliance with law; power, authority and enforceability; no violation of law or material contracts; material litigation; no default under the New Credit Agreement and related documents; ownership of property, including material intellectual property; payment of material taxes; compliance with margin stock regulations; labor matters; ERISA; Investment Company Act matters; subsidiaries; use of loan proceeds; environmental matters; accuracy of information; security documents; solvency; anti-corruption laws and sanctions; and that since December 31, 2017 there has been no development or event that has had a material adverse effect on the business or financial condition of the Company and its subsidiaries, each as more specifically described in the New Credit Facility.

The New Credit Facility includes customary events of default and other provisions that could require all amounts due thereunder to become immediately due and payable, either automatically or at the option of the lenders, if the Company fails to comply with the terms of the New Credit Facility or if other customary events occur. These events of default (with customary exceptions, materiality qualifiers, limitations and grace periods) include (i) failure to pay obligations under the New Credit Agreement when due; (ii) material inaccuracy of representations and warranties; (iii) failure to comply with the covenants in the New Credit Facility and related documents (as summarized above); (iv) cross-default to material indebtedness; (v) commencement of bankruptcy or insolvency proceedings; (vi) ERISA events; (vii) certain material judgments; (viii) invalidity of unenforceability of security and guarantee documents; and (ix) change of control, each as more specifically described in the New Credit Facility.

Senior Notes

The Company has outstanding 5.375% senior unsecured notes due December 15, 2024 ("2024 Senior Notes") and 5.000% senior unsecured notes due July 15, 2026 ("2026 Senior Notes" and together with the 2024 Senior Notes, the "Senior Unsecured Notes"). The Company has outstanding 5.000% euro denominated fixed rate notes which are due July 15, 2024 ("5.000% Euro Fixed Rate Notes"), 4.875% euro denominated fixed rate notes due April 15, 2022 ("4.875% Euro Fixed Rate Notes"), and floating rate notes due April 15, 2024 ("Euro Floating Rate Notes", together with the 5.000% Euro Fixed Rate Notes and the 4.875% Euro Fixed Notes, the "Senior Secured Notes").

Senior Unsecured Notes and Senior Secured Notes — Other Terms and Conditions — The Senior Unsecured Notes and Senior Secured Notes contain covenants that will, among other things, limit the Company's ability to create liens and enter into sale and leaseback transactions. In addition, the Senior Secured Notes and 2024 Senior Unsecured Notes also require that, as a condition precedent to incurring certain types of indebtedness not otherwise permitted, the Company's consolidated fixed charge coverage ratio, as calculated on a pro forma basis, be greater than 2.00, as well as containing restrictions on its operations, including limitations on: (i) incurring additional indebtedness; (ii) paying dividends; (iii) distributions and stock repurchases; (iv) investments; (v) asset sales and (vi) mergers and consolidations.

Subject to limited exceptions, all of the Company's existing and future material domestic wholly owned subsidiaries fully and unconditionally guarantee its Senior Unsecured Notes and Senior Secured Notes on a joint and several basis. There are no significant restrictions on the ability of the subsidiaries that have guaranteed the Company's Senior Notes to make distributions to the Company.

At June 30, 2020, the Company was in compliance with all of its financial covenants.

Other Debt

Other debt consists primarily of subsidiary debt.

Accounts Receivable Securitization and Factoring

On-Balance Sheet Arrangements

The Company has securitization programs for some of its accounts receivable, with limited recourse provisions. Borrowings on these securitization programs, which are recorded in short-term debt, at June 30, 2020 and December 31, 2019 are as follows:

	June 30, 2020		December 31, 2019
Borrowings on securitization programs	$	3	$	4

Off-Balance Sheet Arrangements

In the Company's European and U.S. accounts receivable factoring programs, accounts receivables are transferred in their entirety to the acquiring entities and are accounted for as a sale. The fair value of assets received as proceeds in exchange for the transfer of accounts receivable under these factoring programs approximates the fair value of such receivables. Some of these programs have deferred purchase price arrangements with the banks.

The Company is the servicer of the receivables under some of these arrangements and is responsible for performing all accounts receivable administration functions. Where the Company receives a fee to service and monitor these transferred accounts receivables, such fees are sufficient to offset the costs and as such, a servicing asset or liability is not recorded as a result of such activities.

In the U.S and Canada, the Company participates in supply chain financing programs with certain of the Company's aftermarket customers through drafting programs.

The amount of accounts receivable outstanding and derecognized for these factoring and drafting arrangements was $0.9 billion and $1.0 billion at June 30, 2020 and December 31, 2019. In addition, the deferred purchase price receivable was $38 million and $33 million at June 30, 2020 and December 31, 2019.

Proceeds from the factoring of accounts receivable qualifying as sales and drafting programs was $0.7 billion and $1.3 billion for the three months ended June 30, 2020 and 2019 and was $1.9 billion and $2.5 billion for the six months ended June 30, 2020 and 2019.

The following table represents the Company's expenses associated with these arrangements for the three and six months ended June 30, 2020 and 2019:

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
Loss on sale of receivables(a)	$	4	$	6	$	10	$	14

^(a) Amount is included in "Interest expense" in the condensed consolidated statements of income (loss).

These programs provide the Company with access to cash at costs that are generally favorable to alternative sources of financing.