Debt and Subordinated Convertible Debentures

Debt consists of the following:



	March 31, 2014			December 31, 2013
URNA and subsidiaries debt:
Accounts Receivable Securitization Facility (1)	$	140		$	430
$2.3 billion ABL Facility (2)	135			1,106
5 ³/₄ percent Senior Secured Notes	750			750
10¹/₄ percent Senior Notes (3)	—			220
9¹/₄ percent Senior Notes (4)	494			494
7 ³/₈ percent Senior Notes	750			750
8³/₈ percent Senior Subordinated Notes	750			750
8¹/₄ percent Senior Notes	691			692
7 ⁵/₈ percent Senior Notes	1,325			1,325
6¹/₈ percent Senior Notes (5)	953			400
5 ³/₄ percent Senior Notes (6)	850			—
Capital leases	112			120
Total URNA and subsidiaries debt	6,950			7,037
Holdings:
4 percent Convertible Senior Notes (7)	89			136
Total debt	7,039			7,173
Less short-term portion (8)	(265		)	(604		)
Total long-term debt	$	6,774		$	6,569

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(1)

At March 31, 2014, $313 was available under our accounts receivable securitization facility. The interest rate applicable to the accounts receivable securitization facility was 0.8 percent at March 31, 2014. During the three months ended March 31, 2014, the monthly average amount outstanding under the accounts receivable securitization facility was $331, and the weighted-average interest rate thereon was 0.8 percent. The maximum month-end amount outstanding under the accounts receivable securitization facility during the three months ended March 31, 2014 was $427. Borrowings under the accounts receivable securitization facility are permitted only to the extent that the face amount of the receivables in the collateral pool, net of applicable reserves, exceeds the outstanding loans. As of March 31, 2014, there were $453 of receivables, net of applicable reserves, in the collateral pool.

(2)

At March 31, 2014, $2.1 billion was available under our ABL facility, net of $52 of letters of credit. The interest rate applicable to the ABL facility was 3.4 percent at March 31, 2014. During the three months ended March 31, 2014, the monthly average amount outstanding under the ABL facility was $873, and the weighted-average interest rate thereon was 2.5 percent. The maximum month-end amount outstanding under the ABL facility during the three months ended March 31, 2014 was $1.3 billion.


(3)	In January 2014, we redeemed all of our 10¹/4 percent Senior Notes. We paid a call premium of $26 in connection with the redemption, and recognized a loss of approximately $6 in interest expense, net upon redemption. The loss represented the difference between the net carrying amount and the total purchase price of the notes.

(4)

As discussed in note 10 to the condensed consolidated financial statements, in March 2014, we announced that we were acquiring assets of the following four entities: National Pump & Compressor, Ltd., Canadian Pump and Compressor Ltd., GulfCo Industrial Equipment, LP and LD Services, LLC (collectively “National Pump”). Using proceeds from debt issued contemporaneous with the National Pump acquisition, as discussed below, and cash on hand, we redeemed all the outstanding 9 ¹/₄ percent Senior Notes in April 2014. We paid a call premium of approximately $52 in connection with the redemption and recognized a loss of approximately $65 in interest expense upon redemption. The loss represented the difference between the net carrying amount and the total purchase price of the notes.

(5)

Contemporaneous with the National Pump acquisition described in note 10 to the condensed consolidated financial statements, in March 2014, URNA issued $525 principal amount of 6 ¹/₈ percent Senior Notes as an add on to our existing 6 ¹/₈ percent Senior Notes. The net proceeds from the issuance were $546 (after deducting offering expenses). The newly issued notes have identical terms, and are fungible, with the 6 ¹/₈ percent Senior Notes outstanding at December 31, 2013. The difference between the carrying value of the 6 ¹/₈ percent Senior Notes and the $925 principal amount relates to the $28 unamortized portion of the original issue premium recognized in conjunction with the March 2014 issuance, which is being amortized through the maturity date in 2023. The effective interest rate on the 6 ¹/₈ percent Senior Notes is 5.7 percent.

(6)

In connection with the National Pump acquisition described in note 10 to the condensed consolidated financial statements, in March 2014, URNA issued $850 principal amount of 5 ³/₄ percent Senior Notes which are due November 15, 2024. The net proceeds from the issuance were $837 (after deducting offering expenses). The net proceeds were used to finance in part the cash purchase price of the National Pump acquisition which closed in April 2014. The 5 ³/₄ percent Senior Notes are unsecured and are guaranteed by Holdings and, subject to limited exceptions, URNA's domestic subsidiaries. The 5 ³/₄ percent Senior Notes may be redeemed on or after May 15, 2019, at specified redemption prices that range from 102.875 percent in the 12-month period commencing on May 15, 2019, to 100 percent in the 12-month period commencing on May 15, 2022 and thereafter, plus accrued and unpaid interest. The indenture governing the 5 ³/₄ percent Senior Notes contains certain restrictive covenants, including, among others, limitations on (1) liens; (2) additional indebtedness; (3) mergers, consolidations and acquisitions; (4) sales, transfers and other dispositions of assets; (5) loans and other investments; (6) dividends and other distributions, stock repurchases and redemptions and other restricted payments; (7) restrictions affecting subsidiaries; (8) transactions with affiliates; and (9) designations of unrestricted subsidiaries, as well as a requirement to timely file periodic reports with the SEC. Each of these covenants is subject to important exceptions and qualifications that would allow URI to engage in these activities under certain conditions. The indenture also requires that, in the event of a change of control (as defined in the indenture), URI must make an offer to purchase all of the then-outstanding 5 ³/₄ percent Senior Notes tendered at a purchase price in cash equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest, if any, thereon.

(7)

The difference between the March 31, 2014 carrying value of the 4 percent Convertible Senior Notes and the $100 principal amount reflects the $11 unamortized portion of the original issue discount recognized upon issuance of the notes, which is being amortized through the maturity date of November 15, 2015. Because the 4 percent Convertible Senior Notes were redeemable at March 31, 2014, an amount equal to the $11 unamortized portion of the original issue discount is separately classified in our condensed consolidated balance sheets and referred to as “temporary equity.” During the three months ended March 31, 2014, $56 of our 4 percent Convertible Notes were redeemed. We recognized a loss of approximately $5 in interest expense, net upon redemption. The loss represented the difference between the net carrying amount and the fair value of the debt component of the notes. Based on the price of our common stock during the first quarter of 2014, holders of the 4 percent Convertible Senior Notes have the right to redeem the notes during the second quarter of 2014 at a conversion price of $11.11 per share of common stock. Since April 1, 2014 (the beginning of the second quarter), $4 of the 4 percent Convertible Senior Notes were redeemed.


(8)	As of March 31, 2014, our short-term debt primarily reflects $140 of borrowings under our accounts receivable securitization facility and $89 of 4 percent Convertible Senior Notes. The 4 percent Convertible Senior Notes mature in November 2015, but are reflected as short-term debt because they are redeemable at March 31, 2014.

Convertible Note Hedge Transactions

In connection with the November 2009 issuance of $173 aggregate principal amount of 4 percent Convertible Senior Notes, Holdings entered into convertible note hedge transactions with option counterparties. The convertible note hedge transactions cost $26, and decreased additional paid-in capital by $17, net of taxes, in our accompanying condensed consolidated statements of stockholders’ equity. The convertible note hedge transactions cover, subject to anti-dilution adjustments, 8.7 million shares of our common stock. The convertible note hedge transactions are intended to reduce, subject to a limit, the potential dilution with respect to our common stock upon conversion of the 4 percent Convertible Senior Notes. The effect of the convertible note hedge transactions is to increase the effective conversion price to $15.56 per share, equal to an approximately 75 percent premium over the $8.89 closing price of our common stock at issuance. The effective conversion price is subject to change in certain circumstances, such as if the 4 percent Convertible Senior Notes are converted prior to May 15, 2015. In the event the market value of our common stock exceeds the effective conversion price per share, the settlement amount received from such transactions will only partially offset the potential dilution. For example, if, at the time of exercise of the conversion right, the price of our common stock was $90.00 or $95.00 per share, assuming an effective conversion price of $15.56 per share, on a net basis, we would issue 7.5 million or 7.6 million shares, respectively.

Loan Covenants and Compliance

As of March 31, 2014, we were in compliance with the covenants and other provisions of the ABL facility, the accounts receivable securitization facility and the senior notes. Any failure to be in compliance with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

In October 2011, we amended the ABL facility. The only material financial covenants which currently exist relate to the fixed charge coverage ratio and the senior secured leverage ratio under the ABL facility. Since the October 2011 amendment of the ABL facility and through March 31, 2014, availability under the ABL facility has exceeded the required threshold and, as a result, these maintenance covenants have been inapplicable. Subject to certain limited exceptions specified in the amended ABL facility, the fixed charge coverage ratio and the senior secured leverage ratio under the amended ABL facility will only apply in the future if availability under the amended ABL facility falls below the greater of 10 percent of the maximum revolver amount under the amended ABL facility and $150. Under our accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding.