Debt

Short-term borrowings were as follows:



	December 31,
	2017		2016
Notes Payable	$	6	$	4
Current maturities of long-term debt	276		1,007
Total Short-term Debt	$	282	$	1,011

We classify our debt based on the contractual maturity dates of the underlying debt instruments or as of the earliest put date available to the debt holders. We defer costs associated with debt issuance over the applicable term, or to the first put date in the case of convertible debt or debt with a put feature. These costs are amortized as interest expense in our Consolidated Statements of Income (Loss).

Long-term debt was as follows:



					December 31,
	Stated Rate		Weighted Average Interest Rates at December 31, 2017⁽³⁾		2017			2016
Xerox Corporation
Senior Notes due 2017⁽¹⁾					$	—		$	500
Senior Notes due 2017⁽¹⁾					—			500
Notes due 2018	0.57	%	0.57	%	1			1
Senior Notes due 2018	6.35	%	6.09	%	265			1,000
Senior Notes due 2019	2.75	%	2.58	%	406			500
Senior Notes due 2019	5.63	%	5.48	%	554			650
Senior Notes due 2020	2.80	%	2.50	%	313			400
Senior Notes due 2020	3.50	%	3.47	%	362			400
Senior Notes due 2020	2.75	%	2.67	%	375			400
Senior Notes due 2021	4.50	%	5.39	%	1,062			1,062
Senior Notes due 2022	4.07	%	4.07	%	300			—
Senior Notes due 2023	3.63	%	3.64	%	1,000			—
Senior Notes due 2024	3.80	%	3.84	%	300			300
Senior Notes due 2035	4.80	%	4.84	%	250			250
Senior Notes due 2039	6.75	%	6.78	%	350			350
Subtotal - Notes					$	5,538		$	6,313
Other Debt
Capital lease obligations			4.11	%	$	35		$	31
Other					—			1
Subtotal - Other Debt					$	35		$	32

Principal debt balance					$	5,573		$	6,345
Unamortized discount					(35		)	(43		)
Debt issuance costs					(32		)	(21		)
Fair value adjustments⁽²⁾
Terminated swaps					4			27
Current swaps					1			4
Less: current maturities					(276		)	(1,007		)
Total Long-term Debt					$	5,235		$	5,305

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(1)	Senior Notes maturing in 2017 were paid in part from funds received in the distribution from Conduent as part of the Separation. Refer to Note 5 - Divestitures for additional information.

(2)

Fair value adjustments include the following: (i) fair value adjustments to debt associated with terminated interest rate swaps, which are being amortized to interest expense over the remaining term of the related notes; and (ii) changes in fair value of hedged debt obligations attributable to movements in benchmark interest rates. Hedge accounting requires hedged debt instruments to be reported inclusive of any fair value adjustment.


(3)	Represents weighted average effective interest rate which includes the effect of discounts and premiums on issued debt.

Scheduled principal payments due on our long-term debt for the next five years and thereafter are as follows:



2018⁽¹⁾		2019		2020		2021		2022		Thereafter		Total
$	274	$	968	$	1,059	$	1,069	$	301	$	1,902	$	5,573

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(1)	Quarterly long-term debt maturities from continuing operations for 2018 are $2, $268, $2 and $2 for the first, second, third and fourth quarters, respectively.

Senior Notes

In September 2017, we issued $1.0 billion of 3.625% Senior Notes due March 2023 (the "2023 Senior Notes") at 99.920% of par resulting in aggregate net proceeds of approximately $992. Interest on these Senior Notes is payable semi-annually. Debt issuance costs of approximately $8 were paid and deferred in connection with the issuance and will be amortized over the term of the Senior Notes. The debt proceeds were used for general corporate purposes, which included a voluntary cash contribution of $500 to our U.S. defined benefit pension plans as well as the early redemption of certain debt.

In October 2017, we completed the early redemption of $475 of the remaining $740 of 6.35% Senior Notes due May 2018. The redemption resulted in a net loss of $7 being recorded in the fourth quarter 2017.

Refer to Note 17 - Employee Benefit Plans for further information regarding the voluntary contribution made to our U.S. defined benefit pension plans.

Credit Facility

In August 2017, we entered into an Amended and Restated Credit Agreement that included a reduction in the size of our unsecured revolving Credit Facility from $2.0 billion to $1.8 billion and an extension in the maturity date from March 2019 to August 2022. The amended and restated Credit Facility also included a reduction in the letter of credit sub-facility from $300 to $250. The accordion feature of our previous $2.0 billion Credit Facility, which allowed us to increase (from time to time, with willing lenders) the overall size of the facility by $750, was retained. We also have the right to request a one year extension on any anniversary of the amendment date.

We deferred $5 of debt issuance costs in connection with this amendment, which includes approximately $2 of unamortized deferred debt issuance costs associated with the existing Credit Facility. The write-off of debt issuance costs associated with lenders who reduced their participation in the amended and restated Credit Facility were not material. At December 31, 2017 and 2016, we had no outstanding borrowings or letters of credit under the amended and restated Credit Facility.

The amended and restated $1.8 billion Credit Agreement also includes revisions to pricing as well as certain financial covenants as follows:

Borrowings under the amended and restated Credit Facility bear interest at our choice, at either (a) a Base Rate as defined in the new Credit Facility agreement, plus a spread that varies between 0.000% and 0.700% depending on our credit rating at the time of borrowing, or (b) LIBOR plus an all-in spread that varies between 1.000% and 1.700% depending on our credit rating at the time of borrowing. Based on our credit rating as of December 31, 2017, the applicable all-in spreads for the Base Rate and LIBOR borrowing were 0.175% and 1.175%, respectively.

An annual facility fee is payable to each lender in the amended and restated Credit Facility at a rate that varies between 0.125% and 0.300% depending on our credit rating. Based on our credit rating as of December 31, 2017 the applicable rate is 0.200%.

The amended and restated Credit Facility contains various conditions to borrowing and affirmative, negative and financial maintenance covenants. Certain of the more significant covenants are summarized below:


(a)	Maximum leverage ratio (a quarterly test that is calculated as principal debt divided by consolidated EBITDA, both as defined in the amended and restated Credit Facility) of 4.25x.


(b)	Minimum interest coverage ratio (a quarterly test that is calculated as consolidated EBITDA divided by consolidated interest expense, both as defined in the amended and restated Credit Facility) may not be less than 3.00x.


(c)	Limitations on (i) liens securing debt, (ii) mergers, consolidations and liquidations, (iii) limitations on debt incurred by certain subsidiaries, (iv) sale of all or substantially all our assets, (v) payment restrictions affecting subsidiaries, (vi) non-arm's length transactions with affiliates, (vii) change in nature of business, (viii) actions that may violate OFAC and anti-corruption laws.

The amended and restated Credit Facility contains various events of default that are substantially similar to those included in the $2.0 billion Credit Facility, the occurrence of which could result in termination of the lenders' commitments to lend and the acceleration of all our obligations under the amended and restated Credit Facility. These events of default include, without limitation: (i) payment defaults, (ii) breaches of covenants under the amended and restated Credit Facility (certain of which breaches do not have any grace period), (iii) cross-defaults and acceleration to certain of our other obligations and (iv) a change of control of Xerox.

On February 15, 2018, we entered into an Amendment No. 1 to the Credit Agreement, which among other things, modifies the “change of control” provisions of the Credit Agreement to permit the consummation of the Fujifilm Transactions. See Note 24 - Subsequent Event for additional information regarding the Fujifilm Transactions.

Debt Exchange

In March 2017, we completed a private offering to exchange portions of certain outstanding Senior Notes due 2018 through 2020 (collectively, the old notes), listed below, for $300 of new Senior Notes due 2022 and $322 in cash consideration, which includes a $22 exchange premium.

The following principal amounts of each series of old notes were validly tendered and subsequently cancelled:



Maturity Date	Coupon		Principal Amount Exchanged		4.07% Senior Notes Due March 2022		Cash Consideration
Senior Notes due May 15, 2018	6.350	%	$	260	$	130	$	143
Senior Notes due March 15, 2019	2.750	%	94		47		48
Senior Notes due December 15, 2019	5.625	%	96		48		56
Senior Notes due May 15, 2020	2.800	%	87		44		43
Senior Notes due August 20, 2020	3.500	%	38		19		20
Senior Notes due September 1, 2020	2.750	%	25		12		12
Total			$	600	$	300	$	322

The new Senior Notes bear a fixed coupon rate of 4.07% and become due in March 2022. There were no other significant changes to the terms between the old and new Senior Notes. We recorded a loss of approximately $9 for the exchange premium and other carrying value adjustments related to the portion of the old notes exchanged for cash. However, the old notes exchanged for the new Senior Notes were accounted for as a debt modification and therefore approximately $9 related to the exchange premium and other carrying value adjustments for that portion was carried over as an adjustment to the carrying value of new Senior Notes and is expected to be accreted over the term of the new Senior Notes. Transaction costs incurred on the exchange and paid to third parties of $4 were expensed as part of the loss.

Commercial Paper

We have a private placement commercial paper (CP) program in the U.S. under which we may issue CP up to a maximum amount of $2.0 billion outstanding at any time. Aggregate CP and Credit Facility borrowings may not exceed $1.8 billion outstanding at any time. The maturities of the CP Notes will vary, but may not exceed 390 days from the date of issue. The CP Notes are sold at a discount from par or, alternatively, sold at par and bear interest at market rates. We had no CP outstanding at December 31, 2017 and 2016.

Interest

Interest paid on our short-term and long-term debt amounted to $268, $352 and $365 for the years ended December 31, 2017, 2016 and 2015, respectively.



	Year Ended December 31,
	2017		2016		2015
Interest paid - continuing operations	$	268	$	332	$	356
Interest paid - discontinued operations	—		20		9
Total interest paid on debt	$	268	$	352	$	365

Interest expense and interest income was as follows:



	Year Ended December 31,
	2017		2016		2015
Interest expense⁽¹⁾	$	252	$	309	$	346
Interest income⁽²⁾	302		330		352

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(1)	Includes Equipment financing interest expense, as well as non-financing interest expense included in Other expenses, net in the Consolidated Statements of Income (Loss).


(2)	Includes Finance income, as well as other interest income that is included in Other expenses, net in the Consolidated Statements of (Loss) Income.

Equipment financing interest is determined based on an estimated cost of funds, applied against the estimated level of debt required to support our net finance receivables. The estimated cost of funds is based on the interest cost associated with actual borrowings determined to be in support of the leasing business. The estimated level of debt continues to be based on an assumed 7 to 1 leverage ratio of debt/equity as compared to our average finance receivable balance during the applicable period.