Debt

Short-term borrowings were as follows:



	December 31,
	2018		2017
Notes Payable	$	—	$	6
Current maturities of long-term debt	961		276
Short-term debt and current portion of long-term debt	$	961	$	282

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, 2018⁽²⁾		2018			2017
Xerox Corporation
Notes due 2018					$	—		$	1
Senior Notes due 2018					—			265
Senior Notes due 2019	2.75	%	2.58	%	406			406
Senior Notes due 2019	5.63	%	5.48	%	554			554
Senior Notes due 2020	2.80	%	2.50	%	313			313
Senior Notes due 2020	3.50	%	3.47	%	362			362
Senior Notes due 2020	2.75	%	2.67	%	375			375
Senior Notes due 2021	4.50	%	5.39	%	1,062			1,062
Senior Notes due 2022	4.07	%	4.07	%	300			300
Senior Notes due 2023⁽³⁾	3.63	%	3.64	%	1,000			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					$	5,272		$	5,538

Capital lease obligations			4.08	%	$	9		$	35

Principal debt balance					$	5,281		$	5,573
Unamortized discount					(25		)	(35		)
Debt issuance costs					(25		)	(32		)
Fair value adjustments⁽¹⁾
Terminated swaps					2			4
Current swaps					(3		)	1
Less: current maturities					(961		)	(276		)
Total Long-term Debt					$	4,269		$	5,235

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(1)

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.


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


(3)	As a result of the downgrade of our debt rating, the original coupon rate of 3.625% will increase by 0.50% to 4.125% effective March 15, 2019.

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



2019⁽¹⁾		2020		2021		2022		2023		Thereafter		Total
$	961	$	1,052	$	1,064	$	302	$	1,002	$	900	$	5,281

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(1)	Quarterly long-term debt maturities from continuing operations for 2019 are $407, $0, $0 and $554 for the first, second, third and fourth quarters, respectively.

Bridge Facility

Refer to Note 25 - Fuji Xerox Transaction for additional information regarding the bridge loan facility that was terminated during the second quarter 2018.

Credit Facility

We have a $1.8 billion unsecured revolving Credit Facility with a group of lenders, which matures in August 2022. The Credit Facility includes a $250 letter of credit sub-facility as well as an accordion feature that allows us to increase (from time to time, with willing lenders) the overall size of the facility by $750. We also have the right to request a one year extension on any anniversary of the restated amendment date.

Proceeds from any borrowings under the Credit Facility can be used to provide working capital for the Company and its subsidiaries and for general corporate purposes. The Credit Facility is available, without sublimit, to certain of our qualifying subsidiaries. Our obligations under the Credit Facility are unsecured and are not currently guaranteed by any of our subsidiaries. Any domestic subsidiary that guarantees more than $100 of Xerox Corporation debt must also guaranty our obligations under the Credit Facility. In the event that any of our subsidiaries borrows under the Credit Facility, its borrowings thereunder would be guaranteed by us. At December 31, 2018 and 2017, we had no outstanding borrowings or letters of credit under the amended and restated Credit Facility.

Borrowings under the 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, 2018, the applicable all-in spreads for the Base Rate and LIBOR borrowing were 0.375% and 1.375%, respectively.

An annual facility fee is payable to each lender in the 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, 2018 the applicable rate is 0.25%.

The 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 Credit Facility contains various events of default that are substantially similar to those included in the prior, 2014 $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, the Credit Facility was amended to modify the “change of control” provisions to permit the consummation of the Fuji Xerox Transaction. Refer to Note 25 - Fuji Xerox Transaction for additional details regarding the transaction.

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 $1.8 billion. At this time, based on our current debt credit rating, this program is not available for use.

Interest

Interest paid on our short-term and long-term debt amounted to $231, $268 and $352 for the years ended December 31, 2018, 2017 and 2016, respectively.



	Year Ended December 31,
	2018		2017		2016
Interest paid - continuing operations	$	231	$	268	$	332
Interest paid - discontinued operations	—		—		20
Total interest paid on debt	$	231	$	268	$	352

Interest expense and interest income was as follows:



	Year Ended December 31,
	2018		2017		2016
Interest expense⁽¹⁾	$	244	$	252	$	309
Interest income⁽²⁾	283		302		330

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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 Income (Loss).

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.