Long-Term Debt

Long-Term debt, net of discounts where applicable, is summarized as follows (in millions):



	December 31, 2018			September 30, 2018
3.25 percent convertible notes due 2037⁽¹⁾⁽³⁾	$	319		$	318
4.0 percent convertible notes due 2027⁽¹⁾⁽⁴⁾	24			24
7.875 percent convertible notes due 2026⁽¹⁾⁽⁵⁾	22			22
6.25 percent notes due 2024⁽²⁾⁽⁶⁾	444			444
Capital lease obligation	7			7
Borrowings and securitization	124			46
Unamortized discount on convertible notes ⁽⁷⁾	(37		)	(37		)
Subtotal	903			824
Less: current maturities	(172		)	(94		)
Long-term debt	$	731		$	730

⁽¹⁾ The 3.25 percent, 4.0 percent and 7.875 percent convertible notes contain a put and call feature, which allows for earlier redemption beginning in 2025, 2019 and 2020, respectively.

⁽²⁾The 6.25 percent notes contain a call option, which allows for early redemption by Meritor.

⁽³⁾ The 3.25 percent convertible notes are presented net of $6 million and $7 million unamortized issuance costs as of December 31, 2018 and September 30, 2018, respectively.

⁽⁴⁾The 4.0 percent convertible notes are presented net of unamortized issuance costs of an insignificant amount as of December 31, 2018 and September 30, 2018.

⁽⁵⁾ The 7.875 percent convertible notes are presented net of unamortized issuance costs of an insignificant amount as of December 31, 2018 and September 30, 2018, and $1 million original issuance discount as of December 31, 2018 and September 30, 2018.

⁽⁶⁾The 6.25 percent notes are presented net of $6 million unamortized issuance costs as of December 31, 2018 and September 30, 2018, respectively.

⁽⁷⁾The carrying amount of the equity component related to convertible debt.

Repurchase of Debt Securities

On November 2, 2017, the company redeemed the remaining $175 million aggregate principal amount outstanding of the company's 6.75 percent notes due 2021 at a price of $1,033.75 per $1,000 of principal amount, plus accrued and unpaid interest. The redemption resulted in a loss on debt extinguishment of approximately $8 million. The loss on debt extinguishment is included in Interest expense, net in the Condensed Consolidated Statement of Operations. The redemption was made pursuant to a special authorization from the Board of Directors in connection with the sale of the company's interest in Meritor WABCO Vehicle Control Systems ("Meritor WABCO") in the fourth quarter of fiscal year 2017.

Current Classification of 4.0 Percent Convertible Notes

The 4.0 percent senior convertible notes due 2027 ("the 4.0 Percent Convertible Notes") were classified as current as of December 31, 2018 and September 30, 2018 as the securities are redeemable at the option of the holder on February 15, 2019, at a repurchase price in cash equal to 100 percent of the accreted principal amount of the securities to be repurchased plus accrued and unpaid interest.

Current Classification of 7.875 Percent Convertible Notes

The 7.875 percent senior convertible notes due 2026 ("the 7.875 Percent Convertible Notes") were classified as current as of December 31, 2018 as the holders are entitled to convert all or a portion of their 7.875 Percent Convertible Notes at any time beginning January 2, 2019 and prior to the close of business on March 29, 2019 at a rate of 83.3333 shares of common stock per $1,000 principal amount at maturity of the 7.875 Percent Convertible Notes (representing a conversion price of approximately $12.00 per share). The 7.875 Percent Convertible Notes are convertible as the closing price of shares of the company's common stock for at least 20 trading days during the 30 consecutive trading-day period ending on December 31, 2018 was greater than 120 percent of the $12.00 conversion price associated with the 7.875 Percent Convertible Notes.

The 7.875 Percent Convertible Notes were classified as current as of September 30, 2018 as the holders are entitled to convert all or a portion of their 7.875 Percent Convertible Notes at any time beginning October 1, 2018 and prior to the close of business on December 31, 2018 at a rate of 83.3333 shares of common stock per $1,000 principal amount at maturity of the 7.875 Percent Convertible Notes (representing a conversion price of approximately $12.00 per share). The 7.875 Percent Convertible Notes were convertible as the closing price of shares of the company's common stock for at least 20 trading days during the 30 consecutive trading-day period ending on September 28, 2018 was greater than 120 percent of the $12.00 conversion price associated with the 7.875 Percent Convertible Notes.

The 7.875 Percent Convertible Notes surrendered for conversion, if any, would be settled in cash up to the principal amount at maturity of the 7.875 Percent Convertible Notes and cash, stock or a combination of cash and stock, at the company’s election, for the remainder of the conversion value of the 7.875 Percent Convertible Notes in excess of the principal amount at maturity and cash in lieu of any fractional shares, subject to and in accordance with the provisions of the indenture that governs the 7.875 Percent Convertible Notes.

As a result of the 7.875 Percent Convertible Notes becoming currently convertible for cash up to the principal amount of $23 million at the holder's option, $1 million of permanent equity was reclassified as mezzanine equity as of December 31, 2018 and September 30, 2018.

Revolving Credit Facility

On March 31, 2017, the company amended and restated its revolving credit facility. Pursuant to the revolving credit agreement as amended, the company has a $525 million revolving credit facility that matures in March 2022. Additionally, $4 million was capitalized as deferred issuance costs and will be amortized over the term of the agreement. The availability under this facility is dependent upon various factors, including performance against certain financial covenants as highlighted below.

The availability under the revolving credit facility is subject to certain financial covenants based on (i) the ratio of the company’s priority debt (consisting principally of amounts outstanding under the revolving credit facility, U.S. accounts receivable securitization and factoring programs, and third-party non-working capital foreign debt) to EBITDA and (ii) the amount of annual capital expenditures. The company is required to maintain a total priority debt-to-EBITDA ratio, as defined in the agreement, of 2.25 to 1.00 or less as of the last day of each fiscal quarter throughout the term of the agreement.

The availability under the revolving credit facility is also subject to a collateral test, pursuant to which borrowings on the revolving credit facility cannot exceed 1.0x the collateral test value. The collateral test is performed on a quarterly basis. At December 31, 2018, the revolving credit facility was collateralized by approximately $843 million of the company's assets, primarily consisting of eligible domestic U.S. accounts receivable, inventory, plant, property and equipment, intellectual property and the company's investment in all or a portion of certain of its wholly-owned subsidiaries.

Borrowings under the revolving credit facility are subject to interest based on quoted LIBOR rates plus a margin and a commitment fee on undrawn amounts, both of which are based upon the company’s current corporate credit rating. At December 31, 2018, the margin over LIBOR rate was 275 basis points and the commitment fee was 37.5 basis points. Overnight revolving credit loans are at the prime rate plus a margin of 175 basis points.

Certain of the company’s subsidiaries, as defined in the revolving credit agreement, irrevocably and unconditionally guarantee amounts outstanding under the revolving credit facility. Similar subsidiary guarantees are provided for the benefit of the holders of the publicly held notes outstanding under the company’s indentures (see Note 24).

At December 31, 2018, there were $45 million in borrowings outstanding under the revolving credit facility. At September 30, 2018, there were no borrowings outstanding under the revolving credit facility. The amended and extended revolving credit facility includes $100 million of availability for the issuance of letters of credit. At December 31, 2018 and September 30, 2018, there were no letters of credit outstanding under the revolving credit facility.

Capital Leases

The company had $7 million of outstanding capital lease arrangements at both December 31, 2018 and September 30, 2018.

Letter of Credit Facilities

On February 21, 2014, the company entered into an arrangement to amend and restate the letter of credit facility with Citicorp USA, Inc., as administrative agent and issuing bank, and the other lenders party thereto. Under the terms of this amended credit agreement, which expires in March 2019, the company has the right to obtain the issuance, renewal, extension and increase of letters of credit up to an aggregate availability of $25 million. This facility contains covenants and events of default generally similar to those existing in the company’s public debt indentures. There were $1 million of letters of credit outstanding under this facility at December 31, 2018 and September 30, 2018. The company had another $18 million and $19 million of letters of credit outstanding through other letter of credit facilities at December 31, 2018 and September 30, 2018, respectively.

Other

One of the company's consolidated joint ventures in China participates in a bills of exchange program to settle its obligations with its trade suppliers. These programs are common in China and generally require the participation of local banks. Under these programs, the company's joint venture issues notes payable through the participating banks to its trade suppliers. If the issued notes payable remain unpaid on their respective due dates, this could constitute an event of default under the company’s revolving credit facility if the defaulted amount exceeds $35 million per bank. As of December 31, 2018 and September 30, 2018, the company had $23 million and $22 million, respectively, outstanding under this program at more than one bank.