The commercial paper increase of $4.9 billion from December 31, 2018 was primarily driven by new issuances used to partially fund the Red Hat acquisition. For further information on the financing of the Red Hat acquisition, see the long-term debt section below.

The weighted-average interest rate for commercial paper at June 30, 2019 and December 31, 2018 was 2.5 percent at both periods. The weighted-average interest rate for short-term loans was 5.0 percent and 4.3 percent at June 30, 2019 and December 31, 2018, respectively.

* Includes notes, debentures, bank loans, secured borrowings and finance lease obligations.

** The portion of the company’s fixed-rate debt obligations that is hedged is reflected in the Consolidated Statement of Financial Position as an amount equal to the sum of the debt’s carrying value and a fair value adjustment representing changes in the fair value of the hedged debt obligations attributable to movements in benchmark interest rates.

There are no debt securities issued and outstanding by IBM International Group Capital LLC, which is an indirect, 100 percent owned finance subsidiary of IBM, the parent. Any debt securities issued by IBM International Group Capital LLC would be fully and unconditionally guaranteed by the parent.

The company’s indenture governing its debt securities and its various credit facilities each contain significant covenants which obligate the company to promptly pay principal and interest, limit the aggregate amount of secured indebtedness and sale and leaseback transactions to 10 percent of the company’s consolidated net tangible assets, and

restrict the company’s ability to merge or consolidate unless certain conditions are met. The credit facilities also include a covenant on the company’s consolidated net interest expense ratio, which cannot be less than 2.20 to 1.0, as well as a cross default provision with respect to other defaulted indebtedness of at least $500 million.

The company is in compliance with all of its significant debt covenants and provides periodic certifications to its lenders. The failure to comply with its debt covenants could constitute an event of default with respect to the debt to which such provisions apply. If certain events of default were to occur, the principal and interest on the debt to which such event of default applied would become immediately due and payable.

In the fourth quarter of 2018, upon the company’s announcement of its intent to acquire Red Hat, IBM entered into a commitment letter under which certain banks committed to provide the company with a 364-day unsecured bridge term loan facility in an aggregate principal amount of up to $20 billion to fund the acquisition. The company also entered into a fee letter in connection with the 364-day bridge facility, under which the company incurred $60 million in fees. These fees were capitalized and were fully amortized to SG&A in the Consolidated Statement of Earnings as of June 30, 2019.

On May 15, 2019, the company issued an aggregate of $20 billion of indebtedness in the following eight tranches: $1.5 billion of 2-year floating rate notes priced at 3 month LIBOR plus 40 basis points, $1.5 billion of 2-year fixed rate notes with a 2.8 percent coupon, $2.75 billion of 3-year fixed rate notes with a 2.85 percent coupon, $3.0 billion of 5-year fixed rate notes with a 3.0 percent coupon, $3.0 billion of 7-year fixed rate notes with a 3.3 percent coupon, $3.25 billion of 10-year fixed rate notes with a 3.5 percent coupon, $2.0 billion of 20-year fixed rate notes with a 4.15 percent coupon and $3.0 billion of 30-year fixed rate notes with a 4.25 percent coupon. Following receipt of the net proceeds from this multi-tranche debt offering, on May 15, 2019, and in accordance with the terms of the commitment letter, IBM notified the banks of IBM’s termination of all commitments under the commitment letter. There were no early termination penalties. The proceeds from these debt issuances were primarily used for the acquisition of Red Hat. For additional information on this transaction, see note 11, “Acquisitions/Divestitures.”

Additionally, the long-term debt table above includes Euro bonds that were issued in the first quarter of 2019 to partially finance the acquisition of Red Hat upon closing.

Pre-swap annual contractual obligations of long-term debt outstanding at June 30, 2019, are as follows:


(Dollars in millions)	Total
2019 (for Q3-Q4)	$	3,486
2020		7,413
2021		9,742
2022		7,104
2023		5,395
2024 and beyond		32,429
Total	$	65,569

Interest on Debt


(Dollars in millions)
For the six months ended June 30:	2019		2018
Cost of financing	$	343	$	375
Interest expense		558		338
Interest capitalized		3		3
Total interest paid and accrued	$	904	$	717

Lines of Credit

On July 18, 2019, the company extended the maturity date of its existing $10.25 billion Five-Year Credit Agreement. In addition, the company and IBM Credit LLC entered into a new $2.5 billion 364-day Credit Agreement to replace the existing $2.5 billion 364-day Credit Agreement, and also extended the maturity date of the existing $2.5 billion Three-Year Credit Agreement. The new maturity dates for the Three-Year and Five-Year Credit Agreements are July 20, 2022 and July 20, 2024, respectively. Each of the facility sizes remain unchanged. As of June 30, 2019, there were no borrowings by the company, or its subsidiaries, under the Credit Facilities.