Variable Interest Entities (Note)

12 Months Ended

Dec. 31, 2020

Variable Interest Entities [Abstract]

Variable Interest Entities And Preferred Securities Of Subsidiaries

In connection with the 2006 sale of approximately 5.6 million acres of forestlands, International Paper received installment notes (the "Timber Notes") totaling approximately $4.8 billion. The Timber Notes were used as collateral for borrowings from third party lenders, which effectively monetized the Timber

Notes through the creation of newly formed special purposes entities (the "Entities"). The monetization structure preserved the tax deferral that resulted from the 2006 forestlands sales. As of December 31, 2020, this deferred tax liability was $887 million.

During 2015, International Paper initiated a series of actions in order to extend the 2006 monetization structure and maintain the long-term nature of the deferred tax liability. The Entities, with assets and liabilities primarily consisting of the Timber Notes and third-party bank loans (the "Extension Loans"), were restructured which resulted in the formation of wholly-owned, bankruptcy-remote special purpose entities (the "2015 Financing Entities").

The Timber Notes are shown in Current financial assets of variable interest entities on the accompanying consolidated balance sheet and mature in August 2021. These notes, which do not require principal payments prior to their maturity, are supported by approximately $4.8 billion of irrevocable letters of credit.

During the fourth quarter of 2020, the Extension Loans were amended to extend the maturity dates to August 2021. The Extension Loans are shown in Current nonrecourse financial liabilities of variable interest entities on the accompanying consolidated balance sheet. These bank loans, totaling approximately $4.2 billion, are nonrecourse to the Company, and are secured by approximately $4.8 billion of Timber Notes, the irrevocable letters of credit supporting the Timber Notes, and approximately $150 million of International Paper debt obligations. The $150 million of International Paper debt obligations are eliminated in the consolidation of the 2015 Financing Entities and are not reflected in the Company’s consolidated balance sheet. Provisions of loan agreements related to approximately $1.1 billion of the Extension Loans require the bank issuing letters of credit supporting the Timber Notes pledged as collateral to maintain a credit rating at or above a specified threshold. In the event the credit rating of the letter of credit bank is downgraded below the specified threshold, the letters of credit must be replaced within 60 days with letters of credit from a qualifying financial institution.

As of both December 31, 2020 and 2019, the fair value of the Timber Notes was $4.9 billion, and the fair value of the Extension Loans was $4.2 billion and $4.3 billion for the years ended 2020 and 2019. The Timber Notes and Extension Loans are classified as Level 2 within the fair value hierarchy, which is further defined in Note 17.

Activity between the Company and the 2015 Financing Entities was as follows: 

In millions	2020		2019		2018
Revenue (a)	$	95	$	95	$	95
Expense (a)	122		128		128
Cash receipts (b)	95		95		95
Cash payments (c)	157		128		128

(a)The revenue and expense are included in Interest expense, net in the accompanying consolidated statement of operations.

(b)The cash receipts are interest received on the Financial assets of variable interest entities.

(c)The cash payments represent interest paid on Current nonrecourse financial liabilities of variable interest entities.

In connection with the acquisition of Temple-Inland in February 2012, two special purpose entities became wholly-owned subsidiaries of International Paper. The use of the two wholly-owned special purpose entities discussed below preserved the tax deferral that resulted from the 2007 Temple-Inland timberlands sales. As of December 31, 2020, this deferred tax liability was $488 million, which will be settled with the maturity of the notes in 2027.

In October 2007, Temple-Inland sold 1.55 million acres of timberland for $2.4 billion. The total consideration consisted almost entirely of notes due in 2027 issued by the buyer of the timberland, which Temple-Inland contributed to two wholly-owned, bankruptcy-remote special purpose entities. The notes are shown in Long-term financial assets of variable interest entities in the accompanying consolidated balance sheet and are supported by $2.4 billion of irrevocable letters of credit issued by three banks, which are required to maintain minimum credit ratings on their long-term debt.

In December 2007, Temple-Inland's two wholly-owned special purpose entities borrowed $2.1 billion which is shown in Long-term nonrecourse financial liabilities of variable interest entities. The loans are repayable in 2027 and are secured by the $2.4 billion of notes and the irrevocable letters of credit securing the notes, and are nonrecourse to us. The loan agreements provide that if a credit rating of any of the banks issuing the letters of credit is downgraded below the specified threshold, the letters of credit issued by that bank must be replaced within 30 days with letters of credit from another qualifying financial institution.

As of both December 31, 2020 and 2019, the fair value of the notes receivable was $2.3 billion. As of both December 31, 2020 and 2019, the fair value of this debt was $2.1 billion. The notes receivable and

debt are classified as Level 2 within the fair value hierarchy, which is further defined in Note 17.

Activity between the Company and the 2007 financing entities was as follows:

In millions	2020		2019		2018
Revenue (a)	$	41	$	79	$	72
Expense (b)	43		76		67
Cash receipts (c)	29		62		48
Cash payments (d)	40		69		57

(a)The revenue is included in Interest expense, net, in the accompanying consolidated statement of operations and includes approximately $19 million for the years ended December 31, 2020, 2019 and 2018, respectively, of accretion income for the amortization of the purchase accounting adjustment on the Financial assets of variable interest entities.

(b) The expense is included in Interest expense, net, in the accompanying consolidated statement of operations and includes approximately $7 million for the years ended December 31, 2020, 2019 and 2018 respectively, of accretion expense for the amortization of the purchase accounting adjustment on the Long-term nonrecourse financial liabilities of variable interest entities.

(c) The cash receipts are interest received on the Financial assets of special purpose entities.

(d) The cash payments are interest paid on Nonrecourse financial liabilities of special purpose entities.