Long-Term Debt and Revolving Promissory Note

Long-term debt, including unamortized premiums and discounts, unamortized debt issuance costs and note payable-affiliate, were as follows:



			As of December 31,
	Interest Rates	Maturities	2016			2015
			(Dollars in millions)
Senior notes	6.125% - 7.750%	2017 - 2056	$	7,259		7,229
Term loan	2.520%	2025	100			100
Capital lease and other obligations	Various	Various	32			17
Unamortized premiums, net			4			16
Unamortized debt issuance costs			(134		)	(123	)
Total long-term debt			7,261			7,239
Less current maturities			(514		)	(242	)
Long-term debt, excluding current maturities			$	6,747		6,997
Note payable-affiliate	6.678%	2022	$	914		855

New Issuances

2016

On August 22, 2016, QC issued $978 million aggregate principal amount of 6.5% Notes due 2056, including $128 million principal amount that was sold pursuant to an over-allotment option, in exchange for net proceeds, after deducting underwriting discounts and other expenses, of $946 million. All of the 6.5% Notes are unsecured obligations and may be redeemed by QC, in whole or in part, on or after September 1, 2021, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date.

On January 29, 2016, QC issued $235 million aggregate principal amount of 7% Notes due 2056, in exchange for net proceeds, after deducting underwriting discounts and other expenses, of $227 million. All of the 7% Notes are unsecured obligations and may be redeemed by QC, in whole or in part, on or after February 1, 2021, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date.

2015

On September 21, 2015, QC issued $400 million aggregate principal amount of 6.625% Notes due 2055, in exchange for net proceeds, after deducting underwriting discounts and other expenses, of approximately $386 million. On September 30, 2015, QC issued an additional $10 million aggregate principal amount of the 6.625% Notes under an over-allotment option granted to the underwriter for this offering. All of the 6.625% Notes are unsecured obligations and may be redeemed by QC, in whole or in part, on or after September 15, 2020, at a redemption price equal to 100% of the principal amount redeemed plus accrued and unpaid interest to the redemption date.

Repayments

2016

On September 15, 2016, QC redeemed $287 million of its 7.5% Notes due 2051, which resulted in a loss of $9 million.

On August 29, 2016, QC redeemed all $661 million of its 7.375% Notes due 2051, which resulted in a loss of $18 million.

On May 2, 2016, QC paid at maturity the $235 million principal amount and accrued and unpaid interest due under its 8.375% Notes.

2015

On October 13, 2015, QC redeemed all $250 million of its 7.2% Notes due 2026, which resulted in an immaterial gain, and redeemed $150 million of its 6.875% Notes due 2033, which resulted in an immaterial loss.

On June 15, 2015, QC paid at maturity the $92 million principal amount of its 7.625% Notes.

Term Loan

In 2015, QC entered into a term loan in the amount of $100 million with CoBank, ACB. The outstanding unpaid principal amount of this term loan plus any accrued and unpaid interest is due on February 20, 2025. Interest is paid monthly based upon either the London Interbank Offered Rate (“LIBOR”) or the base rate (as defined in the credit agreement) plus an applicable margin between 1.50% to 2.50% per annum for LIBOR loans and 0.50% to 1.50% per annum for base rate loans depending on QC's then current senior unsecured long-term debt rating. At both December 31, 2016 and 2015, the outstanding principal balance on this term loan was $100 million.

Aggregate Maturities of Long-Term Debt

Set forth below is the aggregate principal amount of our long-term debt (excluding unamortized premiums and discounts and unamortized debt issuance costs and other and excluding note payable-affiliate) maturing during the following years:



	(Dollars in millions)⁽¹⁾
2017	$	514
2018	10
2019	4
2020	—
2021	951
2022 and thereafter	5,912
Total long-term debt	$	7,391

_______________________________________________________________________________

⁽¹⁾Actual principal paid in any year may differ due to the possible future refinancing of outstanding debt or the issuance of new debt.

Revolving Promissory Note

QC is currently indebted to an affiliate of our ultimate parent company, CenturyLink, under a revolving promissory note that provides QC with a funding commitment of up to $1.0 billion aggregate principal amount through June 30, 2022, of which $914 million was outstanding as of December 31, 2016. As of December 31, 2016, the weighted average interest rate was 6.678%. As of December 31, 2016 and 2015, this revolving promissory note is reflected on our consolidated balance sheets as a current liability under “Note payable-affiliate”. As of December 31, 2016, $5 million of accrued interest is reflected in other current liabilities on our consolidated balance sheets. In accordance with the note agreement, all accrued and unpaid interest is capitalized to the unpaid principal balance on June 1 and December 1 of each year.

Interest Expense

Interest expense includes interest on total long-term debt. The following table presents the amount of gross interest expense, net of capitalized interest and interest expense-affiliates, net:



	Years Ended December 31,
	2016			2015		2014
	(Dollars in millions)
Interest expense:
Gross interest expense	$	497		491		481
Capitalized interest	(19		)	(18	)	(17	)
Total interest expense	$	478		473		464
Interest expense-affiliates, net	$	59		53		40

Covenants

Our senior notes were issued under indentures dated April 15, 1990 and October 15, 1999. These indentures contain certain covenants including, but not limited to: (i) a prohibition on certain liens on our assets; and (ii) a limitation on mergers or sales of all, or substantially all, of our assets, which limitation requires that a successor assume the obligation with regard to these notes. These indentures do not contain any cross-default provisions. These indentures do not contain any financial covenants or restrictions on our ability to issue new securities thereunder.

Under the QC term loan, QC must maintain a debt to EBITDA (earnings before interest, taxes, depreciation and amortization, as defined in CenturyLink's Credit Facility) ratio of not more than 2.85:1.0, as of the last day of each fiscal quarter for the four quarters then ended. The term loan also contains a negative pledge covenant, which generally requires us to secure equally and ratably any advances under the term loan if we pledge assets or permit liens on our property for the benefit of other debtholders. The term loan also has a cross payment default and cross acceleration provisions. When present, these provisions could have a wider impact on liquidity than might otherwise arise from a default or acceleration of a single debt instrument. Our debt to EBITDA ratio could be adversely affected by a wide variety of events, including unforeseen expenses or contingencies. This could reduce our financing flexibility due to potential restrictions on incurring additional debt under certain provisions of our debt agreements or, in certain circumstances, could result in a default under certain provisions of such agreements.

At December 31, 2016, we believe we were in compliance with all of the provisions and covenants contained in our debt agreements.