Long-Term Debt and Revolving Promissory Note

12 Months Ended

Dec. 31, 2019

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	2019			2018
			(Dollars in millions)
Senior notes	6.125% - 7.75%	2021 - 2057	$	5,956		5,956
Term loan ⁽¹⁾	LIBOR + 2.00%	2025	100			100
Finance leases	Various	Various	10			21
Unamortized (discounts) premiums, net			—			(1	)
Unamortized debt issuance costs			(115		)	(117	)
Total long-term debt			5,951			5,959
Less current maturities			(1,105		)	(11	)
Long-term debt, excluding current maturities			$	4,846		5,948
Note payable-affiliate	5.843%	2022	$	1,069		1,008

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⁽¹⁾ Qwest Corporation's Term Loan had an interest rate of 3.800% as of December 31, 2019 and 4.530% as of December 31, 2018.

Repayment

During 2019, we did not repay any of our long-term debt.

During 2018, we retired approximately $1.3 billion in debt securities including approximately $164 million of Qwest Corporation 7.5% Notes due 2051, $925 million of Qwest Corporation 7.0% Notes due 2052, and $250 million of Qwest Corporation 7.25% Notes due 2035 and we recognized a loss of $34 million.

Term Loan

In 2015, Qwest Corporation 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 at least quarterly based upon either the applicable 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 Qwest Corporation's then current senior unsecured long-term debt rating. At both December 31, 2019 and 2018, 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 excluding note payable-affiliate) maturing during the following years:



	(Dollars in millions)⁽¹⁾
2020	$	1,105
2021	951
2022	1
2023	—
2024	1
2025 and thereafter	4,008
Total long-term debt	$	6,066

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

see subsequent event.

Revolving Promissory Note

On September 30, 2017, Qwest Corporation entered into an amended and restated revolving promissory note in the amount of $965 million with an affiliate of our ultimate parent company, CenturyLink, Inc. This note replaced and amended the original $1.0 billion revolving promissory note Qwest Corporation entered into on April 18, 2012 with the same affiliate. The outstanding principal balance of this new revolving promissory note and the accrued interest thereon shall be due and payable on demand, but if no demand is made, then on June 30, 2022. Interest is accrued on the outstanding balance during an interest period using a weighted average per annum interest rate on the consolidated outstanding debt of CenturyLink and its subsidiaries. As of December 31, 2019, the amended and restated revolving promissory note had an outstanding balance of $1.069 billion and bore interest at a weighted-average interest rate of 5.843%. As of December 31, 2019 and 2018, the amended and restated revolving promissory note is reflected on our consolidated balance sheet as a current liability under “Note payable-affiliate”. In accordance with the terms of the amended and restated revolving promissory note, interest shall be assessed on June 30th and December 31st (an "Interest Period"). Any assessed interest for an Interest Period that remains unpaid on the last day of the subsequent Interest Period is capitalized on such date and begins accruing interest. Through December 31, 2019, $104 million of such interest has been capitalized. As of December 31, 2019 and 2018, $31 million and $30 million of accrued interest is reflected in other current liabilities on our consolidated balance sheet.

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,
	2019			2018		2017
	(Dollars in millions)
Interest expense:
Gross interest expense	$	407		472		497
Capitalized interest	(27		)	(24	)	(32	)
Total interest expense	$	380		448		465
Interest expense-affiliates, net	$	62		57		63

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. Except for a limited number of series of our notes, we generally can redeem our senior notes, at our option, typically at a fixed price.

Under the Qwest Corporation term loan, Qwest Corporation 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 impacted by a wide variety of events, including unforeseen contingencies, many of which are beyond our control. 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.

None of our long-term debt is secured or guaranteed by other companies.

Compliance

At December 31, 2019 and 2018, we believe we were in compliance with the financial covenants contained in our debt agreements in all material respects.

Subsequent Event

On January 15, 2020, Qwest Corporation fully redeemed all $850 million aggregate principal amount of its outstanding 6.875% senior notes due 2033 and all $250 million aggregate principal amount of its outstanding 7.125% senior notes due 2043.