Debt

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Debt

Debt:

Short-term Borrowings and Borrowing Arrangements

At September 30, 2020 and December 31, 2019, Altria had no short-term borrowings.

At September 30, 2020, Altria had a senior unsecured 5-year revolving credit agreement (as amended, the “Credit Agreement”) that provides for borrowings up to an aggregate principal amount of $3.0 billion. The Credit Agreement, which is used for general corporate purposes, expires on August 1, 2023 and includes an option, subject to certain conditions, for Altria to extend the Credit Agreement for two additional one-year periods. Pricing for interest and fees under the Credit Agreement may be modified in the event of a change in the rating of Altria’s long-term senior unsecured debt. Interest rates on borrowings under the Credit Agreement are expected to be based on the London Interbank Offered Rate (“LIBOR”), or a mutually agreed upon benchmark rate, plus a percentage based on the higher of the ratings of Altria’s long-term senior unsecured debt from Moody’s Investors Service, Inc. (“Moody’s”) and Standard & Poor’s Ratings Services (“Standard & Poor’s”). The applicable percentage based on Altria’s long-term senior unsecured debt ratings at September 30, 2020 for borrowings under the Credit Agreement was 1.0%. The Credit Agreement does not include any other rating triggers, or any provisions that could require the posting of collateral.

In March 2020, due to the uncertainty at that time in the global capital markets, including the commercial paper markets, resulting from the COVID-19 pandemic, Altria elected to borrow the full $3.0 billion available under the Credit Agreement as a precautionary measure to increase its cash position and preserve financial flexibility. In June 2020, Altria repaid the full amount outstanding under the Credit Agreement.

The Credit Agreement includes various covenants, one of which requires Altria to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) to Consolidated Interest Expense of not less than 4.0 to 1.0, calculated as of the end of the applicable quarter on a rolling four quarters basis. At September 30, 2020, the ratio of consolidated EBITDA to Consolidated Interest Expense, calculated in accordance with the Credit Agreement, was 9.2 to 1.0. At September 30, 2020, Altria was in compliance with its covenants in the Credit Agreement. The terms “Consolidated EBITDA” and “Consolidated Interest Expense,” each as defined in the Credit Agreement, include certain adjustments.

Any commercial paper issued by Altria and borrowings under the Credit Agreement are guaranteed by PM USA.

Long-term Debt

The aggregate carrying value of Altria’s total long-term debt at September 30, 2020 and December 31, 2019 was $29.3 billion and $28.0 billion, respectively.

In May 2020, Altria issued USD denominated long-term senior unsecured notes in the aggregate principal amount of $2.0 billion (collectively, the “Notes”). The net proceeds from the Notes were used for general corporate purposes, which included repayment of the outstanding balance of the Credit Agreement. The Notes contain the following terms:

▪$0.750 billion at 2.350%, due 2025, interest payable semiannually beginning November 6, 2020;

▪$0.750 billion at 3.400%, due 2030, interest payable semiannually beginning November 6, 2020; and

▪$0.500 billion at 4.450%, due 2050, interest payable semiannually beginning November 6, 2020.

The Notes are Altria’s senior unsecured obligations and rank equally in right of payment with all of Altria’s existing and future senior unsecured indebtedness. Upon the occurrence of both (i) a change of control of Altria and (ii) the Notes ceasing to be rated investment grade by each of Moody’s, Standard & Poor’s and Fitch Ratings Ltd. within a specified time period, Altria will be required to make an offer to purchase the Notes at a price equal to 101% of the aggregate principal amount of such Notes, plus accrued and unpaid interest to the date of repurchase as and to the extent set forth in the terms of the Notes.

The obligations of Altria under the Notes are guaranteed by PM USA.

During the first quarter of 2020, Altria repaid in full at maturity senior unsecured notes in the aggregate principal amount of $1.0 billion.

At September 30, 2020 and December 31, 2019, accrued interest on long-term debt of $244 million and $470 million, respectively, was included in other accrued liabilities on Altria’s condensed consolidated balance sheets.

For a discussion of the fair value of Altria’s long-term debt and the designation of its Euro denominated senior unsecured notes as a net investment hedge of its investment in ABI, see Note 5. Financial Instruments.