International Paper 2015 Annual Report Download - page 83

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(c) The cash payments are interest payments on the associated
debt obligations discussed above. After formation of the 2015
Financing Entities, the payments represent interest paid on
Nonrecourse financial liabilities of special purpose 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. The Company recognized an $840 million
deferred tax liability in connection with the 2007 sales,
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 $2.38 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
Financial assets of special purpose entities in the
accompanying consolidated balance sheet and are
supported by $2.38 billion of irrevocable letters of credit
issued by three banks, which are required to maintain
minimum credit ratings on their long-term debt. In the
third quarter of 2012, International Paper completed its
preliminary analysis of the acquisition date fair value of
the notes and determined it to be $2.09 billion. As of
December 31, 2015 and 2014, the fair value of the notes
was $2.10 billion and $2.27 billion, respectively. These
notes are classified as Level 2 within the fair value
hierarchy, which is further defined in Note 14.
In December 2007, Temple-Inland's two wholly-owned
special purpose entities borrowed $2.14 billion shown
in Nonrecourse financial liabilities of special purpose
entities. The loans are repayable in 2027 and are
secured only by the $2.38 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. In the third quarter of
2012, International Paper completed its preliminary
analysis of the acquisition date fair value of the
borrowings and determined it to be $2.03 billion. As of
December 31, 2015 and 2014, the fair value of this debt
was $1.97 billion and $2.16 billion, respectively. This
debt is classified as Level 2 within the fair value
hierarchy, which is further defined in Note 14.
Activity between the Company and the 2007 financing
entities was as follows:
In millions 2015 2014 2013
Revenue (a) $27$26$27
Expense (b) 27 25 29
Cash receipts (c) 778
Cash payments (d) 18 18 21
(a) The revenue is included in Interest expense, net in the
accompanying consolidated statement of operations and
includes approximately $19 million, $19 million and $19 million
for the years ended December 31, 2015, 2014 and 2013,
respectively, of accretion income for the amortization of the
purchase accounting adjustment on the Financial assets of
special purpose entities.
(b) The expense is included in Interest expense, net in the
accompanying consolidated statement of operations and
includes approximately $7 million, $7 million and $7 million for
the years ended December 31, 2015, 2014 and 2013,
respectively, of accretion expense for the amortization of the
purchase accounting adjustment on the Nonrecourse financial
liabilities of special purpose 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.
NOTE 13 DEBT AND LINES OF CREDIT
In 2015, International Paper issued $700 million of
3.80% senior unsecured notes with a maturity date in
2026, $600 million of 5.00% senior unsecured notes
with a maturity date in 2035, and $700 million of 5.15%
senior unsecured notes with a maturity date in 2046.
The proceeds from this borrowing were used to repay
approximately $1.0 billion of notes with interest rates
ranging from 4.75% to 9.38% and original maturities
from 2018 to 2022, along with $211 million of cash
premiums associated with the debt repayments.
Additionally, the proceeds from this borrowing were
used to make a $750 million voluntary cash contribution
to the Company's pension plan. Pre-tax early debt
retirement costs of $207 million related to the debt
repayments, including the $211 million of cash
premiums, are included in restructuring and other
charges in the accompanying consolidated statement
of operations for the twelve months ended December
31, 2015.
During the second quarter of 2014, International Paper
issued $800 million of 3.65% senior unsecured notes
with a maturity date in 2024 and $800 million of 4.80%
senior unsecured notes with a maturity date in 2044.
The proceeds from this borrowing were used to repay
approximately $960 million of notes with interest rates
ranging from 7.95% to 9.38% and original maturities
from 2018 to 2019. Pre-tax early debt retirement costs
of $262 million related to these debt repayments,
including $258 million of cash premiums, are included
in Restructuring and other charges in the
accompanying consolidated statement of operations
for the twelve months ended December 31, 2014.