Southwest Airlines 2014 Annual Report Download - page 114

agreements were accounted for as cash flow hedges, and resulted in a payment by the Company of
$20 million upon issuance of the Pass Through Certificates. The effective portion of the hedge is being
amortized to interest expense concurrent with the amortization of the debt and is reflected in the above
table as a reduction in the debt balance. The ineffectiveness of the hedge transaction was immaterial.
During December 2006, the Company issued $300 million senior unsecured notes due 2016.
The notes bear interest at 5.75 percent, payable semi-annually in arrears, with the first payment made
on June 15, 2007. During fourth quarter 2009, the Company entered into a fixed-to-floating interest
rate swap to convert the interest on these unsecured notes to a floating rate until their maturity. See
Note 10 for further information on the interest-rate swap agreement.
During February 2005, the Company issued $300 million senior unsecured notes due 2017.
The notes bear interest at 5.125 percent, payable semi-annually in arrears, with the first payment made
on September 1, 2005.
In fourth quarter 2004, the Company entered into four identical 13-year floating-rate financing
arrangements, whereby it borrowed a total of $112 million from French banking partnerships.
Although the interest rates on the borrowings float, the Company estimated at inception that,
considering the full effect of the “net present value benefits” included in the transactions, the effective
economic yield over the 13-year term of the loans will be approximately LIBOR minus 45 basis points.
Principal and interest are payable semi-annually on June 30 and December 31 for each of the loans,
and the Company may terminate the arrangements in any year on either of those dates, under certain
conditions. The Company pledged four aircraft as collateral for the transactions.
In September 2004, the Company issued $350 million senior unsecured notes due 2014. The
notes matured and were redeemed in full on October 1, 2014, utilizing available cash on hand.
On February 28, 1997, the Company issued $100 million of senior unsecured 7.375%
debentures due March 1, 2027. Interest is payable semi-annually on March 1 and September 1. The
debentures may be redeemed, at the option of the Company, in whole at any time or in part from time
to time, at a redemption price equal to the greater of the principal amount of the debentures plus
accrued interest at the date of redemption or the sum of the present values of the remaining scheduled
payments of principal and interest thereon, discounted to the date of redemption at the comparable
treasury rate plus 20 basis points, plus accrued interest at the date of redemption. In January 2007, the
Company entered into an interest rate swap agreement to convert this fixed-rate debt to a floating rate;
however, the interest rate swap was terminated in December 2012. See Note 10 for more information
on the interest rate swap agreement and termination.
The Company is required to provide standby letters of credit to support certain obligations that
arise in the ordinary course of business. Although the letters of credit are an off-balance sheet item, the
majority of the obligations to which they relate are reflected as liabilities in the Consolidated Balance
Sheet. Outstanding letters of credit totaled $440 million at December 31, 2014.
The net book value of the assets pledged as collateral for the Company’s secured borrowings,
primarily aircraft and engines, was $2.0 billion at December 31, 2014. In addition, the Company has
pledged a total of up to 81 of its Boeing 737-700 aircraft at a net book value of $2.0 billion, in the case
that it has obligations related to its fuel derivative instruments with counterparties that exceed certain
thresholds. See Note 10 for further information on these collateral arrangements.
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