Southwest Airlines 2015 Annual Report Download - page 106

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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.
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.
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 $184 million at December 31, 2015.
The net book value of the assets pledged as collateral for the Company’s secured borrowings, primarily
aircraft and engines, was $1.9 billion at December 31, 2015. In addition, the Company has pledged a
total of up to 88 of its Boeing 737-700 and 12 of its Boeing 737-800 aircraft at a net book value of $2.5
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.
As of December 31, 2015, aggregate annual principal maturities of debt and capital leases (not
including amounts associated with interest rate swap agreements, interest on capital leases,
amortization of capital lease incentives, and amortization of purchase accounting adjustments) for the
five-year period ending December 31, 2020, and thereafter, were $617 million in 2016, $528 million in
2017, $272 million in 2018, $522 million in 2019, $751 million in 2020, and $424 million thereafter.
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