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Financing Arrangements
 9 Months Ended
Feb. 29, 2024
Debt and Lease Obligation [Abstract]  
Financing Arrangements

(4) Financing Arrangements

We have a shelf registration statement filed with the SEC that allows us to sell, in one or more future offerings, any combination of our unsecured debt securities and common stock and allows pass-through trusts formed by FedEx Express to sell, in one or more future offerings, pass-through certificates.

FedEx Express has issued $970 million of Pass-Through Certificates, Series 2020-1AA (the “Certificates”) with a fixed interest rate of 1.875% due in February 2034 utilizing pass-through trusts. The Certificates are secured by 19 Boeing aircraft with a net book value of $1.7 billion at February 29, 2024. The payment obligations of FedEx Express in respect of the Certificates are fully and unconditionally guaranteed by FedEx.

During the third quarter of 2024, we had in place a $2.0 billion five-year credit agreement (the “Old Five-Year Credit Agreement”) and a $1.5 billion three-year credit agreement (the “Old Three-Year Credit Agreement” and together with the Old Five-Year Credit Agreement, the “Old Credit Agreements”). The Old Five-Year Credit Agreement included a $250 million letter of credit sublimit. As of February 29, 2024, no amounts were outstanding under the Old Credit Agreements, no commercial paper was outstanding, and $250 million of the letter of credit sublimit was unused under the Old Five-Year Credit Agreement.

The Old Credit Agreements contained a financial covenant requiring us to maintain a ratio of debt to consolidated earnings (excluding noncash retirement plans mark-to-market adjustments, noncash pension service costs, and noncash asset impairment charges) before interest, taxes, depreciation, and amortization (“adjusted EBITDA”) of not more than 3.5 to 1.0, calculated as of the last day of each fiscal quarter on a rolling four-quarters basis. The ratio of our debt to adjusted EBITDA was 1.9 to 1.0 at February 29, 2024. We were in compliance with all other covenants in the Old Credit Agreements during the third quarter of fiscal 2024.

On March 15, 2024, we replaced the Old Credit Agreements with a $1.75 billion three-year credit agreement (the “New Three-Year Credit Agreement”) and a $1.75 billion five-year credit agreement (the “New Five-Year Credit Agreement” and together with the New Three-Year Credit Agreement, the “New Credit Agreements”). The New Three-Year Credit Agreement and the New Five-Year Credit Agreement expire in March 2027 and March 2029, respectively. Each of the New Credit Agreements has a $125 million letter of credit sublimit. The New Credit Agreements are available to finance our operations and other cash flow needs.

The New Credit Agreements amended the financial covenant included in the Old Credit Agreements to (i) net unrestricted cash and cash equivalents up to $500 million from the definition of debt and (ii) add back business optimization and restructuring expenses and pro forma cost savings and synergies associated with an acquisition to adjusted EBITDA. The aggregate amount of adjustments for business optimization and restructuring expenses and pro forma cost savings and synergies associated with an acquisition may not exceed 10% of adjusted EBITDA (calculated after giving effect to any such addback and such cap and all other permitted addbacks and adjustments) in any period. Additionally, following the consummation of an acquisition for which the aggregate cash consideration is at least $250 million, FedEx may elect to increase the ratio to 4.0 to 1.0 with respect to the last day of the fiscal quarter during which such acquisition is consummated and the last day of each of the immediately following three consecutive fiscal quarters, provided that there must be at least two consecutive fiscal quarters between such elections during which the ratio is 3.5 to 1.0.

The financial covenant discussed above is the only significant restrictive covenant in the New Credit Agreements. The New Credit Agreements contain other customary covenants that do not, individually or in the aggregate, materially restrict the conduct of our business. We do not expect the covenants contained in the New Credit Agreements to affect our operations, including our liquidity or expected funding needs. If we failed to comply with the financial covenant or any other covenants in the New Credit Agreements, our access to financing could become limited. Our commercial paper program is backed by unused commitments under the New Credit Agreements, and borrowings under the program reduce the amount available under the New Credit Agreements.

Long-term debt, including current maturities and exclusive of finance leases, had carrying values of $19.8 billion at February 29, 2024 and $19.8 billion at May 31, 2023, compared with estimated fair values of $17.7 billion at February 29, 2024 and $17.5 billion at May 31, 2023. The annualized weighted-average interest rate on long-term debt was 3.5% at February 29, 2024. The estimated fair values were determined based on quoted market prices and the current rates offered for debt with similar terms and maturities. The fair value of our long-term debt is classified as Level 2 within the fair value hierarchy. This classification is defined as a fair value determined using market-based inputs other than quoted prices that are observable for the liability, either directly or indirectly.