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Short-term Borrowings and Long-term Debt | 12 Months Ended
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Dec. 31, 2019
Debt Disclosure [Abstract] |
Short-term Borrowings and Long-term Debt | Short-term Borrowings and Long-term Debt
|  | 2019 |  | 2018
Short-term Borrowings |  |  |  |
Current maturities of long-term debt |  | $ | 437 |  |  | $ | 331 |
Other |  | 4 |  |  | — |
|  | 441 |  |  | 331 |
Less current portion of debt issuance costs and discounts |  | (10 | ) |  | (10 | )
Short-term borrowings |  | $ | 431 |  |  | $ | 321 |
Long-term Debt |  |  |  |
Securitization Notes |  | $ | 2,898 |  |  | $ | 2,928 |
Subsidiary Senior Unsecured Notes |  | 2,850 |  |  | 2,850 |
Term Loan A Facility |  | 463 |  |  | 488 |
Term Loan B Facility |  | 1,935 |  |  | 1,955 |
YUM Senior Unsecured Notes |  | 2,425 |  |  | 1,875 |
Finance lease obligations (See Note 11) |  | 77 |  |  | 71 |
|  | $ | 10,648 |  |  | $ | 10,167 |
Less debt issuance costs and discounts |  | (80 | ) |  | (85 | )
Less current maturities of long-term debt |  | (437 | ) |  | (331 | )
Long-term debt |  | $ | 10,131 |  |  | $ | 9,751 |
Securitization Notes T aco Bell Funding, LLC (the “Issuer”), a special purpose limited liability company and a direct, wholly-owned subsidiary of Taco Bell Corp. (“TBC”) through a series of securitization transactions has issued fixed rate senior secured notes collectively referred to as the “Securitization Notes”. The following table summarizes Securitization Notes outstanding at December 31, 2019:
|  |  |  |  |  | Interest Rate
Issuance Date |  | Anticipated Repayment Date(a) |  | Outstanding Principal (in millions) |  | Stated |  | Effective(b)
May 2016 |  | May 2023 |  | $ | 488 |  |  | 4.377 | % |  | 4.59 | %
May 2016 |  | May 2026 |  | $ | 975 |  |  | 4.970 | % |  | 5.14 | %
November 2018 |  | November 2023 |  | $ | 816 |  |  | 4.318 | % |  | 4.53 | %
November 2018 |  | November 2028 |  | $ | 619 |  |  | 4.940 | % |  | 5.06 | %
(a) | The legal final maturity dates of the Securitization Notes issued in 2016 and 2018 are May 2046 and November 2048, respectively. If the Issuer has not repaid or refinanced a series of Securitization Notes prior to its respective Anticipated Repayment Dates, rapid amortization of principal on all Securitization Notes will occur and additional interest will accrue on the Securitization Notes.
(b) | Includes the effects of the amortization of any discount and debt issuance costs.
The Securitization Notes were issued in transactions pursuant to which certain of TBC’s domestic assets, consisting principally of franchise-related agreements and domestic intellectual property, were contributed to the Issuer and the Issuer’s special purpose, wholly-owned subsidiaries (the “Guarantors”, and collectively with the Issuer, the "Securitization Entities") to secure the Securitization Notes. The Securitization Notes are secured by substantially all of the assets of the Securitization Entities, and include a lien on all existing and future U.S. Taco Bell franchise and license agreements and the royalties payable thereunder, existing and future U.S. Taco Bell intellectual property, certain transaction accounts and a pledge of the equity interests in asset owning Securitization Entities. The remaining U.S. Taco Bell assets that were excluded from the transfers to the Securitization Entities continue to be held by Taco Bell of America, LLC ("TBA") and TBC. The Securitization Notes are not guaranteed by the remaining U.S. Taco Bell assets, the Company, or any other subsidiary of the Company. Payments of interest and principal on the Securitization Notes are made from the continuing fees paid pursuant to the franchise and license agreements with all U.S. Taco Bell restaurants, including both company and franchise operated restaurants. Interest on and principal payments of the Securitization Notes are due on a quarterly basis. In general, no amortization of principal of the Securitization Notes is required prior to their anticipated repayment dates unless as of any quarterly measurement date the consolidated leverage ratio (the ratio of total debt to Net Cash Flow (as defined in the related indenture)) for the preceding four fiscal quarters of either the Company and its subsidiaries or the Issuer and its subsidiaries exceeds 5.0:1, in which case amortization payments of 1% per year of the outstanding principal as of the closing of the Securitization Notes are required. As of the most recent quarterly measurement date the consolidated leverage ratio exceeded 5.0:1 and, as a result, amortization payments are required. The Securitization Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Issuer maintains specified reserve accounts to be available to make required interest payments in respect of the Securitization Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the Securitization Notes under certain circumstances, (iii) certain indemnification payments relating to taxes, enforcement costs and other customary items and (iv) covenants relating to recordkeeping, access to information and similar matters. The Securitization Notes are also subject to rapid amortization events provided for in the indenture, including events tied to failure to maintain a stated debt service coverage ratio (as defined in the related indenture) of at least 1.1:1, gross domestic sales for branded restaurants being below certain levels on certain measurement dates, a manager termination event, an event of default and the failure to repay or refinance the Securitization Notes on the Anticipated Repayment Date (subject to limited cure rights). The Securitization Notes are also subject to certain customary events of default, including events relating to non-payment of required interest or principal due on the Securitization Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, certain judgments and failure of the Securitization Entities to maintain a stated debt service coverage ratio. As of December 31, 2019, we were in compliance with all of our debt covenant requirements and were not subject to any rapid amortization events. In accordance with the indenture, certain cash accounts have been established with the indenture trustee for the benefit of the note holders, and are restricted in their use. The indenture requires a certain amount of securitization cash flow collections to be allocated on a weekly basis and maintained in a cash reserve account. As of December 31, 2019, the Company had restricted cash of $81 million primarily related to required interest reserves included in Prepaid expenses and other current assets on the Consolidated Balance Sheets. Once the required obligations are satisfied, there are no further restrictions, including payment of dividends, on the cash flows of the Securitization Entities. Additional cash reserves are required if any of the rapid amortization events occur, as noted above, or in the event that as of any quarterly measurement date the Securitization Entities fail to maintain a debt service coverage ratio (or the ratio of Net Cash Flow to all debt service payments for the preceding four fiscal quarters) of at least 1.75:1. The amount of weekly securitization cash flow collections that exceed the required weekly allocations is generally remitted to the Company. During the most recent quarter ended December 31, 2019, the Securitization Entities maintained a debt service coverage ratio significantly in excess of the 1.75:1 requirement. Term Loan Facilities, Revolving Facility and Subsidiary Senior Unsecured Notes KFC Holding Co., Pizza Hut Holdings, LLC, and TBA, each of which is a wholly-owned subsidiary of the Company, as co-borrowers (the "Borrowers") have entered into a credit agreement providing for senior secured credit facilities and a $1.0 billion revolving facility (the Revolving Facility"). The senior secured credit facilities, which include a Term Loan A Facility and a Term Loan B Facility, and the Revolving Facility are collectively referred to as the "Credit Agreement". Additionally, the Borrowers through a series of transactions have issued the Subsidiary Senior Unsecured Notes due 2024, 2026 and 2027 (collectively referred to as the “Subsidiary Senior Unsecured Notes”). The following table summarizes borrowings outstanding under the Credit Agreement as well as our Subsidiary Senior Unsecured Notes as of December 31, 2019. There are no outstanding borrowings under the Revolving Facility and $1.3 million of letters of credit outstanding as of December 31, 2019.
|  |  |  |  |  |  |  | Interest Rate
|  | Issuance Date |  | Maturity Date |  | Outstanding Principal (in millions) |  | Stated |  | Effective(b)
Term Loan A Facility |  | June 2016 |  | June 2022 |  | $ | 463 |  |  | (a) |  |  | 3.46 | %
Term Loan B Facility |  | June 2016 |  | April 2025 |  | $ | 1,935 |  |  | (a) |  |  | 3.65 | %
Senior Note Due 2024 |  | June 2016 |  | June 2024 |  | $ | 1,050 |  |  | 5.00 | % |  | 5.16 | %
Senior Note Due 2026 |  | June 2016 |  | June 2026 |  | $ | 1,050 |  |  | 5.25 | % |  | 5.39 | %
Senior Note Due 2027 |  | June 2017 |  | June 2027 |  | $ | 750 |  |  | 4.75 | % |  | 4.90 | %
(a) | The interest rates applicable to the Term Loan A Facility as well as the Revolving Facility range from 1.25% to 1.75% plus LIBOR or from 0.25% to 0.75% plus the Base Rate (as defined in the Credit Agreement), at the Borrowers’ election, based upon the total leverage ratio of the Borrowers and the Specified Guarantors (as defined in the Credit Agreement). As of December 31, 2019 the interest rate spreads on the LIBOR and Base Rate applicable to our Term Loan A Facility were 1.50% and 0.50%, respectively.
The interest rates applicable to the Term Loan B Facility are 1.75% plus LIBOR or 0.75% plus the Base Rate, at the Borrowers’ election.
(b) | Includes the effects of the amortization of any discount and debt issuance costs as well as the impact of the interest rate swaps on the Term Loan B Facility (See Note 12). The effective rates related to our Term Loan A and B Facilities are based on current LIBOR-based interest rates at December 31, 2019.
The Term Loan A Facility is subject to quarterly amortization payments currently in an amount equal to 1.25% of the initial principal amount of the facility. These amortization payments will increase to an amount equal to 1.875% of the initial principal amount of the facility on the fourth anniversary of the closing date and to an amount equal to 3.75% of the initial principal amount of the facility on the fifth anniversary of the closing date, with the balance payable at maturity on June 7, 2022. The Term Loan B Facility is subject to quarterly amortization payments in an amount equal to 0.25% of the initial principal amount of the facility, with the balance payable at maturity on April 3, 2025. The Credit Agreement is unconditionally guaranteed by the Company and certain of the Borrowers’ principal domestic subsidiaries and excludes Taco Bell Funding LLC and its special purpose, wholly-owned subsidiaries (see above). The Credit Agreement is also secured by first priority liens on substantially all assets of the Borrowers and each subsidiary guarantor, excluding the stock of certain subsidiaries and certain real property, and subject to other customary exceptions. The Credit Agreement is subject to certain mandatory prepayments, including an amount equal to 50% of excess cash flow (as defined in the Credit Agreement) on an annual basis and the proceeds of certain asset sales, casualty events and issuances of indebtedness, subject to customary exceptions and reinvestment rights. The Credit Agreement includes two financial maintenance covenants which require the Borrowers to maintain a total leverage ratio (defined as the ratio of Consolidated Total Debt to Consolidated EBITDA (as these terms are defined in the Credit Agreement)) of 5.0:1 or less and a fixed charge coverage ratio (defined as the ratio of EBITDA minus capital expenditures to fixed charges (inclusive of rental expense and scheduled amortization)) of at least 1.5:1, each as of the last day of each fiscal quarter. The Credit Agreement includes other affirmative and negative covenants and events of default that are customary for facilities of this type. The Credit Agreement contains, among other things, limitations on certain additional indebtedness and liens, and certain other transactions specified in the agreement. We were in compliance with all debt covenants as of December 31, 2019. The Subsidiary Senior Unsecured Notes are guaranteed on a senior unsecured basis by (i) the Company, (ii) the Specified Guarantors and (iii) by each of the Borrower's and the Specified Guarantors’ domestic subsidiaries that guarantees the Borrower's obligations under the Credit Agreement, except for any of the Company’s foreign subsidiaries. The indenture governing the Subsidiary Senior Unsecured Notes contains covenants and events of default that are customary for debt securities of this type. We were in compliance with all debt covenants as of December 31, 2019. YUM Senior Unsecured Notes The majority of our remaining long-term debt primarily comprises YUM Senior Unsecured Notes. The following table summarizes all YUM Senior Unsecured Notes issued that remain outstanding at December 31, 2019:
|  |  |  |  |  | Interest Rate
Issuance Date |  | Maturity Date |  | Principal Amount (in millions) |  | Stated |  | Effective(a)
October 2007 |  | November 2037 |  | $ | 325 |  |  | 6.88 | % |  | 7.45 | %
August 2010 |  | November 2020 |  | $ | 350 |  |  | 3.88 | % |  | 4.01 | %
August 2011 |  | November 2021 |  | $ | 350 |  |  | 3.75 | % |  | 3.88 | %
October 2013 |  | November 2023 |  | $ | 325 |  |  | 3.88 | % |  | 4.01 | %
October 2013 |  | November 2043 |  | $ | 275 |  |  | 5.35 | % |  | 5.42 | %
September 2019 |  | January 2030 |  | $ | 800 |  |  | 4.75 | % |  | 4.90 | %
(a) | Includes the effects of the amortization of any (1) premium or discount; (2) debt issuance costs; and (3) gain or loss upon settlement of related treasury locks and forward starting interest rate swaps utilized to hedge the interest rate risk prior to debt issuance.
As included in the table above, on September 11, 2019, Yum! Brands, Inc. issued $800 million aggregate principal amount of 4.75% YUM Senior Unsecured Notes due January 15, 2030 (the “2030 Notes”). The net proceeds from the issuance were used to repay in full $250 million aggregate principal amount of YUM Senior Unsecured Notes that matured in September 2019, to repay the then outstanding borrowings under our $1 billion revolving facility and for general corporate purposes. Interest on the 2030 Notes is payable semiannually in arrears on January 15 and July 15 of each year. The Company incurred debt issuance costs of $10 million in connection with the issuance of the 2030 Notes. These issuance costs are recorded as a reduction in Long-term debt on our Consolidated Balance Sheet. The YUM Senior Unsecured Notes represent senior, unsecured obligations and rank equally in right of payment with all of our existing and future unsecured unsubordinated indebtedness. Our YUM Senior Unsecured Notes contain cross-default provisions whereby the acceleration of the maturity of any of our indebtedness in a principal amount in excess of $50 million will constitute a default under the YUM Senior Unsecured Notes unless such indebtedness is discharged, or the acceleration of the maturity of that indebtedness is annulled, within 30 days after notice. The annual maturities of all Short-term borrowings and Long-term debt as of December 31, 2019, excluding finance lease obligations of $77 million are as follows:
Year ended: |
2020 | $ | 434 |
2021 | 455 |
2022 | 424 |
2023 | 1,626 |
2024 | 1,086 |
Thereafter | 6,550 |
Total | $ | 10,575 |
Interest expense on Short-term borrowings and Long-term debt was $519 million, $496 million and $473 million in 2019, 2018 and 2017, respectively.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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