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Debt
 12 Months Ended
Dec. 31, 2021
Debt Disclosure [Abstract]  
Debt Debt
Debt at December 31, 2021 and 2020 was as follows:
(In millions)20212020
Allegheny Technologies 5.875% Senior Notes due 2023 (a)
$— $500.0 
Allegheny Technologies 5.875% Senior Notes due 2027
350.0 350.0 
Allegheny Technologies 5.125% Senior Notes due 2031
350.0 — 
Allegheny Technologies 4.875% Notes due 2029
325.0 — 
Allegheny Technologies 3.5% Convertible Senior Notes due 2025
291.4 291.4 
Allegheny Technologies 4.75% Convertible Senior Notes due 2022
84.2 84.2 
Allegheny Ludlum 6.95% Debentures due 2025 (b)
150.0 150.0 
Term Loan due 2024200.0 200.0 
U.S. revolving credit facility— — 
Foreign credit agreements27.4 5.5 
Finance leases and other85.7 48.0 
Debt issuance costs(20.8)(14.5)
Equity component of convertible debt— (46.8)
Total short-term and long-term debt1,842.9 1,567.8 
Short-term debt and current portion of long-term debt131.3 17.8 
Total long-term debt$1,711.6 $1,550.0 
(a)Bearing interest at 7.875% effective February 15, 2016.
(b)The payment obligations of these debentures issued by Allegheny Ludlum, LLC are fully and unconditionally guaranteed by ATI.
Interest expense was $97.6 million in 2021, $96.1 million in 2020, and $104.9 million in 2019. Interest expense was reduced by $4.3 million, $7.7 million, and $4.7 million, in 2021, 2020, and 2019, respectively, from interest capitalization on capital projects. Interest and commitment fees paid were $97.5 million in 2021, $95.4 million in 2020, and $105.7 million in 2019. Net interest expense includes interest income of $0.7 million in 2021, $1.7 million in 2020, and $5.9 million in 2019.
Scheduled principal payments during the next five years are $131.6 million in 2022, $19.6 million in 2023, $217.1 million in 2024, $454.7 million in 2025, and $7.5 million in 2026. The 2022 amount includes $84.2 million of convertible debt that would be settled in shares of ATI stock if the conversion price target is reached; see further discussion below in the section titled “2022 Convertible Notes”. See Note 11, Leases, for the portion of these scheduled principal payments that are related to finance leases.
Debt Extinguishment Charges
In October 2021, ATI recognized a $65.5 million debt extinguishment charge on the redemption of the 5.875% Senior Notes due 2023 (2023 Notes), which included a $64.5 million cash make-whole payment related to the early extinguishment of the 2023 Notes as required by the applicable indenture, and a $1.0 million charge for deferred debt issue costs, as further discussed below.
In June 2020, ATI recognized a $21.5 million debt extinguishment charge on the partial redemption of the 4.75% Convertible Senior Notes due 2022 (the 2022 Convertible Notes), which included a $19.1 million cash make-whole payment related to the early extinguishment of the 2022 Convertible Notes partial redemption, as required by the applicable indenture, and a $2.4 million charge for deferred debt issue costs, as further discussed below.
In December 2019, the Company redeemed all $500 million aggregate principal amount outstanding of the 5.95% Senior Notes due 2021 (2021 Notes), which had a January 15, 2021 maturity date, resulting in a $21.6 million pre-tax debt extinguishment charge, which included a $20.9 million cash make-whole payment related to the early extinguishment of the 2021 Notes as required by the applicable indenture, and a $0.7 million charge for deferred debt issue costs.
2029 and 2031 Notes
On September 14, 2021, ATI issued $325 million aggregate principal amount of 4.875% Senior Notes due 2029 (2029 Notes) and $350 million aggregate principal amount of 5.125% Senior Notes due 2031 (2031 Notes). Interest on the 2029 Notes is payable semi-annually in arrears at a rate of 4.875% per year, and the 2029 Notes will mature on October 1, 2029. Interest on the 2031 Notes is payable semi-annually in arrears at a rate of 5.125% per year, and the 2031 Notes will mature on October 1, 2031. Total combined net proceeds of $665.7 million from both of these issuances were primarily used to fund the full redemption of the $500 million aggregate principal amount outstanding of the 2023 Notes on October 14, 2021, including a make-whole payment and accrued interest, following a 30 day notice of redemption as required by the 2023 Notes indenture. As such, in the fourth quarter 2021, the Company recognized a $65.5 million debt extinguishment charge.
Underwriting fees and other third-party expenses for the issuance of the 2029 and 2031 Notes were $4.7 million each, and are being amortized to interest expense over the 8-year and 10-year terms of the 2029 and 2031 Notes, respectively. The 2029 and 2031 Notes are unsecured and unsubordinated obligations of the Company and equally ranked with all of its existing and future senior unsecured debt. The 2029 and 2031 Notes restrict the Company’s ability to create certain liens, to enter into sale leaseback transactions, guarantee indebtedness and to consolidate or merge all, or substantially all, of its assets. The Company has the option to redeem the 2029 and 2031 Notes, as a whole or in part, at any time or from time to time, on at least 15 days, but not more than 60 days, prior notice to the holders of the Notes at redemption prices specified in the 2029 and 2031 Notes. The 2029 and 2031 Notes are subject to repurchase upon the occurrence of a change in control repurchase event (as defined in the 2029 and 2031 Notes) at a repurchase price in cash equal to 101% of the aggregate principal amount of the Notes repurchased, plus any accrued and unpaid interest on the 2029 or 2031 Notes repurchased, as applicable.
2025 Convertible Notes
In 2020, the Company issued $291.4 million aggregate principal amount of 2025 Convertible Notes. The Company used a portion of the net proceeds from the offering of the 2025 Convertible Notes to repurchase $203.2 million aggregate principal amount of its outstanding 2022 Convertible Notes, resulting in a $21.5 million debt extinguishment charge. The Company also used $19.4 million of the net proceeds of the offering of the 2025 Convertible Notes to pay the cost of capped call transactions, described below, which was recorded as a reduction to additional paid-in-capital in stockholders’ equity on the consolidated balance sheet. The remainder of the net proceeds from the offering were used for general corporate purposes.
As of December 31, 2021, the fair value of the 2025 Convertible Notes is $379 million based on the quoted market price, which is classified in Level 1 of the fair value hierarchy. The 2025 Convertible Notes have a 3.5% cash coupon rate that is payable semi-annually in arrears on each June 15 and December 15, commencing December 15, 2020. Including amortization of deferred issuance costs, the effective interest rate is 4.2% for the year ended December 31, 2021 and 8.4% for the year ended December 31, 2020. The effective interest rate is lower in 2021 due to the early-adoption of new accounting guidance on January 1, 2021, as described below. Remaining deferred issuance costs were $6.5 million and $8.2 million at December 31, 2021 and 2020, respectively. Interest expense on the 2025 Convertible Notes was as follows:
Fiscal year ended December 31,
(in millions)20212020
Contractual coupon rate$10.2 $5.3 
Amortization of debt issuance costs1.7 0.7 
   Total interest expense$11.9 $6.0 
The Company does not have the right to redeem the 2025 Convertible Notes prior to June 15, 2023. On or after June 15, 2023 and prior to the 41st scheduled trading day immediately preceding the maturity date, the Company may redeem all or any portion of the 2025 Convertible Notes, at its option, at a redemption price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest if the last reported sale price of ATI’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on the trading day immediately preceding the date on which ATI provides written notice of redemption.
The initial conversion rate for the 2025 Convertible Notes is 64.5745 shares of ATI common stock per $1,000 principal amount of the 2025 Convertible Notes, equivalent to an initial conversion price of approximately $15.49 per share (18.8 million shares). Prior to the close of business on the business day immediately preceding March 15, 2025, the 2025 Convertible Notes will be convertible at the option of the holders of 2025 Convertible Notes only upon the satisfaction of specified conditions and during certain periods. Thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date, the 2025 Convertible Notes will be convertible at the option of holders of 2025 Convertible Notes at any time regardless of these conditions. Conversions of the 2025 Convertible Notes may be settled in cash, shares of ATI’s common stock or a combination thereof, at ATI’s election.
As a result of this flexible settlement feature of the 2025 Convertible Notes, the embedded conversion option was required to be separately accounted for as a component of stockholders’ equity. The value of the embedded conversion option was determined to be $51.4 million based on the estimated fair value of comparable senior unsecured debt without the conversion feature, using an income approach of expected present value. During the 2020 fiscal year, the equity component was amortized as additional non-cash interest expense, commonly referred to as phantom yield, over the term of the 2025 Convertible Notes using the effective interest method. As a result, as of December 31, 2020, $49.8 million of the 2025 Convertible Notes was recorded in additional paid-in-capital in stockholders’ equity ($51.4 million of the gross $291.4 million net of $1.6 million of allocated offering costs). Due to the non-cash phantom yield and including debt issue cost amortization, the 2025 Convertible Notes had reported interest expense in 2020 at an 8.4% rate, higher than the 3.5% cash coupon rate. Effective January 1, 2021, ATI early-adopted new accounting guidance as discussed in Note 1 that eliminated the equity component classification of the embedded conversion option, as well as the phantom yield portion of interest expense on a prospective basis. Upon adoption on
January 1, 2021, long-term debt increased by $45.4 million representing the $46.8 million equity component of convertible debt as of December 31, 2020 in the above table, net of reclassified debt issue costs.
Holders of the 2025 Convertible Notes may require ATI to repurchase their 2025 Convertible Notes upon the occurrence of certain events that constitute a fundamental change under the indenture governing the 2025 Convertible Notes at a purchase price equal to 100% of the principal amount thereof, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In connection with certain corporate events or if ATI issues a notice of redemption, it will, under certain circumstances, increase the conversion rate for holders who elect to convert their 2025 Convertible Notes in connection with such corporate event or during the relevant redemption period.
In connection with the pricing of the 2025 Convertible Notes, ATI entered into privately negotiated capped call transactions with certain of the initial purchasers or their respective affiliates (collectively, the Counterparties). The capped call transactions are expected generally to reduce potential dilution to ATI’s common stock upon any conversion of the 2025 Convertible Notes and/or offset any cash payments ATI is required to make in excess of the principal amount of converted 2025 Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the
capped call transactions initially is approximately $19.76 per share, and is subject to adjustments under the terms of the capped call transactions.
2022 Convertible Notes
As of December 31, 2021, the Company had $84.2 million of aggregate principal amount of the 2022 Convertible Notes outstanding. Interest on the 2022 Convertible Notes is payable in cash semi-annually in arrears on each January 1 and July 1, commencing January 1, 2017. As of December 31, 2021, the fair value of the 2022 Convertible Notes is $102 million based on the quoted market price, which is classified in Level 1 of the fair value hierarchy. Interest on the 2022 Convertible Notes at the 4.75% cash coupon rate is payable semi-annually in arrears on each January 1 and July 1. Including amortization of deferred issuance costs, the effective interest rate is 5.4% for the fiscal years ended December 31, 2021, 2020 and 2019. Remaining deferred issuance costs were $0.3 million and $0.7 million at December 31, 2021 and 2020, respectively. Interest expense on the 2022 Convertible Notes was as follows:
Fiscal year ended December 31,
(in millions)202120202019
Contractual coupon rate$4.0 $8.6 $13.7 
Amortization of debt issuance costs0.5 1.0 1.5 
   Total interest expense$4.5 $9.6 $15.2 
The Company does not have the right to redeem the 2022 Convertible Notes prior to their stated maturity date. Holders of the 2022 Convertible Notes have the option to convert their notes into shares of the Company’s common stock, at any time prior to the close of business on the business day immediately preceding the stated maturity date (July 1, 2022). The initial conversion rate for the remaining $84.2 million of 2022 Convertible Notes is 69.2042 shares of ATI common stock per $1,000 (in whole dollars) principal amount of Notes (5.8 million shares), equivalent to conversion price of $14.45 per share, subject to adjustment in certain events. Other than receiving cash in lieu of fractional shares, holders do not have the option to receive cash instead of shares of common stock upon conversion. Accrued and unpaid interest that exists upon conversion of a note will be deemed paid by the delivery of shares of ATI common stock and no cash payment or additional shares will be given to the holders.
If the Company undergoes a fundamental change as defined in the agreement, holders of the 2022 Convertible Notes may require the Company to repurchase the notes in whole or in part for cash at a price equal to 100% of the principal amount of the notes to be purchased plus any accrued and unpaid interest to, but excluding, the repurchase date.
2027 Notes
On November 22, 2019, ATI issued $350 million aggregate principal amount of 5.875% Senior Note due 2027 (2027 Notes). Interest on the 2027 Notes is payable semi-annually in arrears at a rate of 5.875% per year and will mature on December 1, 2027. Net proceeds of $344.5 million from this issuance, as well as cash on hand, were used to retire the 2021 Notes as discussed above. Underwriting fees and other third-party expenses for the issuance of the 2027 notes were $5.5 million, and are being amortized to interest expense over the 8-year term of the 2027 Notes. The 2027 Notes are unsecured and unsubordinated obligations of the Company and equally ranked with all of its existing and future senior unsecured debt. The 2027 Notes restrict the Company’s ability to create certain liens, to enter into sale leaseback transactions, guarantee indebtedness and to consolidate or merge all, or substantially all, of its assets. The Company has the option to redeem the 2027 Notes, as a whole or in part, at any time or from time to time, on at least 30 days, but not more than 60 days, prior notice to the holders of the Notes at redemption prices specified in the 2027 Notes. The 2027 Notes are subject to repurchase upon the occurrence of a change in control repurchase event (as defined in the 2027 Notes) at a repurchase price in cash equal to 101% of the aggregate principal amount of the Notes repurchased, plus any accrued and unpaid interest on the 2027 Notes repurchased.
2023 Notes
The 5.875% stated interest rate payable on the 2023 Notes was subject to adjustment in the event of changes in the credit ratings on the 2023 Notes by either Moody’s or Standard & Poor’s. Each notch of credit rating downgrade from the credit ratings in effect when the 2023 Notes were issued in July 2013 increased interest expense by 0.25% on the 2023 Notes, up to a maximum 4 notches by each of the two rating agencies, or a total 2.0% potential interest rate change up to 7.875%. The annual interest rate on the 2023 Notes has been at the maximum 7.875% since February 2016 until their redemption in October 2021 as discussed above.
Credit Agreements
The Company has an Asset Based Lending (ABL) Credit Facility, which is collateralized by the accounts receivable and inventory of the Company’s domestic operations. The ABL facility, which matures in September 2024, includes a $500 million revolving credit facility, a letter of credit sub-facility of up to $200 million, and as of December 31, 2020, a $200 million term loan (Term Loan). In June 2020, the Company exercised its right to borrow an additional $100 million under the term loan portion of the ABL, with the same September 2024 maturity date. The Term Loan has an interest rate of 2.0% plus a LIBOR spread and can be prepaid in increments of $25 million if certain minimum liquidity conditions are satisfied. In addition, the Company has the right to request an increase of up to $200 million in the maximum amount available under the revolving credit portion of the ABL for the duration of the ABL. The Company has a $50 million floating-for-fixed interest rate swap that converts a portion of the Term Loan to a 4.21% fixed interest rate. The swap matures in June 2024.
The applicable interest rate for revolving credit borrowings under the ABL facility includes interest rate spreads based on available borrowing capacity that range between 1.25% and 1.75% for LIBOR-based borrowings and between 0.25% and 0.75% for base rate borrowings. The ABL facility contains a financial covenant whereby the Company must maintain a fixed charge coverage ratio of not less than 1.00:1.00 after an event of default has occurred and is continuing or if the undrawn availability under the ABL revolving credit portion of the facility is less than the greater of (i) $87.5 million, calculated as 12.5% of the then applicable maximum advance amount under the revolving credit portion of the ABL and the outstanding Term Loan balance, or (ii) $62.5 million. The Company does not meet this required fixed charge coverage ratio at December 31, 2021. As a result, the Company is unable to access this remaining 12.5%, or $87.5 million, of the ABL facility until it meets the required ratio. Additionally, the Company must demonstrate minimum liquidity, as calculated in accordance with the terms of the ABL facility, during the 90 day period immediately preceding the stated maturity date of the 4.75% Convertible Notes due 2022. The ABL also contains customary affirmative and negative covenants for credit facilities of this type, including limitations on the Company’s ability to incur additional indebtedness or liens or to enter into investments, mergers and acquisitions, dispositions of assets and transactions with affiliates, some of which are more restrictive at any time during the term of the ABL when the Company’s fixed charge coverage ratio is less than 1.00:1.00 and its undrawn availability under the revolving portion of the ABL is less than the greater of (a) $150 million or (b) 30% of the sum of the maximum advance amount under the revolving credit portion of the ABL and the outstanding Term Loan balance. On September 30, 2019, the Company amended and restated the ABL and costs associated with entering into this amendment were $2.2 million, and are being amortized to interest expense over the term of the facility ending September 2024, along with $2.1 million of unamortized deferred costs that were previously recorded for the ABL.
As of December 31, 2021, there were no outstanding borrowings under the revolving portion of the ABL, and $48.3 million was utilized to support the issuance of letters of credit. There were no revolving credit borrowings under the ABL during 2021. Average borrowings under the revolving portion of the ABL for the fiscal year ended December 31, 2020 were $28 million, bearing an average annual interest rate of 2.2%. The Company also has foreign credit facilities, primarily in China, that total $65 million based on December 31, 2021 foreign exchange rates, under which $27.4 million was drawn as of December 31, 2021.
The Company has no off-balance sheet financing relationships as defined in Item 303(a)(4) of SEC Regulation S-K, with variable interest entities, structured finance entities, or any other unconsolidated entities. At December 31, 2021, the Company had not guaranteed any third-party indebtedness.