Note 12 Debt

The Company’s total debt at December 31, 2012 and 2011, amounted to $10,071 million and $3,996 million, respectively.

Short-term debt and current maturities of long-term debt

The Company’s “Short-term debt and current maturities of long-term debt” consisted of the following:

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December 31, ($ in millions)

2012

2011

Short-term debt (weighted-average interest rate of 1.7% and 3.4%, respectively)

1,531

689

Current maturities of long-term debt
(weighted-average nominal interest rate of 4.8% and 4.6%, respectively)

1,006

76

Total

2,537

765

Short-term debt primarily represented issued commercial paper and short-term loans from various banks.

At December 31, 2012 and 2011, the Company had in place three commercial paper programs: a $1 billion Euro-commercial paper program for the issuance of commercial paper in a variety of currencies; a 5 billion Swedish krona commercial paper program for the issuance of Swedish krona and euro-denominated commercial paper and, since the third quarter of 2012, a $2 billion commercial paper program for the private placement of U.S. dollar denominated commercial paper in the United States that replaced the previous $1 billion program (terminated in the third quarter of 2012). At December 31, 2012 and 2011, $1,019 million and $435 million, were outstanding under the $2 billion and $1 billion programs, respectively, in the United States.

In addition, the Company has a $2 billion multicurrency revolving credit facility, maturing in 2015. The facility is for general corporate purposes, including as a back-stop for the above-mentioned commercial paper programs. Interest costs on drawings under the facility are LIBOR, STIBOR or EURIBOR (depending on the currency of the drawings) plus a margin of between 0.425 percent and 0.625 percent (depending on the Company’s credit rating), while commitment fees (payable on the unused portion of the facility) amount to 35 percent of the margin, which, given the Company’s credit ratings at December 31, 2012, represents commitment fees of 0.166 percent per annum. Utilization fees, payable on drawings, amount to 0.15 percent per annum on drawings over one-third but less than or equal to two-thirds of the facility, or 0.3 percent per annum on drawings over two-thirds of the facility. No utilization fees are payable on drawings representing one-third or less of the total facility. No amount was drawn at December 31, 2012 and 2011. The facility contains cross-default clauses whereby an event of default would occur if the Company were to default on indebtedness as defined in the facility, at or above a specified threshold.

Long-term debt

The Company utilizes derivative instruments to modify the interest characteristics of its long-term debt. In particular, the Company uses interest rate swaps to effectively convert certain fixed-rate long-term debt into floating rate obligations. The carrying value of debt, designated as being hedged by fair value hedges, is adjusted for changes in the fair value of the risk component of the debt being hedged.

The following table summarizes the Company’s long-term debt considering the effect of interest rate swaps. Consequently, a fixed-rate debt subject to a fixed-to-floating interest rate swap is included as a floating rate debt in the table below:

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2012

2011

December 31, ($ in millions, except % data)

Balance

Nominal rate

Effective rate

Balance

Nominal rate

Effective rate

Floating rate

2,353

3.4%

1.6%

1,875

3.3%

1.6%

Fixed rate

6,187

3.1%

3.1%

1,432

3.7%

3.7%

 

8,540

 

 

3,307

 

 

Current portion of long-term debt

(1,006)

4.8%

1.3%

(76)

4.6%

4.6%

Total

7,534

 

 

3,231

 

 

At December 31, 2012, maturities of long-term debt were as follows:

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($ in millions)

 

Due in 2013

1,006

Due in 2014

17

Due in 2015

35

Due in 2016

1,184

Due in 2017

917

Thereafter

5,381

Total

8,540

Details of the Company’s outstanding bonds were as follows:

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2012

2011

December 31, (in millions)

Nominal
outstanding

Carrying
value(1)

Nominal
outstanding

Carrying
value(1)

(1)

USD carrying value is net of bond discounts and includes adjustments for fair value hedge accounting, where appropriate.

Bonds:

 

 

 

 

 

 

 

 

4.625% EUR Instruments, due 2013

EUR

700

$

931

EUR

700

$

910

2.5% USD Notes, due 2016

USD

600

$

597

USD

600

$

596

1.25% CHF Bonds, due 2016

CHF

500

$

557

CHF

500

$

535

1.625% USD Notes, due 2017

USD

500

$

497

 

 

 

4.25% AUD Notes, due 2017

AUD

400

$

413

 

 

 

1.50% CHF Bonds, due 2018

CHF

350

$

383

 

 

 

2.625% EUR Instruments, due 2019

EUR

1,250

$

1,648

 

 

 

4.0% USD Notes, due 2021

USD

650

$

641

USD

650

$

640

2.25% CHF Bonds, due 2021

CHF

350

$

402

CHF

350

$

378

5.625% USD Notes, due 2021

USD

250

$

291

 

 

 

2.875% USD Notes, due 2022

USD

1,250

$

1,224

 

 

 

4.375% USD Notes, due 2042

USD

750

$

727

 

 

 

Total outstanding bonds

 

 

$

8,311

 

 

$

3,059

The 4.625% EUR Instruments, due 2013, pay interest annually in arrears at a fixed annual rate of 4.625 percent. The Company has the option to redeem the bonds early at any time from June 6, 2010, in accordance with the terms of the bonds. In the event of a change of control, a bondholder can require the Company to repurchase or redeem the bonds, in accordance with the terms of the bonds. The Company entered into interest rate swaps to hedge its interest obligations on these bonds. After considering the impact of such swaps, these bonds effectively became a floating rate euro obligation and consequently have been shown as floating rate debt in the table of long-term debt above.

The 2.5% USD Notes, due 2016, and the 4.0% USD Notes, due 2021, pay interest semi-annually in arrears, at fixed annual rates of 2.5 percent and 4.0 percent, respectively. The Company may redeem these notes prior to maturity, in whole or in part, at the greater of i) 100 percent of the principal amount of the notes to be redeemed and ii) the sum of the present values of remaining scheduled payments of principal and interest (excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest accrued at the redemption date.

The 1.25% CHF Bonds, due 2016, and the 2.25% Bonds, due 2021, pay interest annually in arrears, at fixed annual rates of 1.25 percent and 2.25 percent, respectively. The Company has the option to redeem the bonds prior to maturity, in whole, at par plus accrued interest, if 85 percent of the aggregate principal amount of the bonds has been redeemed or purchased and cancelled. The Company entered into interest rate swaps to hedge its interest obligations on these bonds. After considering the impact of such swaps, these bonds effectively became floating rate Swiss franc obligations and consequently have been shown as floating rate debt in the table of long-term debt above.

The 1.50% CHF Bonds, due 2018, were issued in January 2012, and the Company recorded net proceeds of CHF 346 million (equivalent to approximately $370 million on date of issuance). The bonds have an aggregate principal of CHF 350 million and pay interest annually in arrears at a fixed annual rate of 1.5 percent. The Company has the option to redeem the bonds prior to maturity, in whole, at par plus accrued interest, if 85 percent of the aggregate principal amount of the bonds has been redeemed or purchased and cancelled.

The 2.625% EUR Instruments, due 2019, were issued in March 2012, and the Company recorded proceeds (net of fees) of EUR 1,245 million (equivalent to approximately $1,648 million on date of issuance). The instruments have an aggregate principal of EUR 1,250 million and pay interest annually in arrears at a fixed rate of 2.625 percent per annum.

In May 2012, the Company issued the following notes (i) $500 million of 1.625% USD Notes, due 2017, paying interest semi-annually in arrears at a fixed annual rate of 1.625 percent, (ii) $1,250 million of 2.875% USD Notes, due 2022, paying interest semi-annually in arrears at a fixed annual rate of 2.875 percent, and (iii) $750 million of 4.375% USD Notes, due 2042, paying interest semi-annually in arrears at a fixed annual rate of 4.375 percent. The Company may redeem these notes prior to maturity, in whole or in part, at the greater of i) 100 percent of the principal amount of the notes to be redeemed and ii) the sum of the present values of remaining scheduled payments of principal and interest (excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest accrued at the redemption date. The aggregate net proceeds of these bond issues, after underwriting discount and other fees, amounted to $2,431 million. These notes, registered with the U.S. Securities and Exchange Commission, were issued by ABB Finance (USA) Inc., a 100 percent owned finance subsidiary, and were fully and unconditionally guaranteed by ABB Ltd. There are no significant restrictions on the ability of the parent company to obtain funds from its subsidiaries by dividend or loan. In reliance on Rule 3-10 of Regulation S-X, the separate financial statements of ABB Finance (USA) Inc. are not provided.

The 5.625% USD Notes, due 2021, were assumed in May 2012, upon the acquisition of Thomas & Betts and pay interest semi-annually in arrears at a fixed annual rate of 5.625 percent. These notes, with an aggregate principal of $250 million, were recorded at their fair value on the date the Company acquired Thomas & Betts and are being amortized to par over the period to maturity. The Company has the option to redeem the notes prior to maturity at the greater of i) 100 percent of the principal amount of the notes to be redeemed, and ii) the sum of the present values of remaining scheduled payments of principal and interest (excluding interest accrued to the redemption date) discounted to the redemption date at a rate defined in the note terms, plus interest accrued at the redemption date.

The 4.25% AUD Notes, due 2017, were issued in November 2012. Net issuance proceeds (after underwriting fees) totaled AUD 398 million (equivalent to approximately $412 million on date of issuance). The notes, with an aggregate principal of AUD 400 million, pay fixed interest of 4.25 percent semi-annually in arrears. The Company entered into interest rate swaps to hedge its interest obligations on these bonds. After considering the impact of such swaps, these bonds effectively became floating rate Australian dollar obligations and consequently have been shown as floating rate debt in the table of long-term debt above.

The Company’s bonds contain cross-default clauses which would allow the bondholders to demand repayment if the Company were to default on any borrowing at or above a specified threshold. Furthermore, all such bonds constitute unsecured obligations of the Company and rank pari passu with other debt obligations.

In addition to the bonds described above, included in long-term debt at December 31, 2012 and 2011, are capital lease obligations, bank borrowings of subsidiaries and other long-term debt, none of which is individually significant.