Long-term debt

Long-term debt is the portion of a company's interest-bearing borrowings that is not due to be repaid within twelve months. It sits in the non-current liabilities section of the balance sheet and represents the core of the company's financial leverage and capital structure.

It takes many forms depending on how the company has chosen to finance itself. Syndicated term loans and revolving credit facilities arranged through banks. Publicly issued bonds and notes sold to institutional investors. Convertible notes that carry the right to convert into equity under certain conditions. And finance lease liabilities capitalised under ASC 842 and IFRS 16.

The carrying value on the balance sheet reflects the outstanding principal net of unamortised debt issuance costs and original issue discount. This means the face value of the debt and the balance sheet figure are not always identical and the notes are required to reconcile the two.

Long-term debt is the primary input in leverage analysis. Net debt, calculated as total debt minus cash and equivalents, divided by EBITDA is the dominant leverage metric in credit analysis and M&A. It expresses how many years of operating earnings would be required to repay the net debt burden, with ratios above four or five times typically considered aggressive in most industries outside of regulated utilities and real estate.

The maturity schedule of long-term debt, disclosed in the notes, is as important as the total outstanding balance. A company with a well-laddered maturity profile spread across many years faces very different refinancing risk than one with a concentrated wall of maturities in a single year that must be refinanced in whatever market conditions prevail at that time.

Interest rate exposure is the other critical dimension. Fixed rate debt locks in the cost of borrowing regardless of market movements. Floating rate debt, typically priced at a benchmark rate plus a credit spread, exposes the company to rising interest expense when rates increase. This distinction became acutely material during the rapid rate tightening cycles of 2022 and 2023.