[Notes to Financial Statements]

8 DEBT

The effective annual interest rate on manufacturing notes payable was 7.7% in 1999, 6.8% in 1998 and 8.3% in 1997. Consolidated interest payments were $134 million, $95 million and $66 million in 1999, 1998 and 1997, respectively.

During 1998, the company arranged financing for $164 million of funds denominated in U.S. dollars and Mexican pesos to be used for investment in the company's Mexican manufacturing and financial services operations. As of October 31, 1999, borrowings outstanding under these arrangements were $106 million, of which 54% is denominated in dollars and 46% in pesos. The interest rates on the dollar-denominated debt are at a negotiated fixed rate or a variable rate based either on LIBOR or the Federal Funds Rate. On peso-denominated debt, the interest rate is based on the Interbank Interest Equilibrium Rate. The effective interest rate for the combined dollar and peso denominated debt was 18% for 1999 and 17% for 1998.

NFC issues commercial paper with varying terms and has short-term borrowings with various banks on a noncommitted basis. Compensating cash balances and commitment fees are not required under these borrowings.

The aggregate annual maturities for debt for the years ended October 31 are as follows:

At October 31, 1999, NFC has a $925 million contractually committed bank revolving credit facility and a $400 million asset-backed commercial paper (ABCP) program supported by a bank liquidity facility plus $14 million of trust certificates issued in connection with the formation of the ABCP trust. Available funding under the bank revolving credit facility and the ABCP program was $87 million, of which $35 million provided funding backup for the outstanding short-term debt at October 31, 1999.

NFC's wholly owned subsidiaries, Navistar Financial Securities Corporation (NFSC) and NFRRC, have a limited purpose of purchasing retail and wholesale receivables, respectively, and transferring an undivided ownership interest in such notes to investors. The subsidiaries have limited recourse on the sold receivables and their assets are available to satisfy the claims of their creditors prior to such assets becoming available to NFC or affiliated companies.

NFSC has in place a revolving wholesale note trust that provides for the funding of $600 million of wholesale notes. The trust is comprised of three $200 million tranches maturing in 2003, 2004 and 2008.

During fiscal 1999, in two separate sales, NFC sold a total of $1,260 million of retail notes, net of unearned finance income, through NFRRC. The combined gain recognized on the sale of these notes was $12 million. The aggregate shelf registration available to NFRRC for issuance of asset-backed securities is $2,257 million.

NFC has entered into various sale/leaseback agreements involving vehicles subject to retail finance and operating leases with end users. The outstanding balances are classified under financial services operations as capitalized leases. These agreements grant the purchasers a security interest in the underlying end user leases.

9 OTHER LIABILITIES

Major classifications of other liabilities at October 31 are as follows:

  Annual Report 1999