The big issue with long term debt for corporations is if they can afford its carrying cost (i.e. interest expense).
It depends on what the maturity dates are on the various debt issuances UP owns. If they intend to roll them over at maturity, as long as interest rates stay low, and assuming steady revenue streams to continue making interest payments, there is no problem.
On the other hand, if interest rates rise when they have to roll over their issuances, that is where profitabilty takes a hit.
A 1% rise in the interest rate that UP is paying would result in $250 million more in interest expense on $25 billion debt, if it hits all $25 billion eventually. A 5% rise ergo would result in $1.25 billion more in interest expense.
At that point in time the stock value would drop because it would impact earnings - more money going to interest expense is less money dropping to the bottom line.
Of course, UP will have its various debt instruments set up in a “ladder” of maturities so that it all does not have to be refinanced at one time. So a rise in interest rates could result in interest expense for the whole of its debt creeping up over time instead of shooting up all at once.
UP has a little over $16 billion outstanding shareholder equity as of 12/31/2020, so its net income of about $5.3 billion was about a 30% return on shareholder equity.
Part of that $5.3 billion will go out in dividends over the next quarters in 2021 and more than likely additional debt will be issued to finance additional share repurchases, which will increase the return on shareholder equity in coming years.
As interest rates rise, unless UP has significant additional revenue coming in from additional traffic or price increases, one would expect UP to continue to be profitable, but not to the point of a 30% return on stockholder equity with more operating net income going to pay interest expense before falling to the net income line. If that does happen, at that point
