American Home Shield 2015 Annual Report Download - page 38

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our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service
requirements or general corporate purposes and our ability to satisfy our obligations with respect to our indebtedness
may be impaired in the future;
a large portion of our cash flow from operations must be dedicated to the payment of principal and interest on our
indebtedness, thereby reducing the funds available to us for other purposes;
we are exposed to the risk of increased interest rates because a portion of our borrowings are or will be at variable rates
of interest;
it may be more difficult for us to satisfy our obligations to our creditors, resulting in possible defaults on, and
acceleration of, such indebtedness;
we may be more vulnerable to general adverse economic and industry conditions;
we may be at a competitive disadvantage compared to our competitors with proportionately less indebtedness or with
comparable indebtedness on more favorable terms and, as a result, they may be better positioned to withstand economic
downturns;
our ability to refinance indebtedness may be limited or the associated costs may increase;
our flexibility to adjust to changing market conditions and ability to withstand competitive pressures could be limited;
and
we may be prevented from carrying out capital spending and restructurings that are necessary or important to our growth
strategy and efforts to improve operating margins of our businesses.
Increases in interest rates would increase the cost of servicing our indebtedness and could reduce our profitability.
A significant portion of our outstanding indebtedness, including indebtedness incurred under the Credit Facilities, bears
interest at variable rates. As a result, increases in interest rates would increase the cost of servicing our indebtedness and could
materially reduce our profitability and cash flows. As of December 31, 2015, each one percentage point change in interest rates would
result in an approximately $17 million change in the annual interest expense on the Term Loan Facility after considering the impact of
the effective interest rate swaps. Assuming all revolving loans were fully drawn as of December 31, 2015, each one percentage point
change in interest rates would result in an approximately $2 million change in annual interest expense on the Revolving Credit
Facility. The impact of increases in interest rates could be more significant for us than it would be for some other companies because
of our substantial indebtedness.
A lowering or withdrawal of the ratings, outlook or watch assigned to our debt securities by rating agencies may increase our
future borrowing costs and reduce our access to capital.
Our indebtedness currently has a non-investment grade rating, and any rating, outlook or watch assigned could be lowered or
withdrawn entirely by a rating agency if, in that rating agency’s judgment, current or future circumstances relating to the basis of the
rating, outlook, or watch such as adverse changes to our business, so warrant. Any future lowering of our ratings, outlook or watch
likely would make it more difficult or more expensive for us to obtain additional debt financing.
The agreements and instruments governing our indebtedness contain restrictions and limitations that could significantly impact
our ability to operate our business.
The Credit Facilities contain covenants that, among other things, restrict our ability to:
incur additional indebtedness (including guarantees of other indebtedness);
pay dividends to ServiceMaster, redeem stock, or make other restricted payments, including investments and, in the case
of the Revolving Credit Facility, make acquisitions;
prepay, repurchase or amend the terms of certain outstanding indebtedness;
enter into certain types of transactions with affiliates;
transfer or sell assets;
create liens;
merge, consolidate or sell all or substantially all of our assets; and
enter into agreements restricting dividends or other distributions by our subsidiaries.
The restrictions in the agreements governing the Credit Facilities and the instruments governing our other indebtedness may
prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to execute
our business strategy successfully or effectively compete with companies that are not similarly restricted. We may also incur future
debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility. We
may be unable to refinance our indebtedness, at maturity or otherwise, on terms acceptable to us, or at all.
Our ability to comply with the covenants and restrictions contained in the agreements governing the Credit Facilities and the
instruments governing our other indebtedness may be affected by economic, financial and industry conditions beyond our control
including credit or capital market disruptions. The breach of any of these covenants or restrictions could result in a default that would
permit the applicable lenders to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid
interest. If we are unable to repay indebtedness, lenders having secured obligations, such as the lenders under the Credit Facilities,
could proceed against the collateral securing the indebtedness. In any such case, we may be unable to borrow under the Credit
36 2015 Annual Report