American Home Shield 2015 Annual Report Download - page 39

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21
Facilities and may not be able to repay the amounts due under such facilities or our other outstanding indebtedness. This could have
serious consequences to our financial position and results of operations and could cause us to become bankrupt or insolvent.
Our ability to generate the significant amount of cash needed to pay interest and principal on our indebtedness and our ability to
refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.
We are a holding company, and as such we have no independent operations or material assets other than ownership of equity
interests in our subsidiaries. We depend on our subsidiaries to distribute funds to us so that we may pay obligations and expenses,
including satisfying obligations with respect to indebtedness. Our ability to make scheduled payments on, or to refinance our
obligations under, our indebtedness depends on the financial and operating performance of our subsidiaries, and their ability to make
distributions and dividends to us, which, in turn, depends on their results of operations, cash flows, cash requirements, financial
position and general business conditions and any legal and regulatory restrictions on the payment of dividends to which they may be
subject, many of which may be beyond our control.
There are third party restrictions on the ability of certain of our subsidiaries to transfer funds to us. If we cannot receive
sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general corporate expenses or service
our debt obligations. These restrictions are related to regulatory requirements at American Home Shield and to a subsidiary borrowing
arrangement at ServiceMaster Acceptance Company Limited Partnership (“SMAC”). The payment of ordinary and extraordinary
dividends by our home warranty and similar subsidiaries (through which we conduct our American Home Shield business) are subject
to significant regulatory restrictions under the laws and regulations of the states in which they operate. Among other things, such laws
and regulations require certain such subsidiaries to maintain minimum capital and net worth requirements and may limit the amount of
ordinary and extraordinary dividends and other payments that these subsidiaries can pay to us. As of December 31, 2015, the total net
assets subject to these third party restrictions was $169 million. Such limitations are expected to be in effect through the end of 2016.
We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal and
interest on our indebtedness. If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be
forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our indebtedness. In
the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our indebtedness, and
such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.
The $2,336 million of outstanding borrowings under the Term Loan Facility, as of December 31, 2015, after including the
unamortized portion of the original issue discount paid and the unamortized debt issuance costs, have a maturity date of July 1, 2021.
The Revolving Credit Facility is scheduled to mature on July 1, 2019. We may be unable to refinance any of our indebtedness or
obtain additional financing, particularly because of our high levels of indebtedness. Market disruptions, such as those experienced in
2008 and 2009, as well as our significant indebtedness levels, may increase our cost of borrowing or adversely affect our ability to
refinance our obligations as they become due. If we are unable to refinance our indebtedness or access additional credit, or if short-
term or long-term borrowing costs dramatically increase, our ability to finance current operations and meet our short term and long
term obligations could be adversely affected.
If we cannot make scheduled payments on our indebtedness, we will be in default, the lenders under the Credit Facilities
could terminate their commitments to loan money, the secured lenders could foreclose against the assets securing their borrowings and
we could be forced into bankruptcy or liquidation.
Despite our indebtedness levels, we and our subsidiaries may be able to incur substantially more indebtedness. This could further
exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the instruments
governing our indebtedness do not prohibit us or fully prohibit our subsidiaries from doing so. The Credit Facilities permit additional
borrowings beyond the committed amounts under certain circumstances. If new indebtedness is added to our current indebtedness
levels, the related risks we face would increase, and we may not be able to meet all of our debt obligations.
Risks Related to Our Common Stock
ServiceMaster is a holding company with no operations of its own, and it depends on its subsidiaries for cash to fund all of its
operations and expenses, including to make future dividend payments, if any.
ServiceMaster’s operations are conducted entirely through our subsidiaries, and our ability to generate cash to fund our
operations and expenses, to pay dividends or to meet debt service obligations is highly dependent on the earnings and the receipt of
funds from our subsidiaries through dividends or intercompany loans. Deterioration in the financial condition, earnings or cash flow of
our subsidiaries for any reason could limit or impair their ability to pay such distributions. Additionally, to the extent that
ServiceMaster needs funds, and its subsidiaries are restricted from making such distributions under applicable law or regulation or
under the terms of our financing arrangements, or are otherwise unable to provide such funds, it could materially adversely affect our
business, financial condition, results of operations or prospects.
For example, there are third-party restrictions on the ability of certain of our subsidiaries to transfer funds to us. If we cannot
receive sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general corporate expenses or
service our debt obligations. These restrictions are related to regulatory requirements at American Home Shield and to a subsidiary
2015 Annual Report 37