CDW 2014 Annual Report Download - page 20

Table of Contents
reserves). The borrowing base in effect as of December 31, 2014 was $1,253.4 million
, and therefore, did not restrict our ability to borrow under
our Revolving Loan as of that date.
Our ability to borrow under our Revolving Loan is also limited by a minimum liquidity condition, which provides that, if excess cash
availability is less than the lesser of (i) $125.0 million and (ii) the greater of (A) 10% of the borrowing base and (B) $100.0 million, the lenders
are not required to lend any additional amounts under our Revolving Loan unless the consolidated fixed charge coverage ratio (as defined in the
credit agreement for our Revolving Loan) is at least 1.0 to 1.0. Moreover, our Revolving Loan provides discretion to the agent bank acting on
behalf of the lenders to impose additional availability reserves, which could materially impair the amount of borrowings that would otherwise be
available to us. We cannot assure you that the agent bank will not impose such reserves or, were it to do so, that the resulting impact of this
action would not materially and adversely impair our liquidity.
We will be required to generate sufficient cash to service our indebtedness and, if not successful, we may be forced to take other actions to
satisfy our obligations under our indebtedness.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial and operating performance,
which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. Our
outstanding long-term debt will impose significant cash interest payment obligations on us and, accordingly, we will have to generate significant
cash flow from operating activities to fund our debt service obligations. We cannot assure you that we will maintain a level of cash flows from
operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” included elsewhere in this report.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital
expenditures, sell assets or operations, seek additional debt or equity capital, restructure or refinance our indebtedness, or revise or delay our
strategic plan. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to
meet our scheduled debt service obligations or satisfy our capital requirements, or that these actions would be permitted under the terms of our
existing or future debt agreements, including our senior credit facilities and indentures. In the absence of such operating results and resources,
we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other
obligations. Our senior credit facilities and the indenture governing our 8.5% Senior Notes due 2019 ("2019 Senior Notes") restrict our ability to
dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds
which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. Furthermore, the
Sponsors have no obligation to provide us with debt or equity financing.
If we cannot make scheduled payments on our debt, we will be in default and, as a result:
Despite our indebtedness levels, we and our subsidiaries may be able to incur substantially more debt, including secured debt. This could
further increase the risks associated with our leverage.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of our senior credit facilities
and indentures do not fully prohibit us or our subsidiaries from doing so. To the extent that we incur additional indebtedness or such other
obligations, the risks associated with our substantial indebtedness described above, including our possible inability to service our debt, will
increase. As of December 31, 2014 , we had approximately $935.6 million available for additional borrowing under our Revolving Loan after
taking into account borrowing base limitations (net of $2.1 million of issued and undrawn letters of credit and $332.1 million of reserves related
to our floorplan sub-facility).
Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.
Certain of our borrowings, primarily borrowings under our senior credit facilities, are at variable rates of interest and expose us to
interest rate risk. As of December 31, 2014 , we had $1,513.5 million of variable rate debt outstanding. If interest rates increase above 1% per
annum, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and
our net income would decrease. Although we have entered into interest rate cap
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•
our debt holders could declare all outstanding principal and interest to be due and payable;
• the lenders under our senior credit facilities could foreclose against the assets securing the borrowings from them and the lenders under
our term loan facility could terminate their commitments to lend us money; and
•
we could be forced into bankruptcy or liquidation.