CVS 2013 Annual Report Download - page 41

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2013 Annual Report
On November 26, 2012, we issued $1.25 billion of 2.75% unsecured senior notes due December 1, 2022 (the “2012
Notes”) for total proceeds of approximately $1.24 billion, net of discounts and underwriting fees. The 2012 Notes
pay interest semi-annually and may be redeemed, in whole at any time, or in part from time to time, at our option at
a defined redemption price plus accrued and unpaid interest to the redemption date. The net proceeds of the 2012
Notes were used for general corporate purposes and to repay certain corporate debt.
Also on November 26, 2012, we announced tender offers for any and all of the 6.6% Senior Notes due 2019, and
up to a maximum amount of the 6.125% Senior Notes due 2016 and 5.75% Senior Notes due 2017, for up to an
aggregate principal amount of $1.0 billion. In December 2012, we increased the aggregate principal amount of the
tender offers to $1.325 billion and completed the repurchase for the maximum amount. We paid a premium of
$332 million in excess of the debt principal in connection with the tender offers, wrote off $13 million of unamortized
deferred financing costs and incurred $3 million in fees, for a total loss on the early extinguishment of debt of
$348 million. The loss was recorded in income from continuing operations on the consolidated statement of income.
In connection with our acquisition of the UAM Medicare Part D Business in April 2011, we assumed $110 million of
long-term debt in the form of Trust Preferred Securities that mature through 2037. During the years ended December 31,
2012 and 2011, we repaid $50 million and $60 million, respectively, of the Trust Preferred Securities at par.
On May 12, 2011, we issued $550 million of 4.125% unsecured senior notes due May 15, 2021 and issued $950 million
of 5.75% unsecured senior notes due May 15, 2041 (collectively, the “2011 Notes”) for total proceeds of approximately
$1.5 billion, net of discounts and underwriting fees. The 2011 Notes pay interest semi-annually and may be redeemed,
in whole at any time, or in part from time to time, at our option at a defined redemption price plus accrued and unpaid
interest to the redemption date. The net proceeds of the 2011 Notes were used to repay commercial paper borrow-
ings and certain other corporate debt, and were used for general corporate purposes.
In December 2011 and July 2012, we repurchased $958 million and $1 million of the principal amount of our Enhanced
Capital Advantaged Preferred Securities (“ECAPS”) at par. The fees and write-off of deferred issuance costs associ-
ated with the early extinguishment of the ECAPS were de minimis . The remaining $41 million of outstanding ECAPS
are due in 2062 and had a fixed rate of interest of 6.302% per year until June 1, 2012, at which time we began paying
interest based on a floating rate (2.3% and 2.59% at December 31, 2013 and 2012, respectively). The ECAPS pay
interest semi-annually and may be redeemed at any time, in whole or in part, at a defined redemption price plus
accrued interest.
Our backup credit facilities, unsecured senior notes and ECAPS (see Note 6 to the Consolidated Financial Statements)
contain customary restrictive financial and operating covenants.
These covenants do not include a requirement for the acceleration of our debt maturities in the event of a downgrade
in our credit rating. We do not believe the restrictions contained in these covenants materially affect our financial or
operating flexibility.
As of December 31, 2013 and 2012, we had no outstanding derivative financial instruments.
Debt Ratings – As of December 31, 2013, our long-term debt was rated “Baa1” by Moody’s with a stable outlook
and “BBB+” by Standard & Poor’s with a stable outlook, and our commercial paper program was rated “P-2” by
Moody’s and “A-2” by Standard & Poor’s. In assessing our credit strength, we believe that both Moody’s and
Standard & Poor’s considered, among other things, our capital structure and financial policies as well as our consoli-
dated balance sheet, our historical acquisition activity and other financial information. Although we currently believe
our long-term debt ratings will remain investment grade, we cannot guarantee the future actions of Moody’s and/or
Standard & Poor’s. Our debt ratings have a direct impact on our future borrowing costs, access to capital markets
and new store operating lease costs.