Cincinnati Bell 2004 Annual Report Download - page 149

Security
The Company’s obligations under the new credit facilities are collateralized by perfected first priority
pledges and security interests in the following:
(1) substantially all of the equity interests of the Company’s subsidiaries (other than CBT, CBET, certain
immaterial subsidiaries, and CBW, so long as it is not wholly owned) and
(2) certain personal property and intellectual property of the Company and its subsidiaries (other than
CBT, CBET, certain immaterial subsidiaries, and CBW, so long as it is not wholly owned). As of
December 31, 2004 and 2003 the carrying value of these pledged assets, excluding investment and
advances in subsidiaries, amounted to $1,891.1 million and $1,372.3 million, respectively. The value
of the assets pledged substantially relates to deferred tax assets and intercompany accounts
receivable.
Covenants
The Company is subject to financial covenants in association with the credit facilities. These financial
covenants require the Company to maintain certain debt to EBITDA (as defined in the credit facility
agreement), senior secured debt to EBITDA, interest coverage ratios and fixed charge ratio. The facilities also
contain certain covenants which, among other things, may restrict the Company’s ability to incur additional
debt or liens, pay dividends, repurchase Company common stock, sell, transfer, lease, or dispose of assets and
make investments or merge with another company. If the Company were to violate any of its covenants and
was unable to obtain a waiver, it would be considered a default and no additional borrowings under the credit
facilities would be available until the default was waived or cured. The Company was in compliance with all
covenants set forth in its credit facilities and the indentures governing its other debt as of December 31, 2004.
Events of Default
The credit facilities provide for events of default customary to facilities of this type, including non-
payment of principal, interest or other amounts; incorrectness of representations and warranties in any material
respect; violation of covenants; cross-default and cross-acceleration; certain events of bankruptcy or
insolvency; certain material judgments; invalidity of any loan or security document; change of control and
certain ERISA events.
7
1
⁄ 4 % Senior Notes Due 2023
In July 1993, the Company issued $50.0 million of 7
1
⁄ 4 % Senior notes due 2023 (the “7
1
⁄ 4 % Senior notes
due 2023”). The indenture related to these 7
1
⁄ 4 % Senior notes due 2023 does not subject the Company to
restrictive financial covenants. However, the indenture governing the 7
1
⁄ 4 % Senior notes due 2023 contains a
covenant that provides that if the Company incurs certain liens on its property or assets, the Company must
secure the outstanding notes equally and ratably with the indebtedness or obligations secured by such liens. The
7
1
⁄ 4 % Senior notes due 2023 are collateralized with assets of the Company (but not its subsidiaries) by virtue of
the lien granted under the Company’s credit facilities. As of December 31, 2004, $50.0 million in aggregate
principal amount of the 7
1
⁄ 4 % Senior notes due 2023 remains outstanding. Interest on the 7
1
⁄ 4 % Senior notes due
2023 is payable semi-annually on June 15 and December 15. The 7
1
⁄ 4 % Senior notes due 2023 may not be
redeemed by the Company prior to maturity. The indenture governing 7
1
⁄ 4 % Senior notes due 2023 provides for
an event of default upon the default and acceleration of any other existing debt instrument indebtedness which
exceeds $20.0 million. For each of the years ended December 31, 2004, 2003 and 2002 the Company recorded
$3.6 million of cash interest expense related to the 7
1
⁄ 4 % Senior notes due 2023.
Capital Lease Obligations
The Company leases facilities and equipment used in its operations, some of which are required to be
capitalized in accordance with Statement of Financial Accounting Standards No. 13, “Accounting for Leases”
(“SFAS 13”). SFAS 13 requires the capitalization of leases meeting certain criteria, with the related asset being
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Form 10-K