Cincinnati Bell 2007 Annual Report Download - page 150

For the purposes of consolidated financial reporting, the receivables facility is accounted for as a secured
financing. Because CBF has the ability to prepay the receivables facility at any time by making a cash payment
and effectively repurchasing the receivables transferred pursuant to the facility, the transfers do not qualify for
“sale” treatment on a consolidated basis under SFAS No. 140, “Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities — a replacement of FASB Statement 125.” Based on eligible
receivables at December 31, 2007, the Company’s borrowing limit under the receivables facility was $80 million,
of which the Company had borrowed $75.0 million. Interest on the receivables facility is based on the federal
funds rate plus one-half percent and was $3.4 million for 2007. The average interest rate on the receivables
facility was 5.9% in 2007.
Corporate Credit Facilities
Cincinnati Bell Inc. (“CBI”), the parent company, entered into a new corporate credit facility (“Corporate
credit facility”) in February 2005. The $250.0 million revolving line of credit under the Corporate credit facility
terminates in February 2010. Borrowings under the revolving credit facility bear interest, at the Company’s
election, at a rate per annum equal to (i) LIBOR plus the applicable margin or (ii) the base rate plus the
applicable margin. The applicable margin is based on certain Company financial ratios and ranges between
1.25% and 2.25% for LIBOR rate advances, and 0.25% and 1.25% for base rate advances. Base rate is the higher
of the bank prime rate or the federal funds rate plus one-half percent.
In August 2005, the Company amended the Corporate credit facility to include a $400 million term loan
(“Tranche B Term Loan”). The proceeds from the Tranche B Term Loan and additional borrowings under the
Corporate credit facility were used to retire 16% Senior Subordinated Discount Notes due 2009 (“16% Notes”)
for $447.8 million. The Company recorded a loss on debt extinguishment totaling $91.9 million in 2005 on the
paydown of the 16% Notes, composed of $55.1 million for the premium paid, $27.7 million for the write-off of
the unamortized discount, and $9.1 million for the write-off of the unamortized deferred financing fees. The
Tranche B Term Loan bears interest at a per annum rate equal to, at the Company’s option, LIBOR plus 1.50% or
the base rate plus 0.50%. The original maturity schedule for the Tranche B Term Loan was quarterly principal
payments of $1.0 million beginning December 31, 2005 through September 30, 2011, and then in four quarterly
installments of $94.0 million ending on August 31, 2012. In 2007, the Company repaid $184.0 million of the
Tranche B Term Loan, using proceeds of $75.0 million from borrowings under the receivables facility and the
remainder from available cash. The Company recorded a loss on extinguishment of debt of $0.4 million in 2007
for the repayment of the Tranche B Term Loan. The balance on the Tranche B Term Loan was $211.0 million at
December 31, 2007.
As of December 31, 2007, the Company had $55.0 million outstanding borrowings under its revolving
credit facility, and had outstanding letters of credit totaling $27.1 million, leaving $167.9 million in additional
borrowing availability under its Corporate credit facility. Outstanding letters of credit at December 31, 2007
include one issued for $23.0 million in December 2007 for the benefit of a data center customer. This permits the
customer to draw on the letter of credit if the Company is not able to perform its data center contractual
obligations due to bankruptcy. The Company agreed to issue the letter of credit because the customer prepaid
$21.5 million for data center services.
Voluntary prepayments of the Corporate credit facility and voluntary reductions of the unutilized portion of
the revolving line of credit are permitted at any time at no cost to the Company. The average interest rate charged
on borrowings under the Corporate credit facility was 6.9%, 6.6% and 5.6% in 2007, 2006 and 2005,
respectively. The Company recorded interest expense of $18.8 million, $27.9 million and $9.5 million in 2007,
2006, and 2005, respectively.
Under the Corporate credit facility, the Company pays commitment fees to the lenders on a quarterly basis
related to the Corporate credit facility at an annual rate equal to 0.50% of the unused amount of borrowings on
the revolving line of credit. Additionally, the Company pays letter of credit fees on outstanding letters of credit
based on certain Company financial ratios and ranges between 1.25% and 2.25%. These commitment fees were
$1.3 million, $1.2 million and $1.4 million in 2007, 2006 and 2005, respectively.
The Company and all its future or existing subsidiaries (other than CBT, CBET, CBF and certain immaterial
subsidiaries) guarantee borrowings of Cincinnati Bell Inc. under the Corporate credit facility. Each of the
Company’s current subsidiaries that is a guarantor of the Corporate credit facility is also a guarantor of the 7%
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