Cogeco 2013 Annual Report Download - page 35

34 COGECO CABLE INC. 2013 Management's discussion and analysis (“MD&A”)
money obligations, existing funded obligations and charges granted by any subsidiary prior to the date when it becomes a subsidiary, subject to
a maximum amount. The provisions under this facility provide for restrictions on the operations and activities of the Corporation. Generally, the
most significant restrictions relate to permitted investments and dividends on multiple and subordinate voting shares, as well as incurrence and
maintenance of certain financial ratios primarily linked to operating income before depreciation and amortization, financial expense and total
indebtedness. At August 31, 2013 and 2012, the Corporation was in compliance with all of its covenants.
On June 27, 2013, the Corporation completed, pursuant to a private placement, the issuance of US$215 million ($225.3 million) Senior Secured
Notes net of transaction costs of $1.5 million, for net proceeds of $223.8 million. The Senior Secured Notes bear interest at 4.30% payable semi-
annually and mature on June 16, 2025. The Senior Secured Notes are redeemable at the Corporation’s option at any time, in whole or in part,
for all of the principal amount plus a make-whole premium. These notes are indirectly secured by a first priority fixed and floating charge and a
security interest on substantially all present and future real and personal property and undertaking of every nature and kind of the Corporation
and certain of its subsidiaries.
On May 28, 2013, the First Lien Credit Facilities were amended. Pursuant to the amendment, US$50 million of the Term Loan A Facility was
converted into the Revolving Facility resulting in amounts borrowed under these two tranches of US$190 million and of US$100 million, respectively,
while the Term Loan B Facility remained the same. Interest rates on the First Lien Credit Facilities are based on LIBOR plus the applicable margin,
with a LIBOR floor for the Term Loan B Facility. The applicable margin was reduced by 0.625% for the Revolving Facility and for the Term Loan
A Facility and by 1.00% for the Term Loan B Facility. In addition, the LIBOR floor for the Term Loan B Facility was reduced from 1.00% to 0.75%.
All other terms and conditions remained the same. In connection with the amendment, transaction costs of US$6.2 million were incurred. In
connection with the acquisition of Atlantic Broadband on November 30, 2012, the Corporation initially concluded, through two of its United States
subsidiaries, First Lien Credit Facilities totaling US$710 million in three tranches for net proceeds of US$641.5 million net of transaction costs of
US$18.5 million. The first tranche, a Term Loan A Facility will mature on November 30, 2017, the second tranche, a Term Loan B Facility will
mature on November 30, 2019 and the third tranche, a Revolving Credit Facility will mature on November 30, 2017. Effective from December 31,
2013, the Term Loan A Facility is subject to quarterly amortization of US$3 million in the first year, US$6 million in the second year and US$7.2
million in the third and fourth years. Effective on December 31, 2012, the Term Loan B Facility is subject to quarterly amortization of 0.25% until
its maturity date. In addition to the fixed amortization schedule and commencing in the first quarter of fiscal 2015, loans under the Term Loan
Facilities shall be prepaid according to a prepayment percentage of excess cash flow generated during the prior fiscal year. The First Lien Credit
Facilities are non-recourse to the Corporation, its Canadian subsidiaries and PEER 1's subsidiaries and are indirectly secured by a first priority
fixed and floating charge on substantially all present and future real and personal property and undertaking of every nature and kind of Atlantic
Broadband and its subsidiaries. The provisions under these facilities provide for restrictions on the operations and activities of Atlantic Broadband
and its subsidiaries. Generally, the most significant restrictions relate to permitted indebtedness, investments, distributions and maintenance of
certain financial ratios.
On May 27, 2013, Cogeco Cable completed pursuant to a public debt offering, the issue of $300 million Senior Secured Debentures Series “4” (the
“Debentures”) for net proceeds of $296.9 million, net of transaction costs of $3.1 million. These Debentures mature on May 26, 2023 and bear
interest at 4.175% per annum payable semi-annually. These Debentures are indirectly secured by a first priority fixed and floating charge and a
security interest on substantially all present and future real and personal property and undertaking of every nature and kind of the Corporation
and its subsidiaries except for Atlantic Broadband and certain immaterial subsidiaries (the "unrestricted subsidiaries"). The provisions under these
Debentures provide for restrictions on the operations and activities of Cogeco Cable and its subsidiaries except for the unrestricted subsidiaries.
Generally, the most significant restrictions relate to permitted indebtedness, dispositions and maintenance of certain financial ratios.
On April 23, 2013, Cogeco Cable completed a private placement of $410.4 million (US$400 million) aggregate principal amount of Senior Unsecured
Notes (the “2020 Notes”) for net proceeds of $402.5 million (US$392.4 million) net of transaction costs of $7.9 million (US$7.6 million). These
2020 Notes mature on May 1, 2020 and bear interest at 4.875% per annum payable semi-annually. These 2020 Notes are guaranteed on a senior
unsecured basis, jointly and severally, by its subsidiaries except for the unrestricted subsidiaries. The provisions under these 2020 Notes provide
for restrictions on the operations and activities of Cogeco Cable and its subsidiaries except for the unrestricted subsidiaries. Generally, the most
significant restrictions relate to permitted indebtedness, investments and distributions.
On July 5, 2013, the Corporation reduced the Revolving Facility of its Secured Credit Facilities from $240 million to $190 million. On April 23,
2013, Cogeco Cable reimbursed the Canadian Term Facility of $175 million and the US Term Facility of US$225 million in connection with the
financing for the acquisition of PEER 1. As a result of the acquisition of PEER 1 on January 31, 2013, the Corporation concluded Secured Credit
Facilities totaling approximately $650 million with a syndicate of lenders in four tranches for net proceeds of $640.3 million net of transaction
costs of $2.8 million. The first tranche, a Canadian Term Facility amounted to $175 million, the second tranche, a US Term Facility amounted to
US$225 million, the third tranche, a Revolving Facility of $240 million and the fourth tranche being, a UK Revolving Facility of £7 million. The
Revolving Facility is available in Canadian dollars, US dollars, British Pounds and Euros and interest rates are based on Bankers' Acceptance,
LIBOR Loans in US dollars, British Pounds or Euros, Prime Rate Loans or US Base Rate Loans, plus the applicable margin. The UK Revolving
Facility is available in British Pounds and interest rates are based on British Pounds Base Rate Loans or British Pounds LIBOR Loans. The
Secured Credit Facilities will mature on January 27, 2017. The Secured Credit Facilities are indirectly secured by a first priority fixed and floating
charge on substantially all present and future real and personal property and undertaking of every nature and kind of the Corporation and most
of its subsidiaries except for the unrestricted subsidiaries, and provides for certain permitted encumbrances, including purchase money obligations,
existing funded obligations and charges granted by any subsidiary prior to the date when it becomes a subsidiary, subject to a maximum amount.
The provisions under this facility provide for restrictions on the operations and activities of the Corporation but do not cover the unrestricted
subsidiaries. Generally, the most significant restrictions relate to permitted investments and dividends on multiple and subordinate voting shares,
as well as incurrence and maintenance of certain financial ratios primarily linked to operating income before depreciation and amortization,
financial expense and total indebtedness.
As at August 31, 2013, the Corporation had a working capital deficiency of $224.2 million compared to $17.2 million at August 31, 2012. The
increase of $207.0 million in the deficiency is mainly due to the decrease of $175.8 million in cash and cash equivalents, primarily used for the
acquisition of Atlantic Broadband. The deficiency was also impacted by an increase of $40.7 million in trade and other payables and by an increase
of $13.6 million in deferred and prepaid revenue, partly offset by an increase of $18.6 million in trade and other receivables. As part of the usual
conduct of its business, Cogeco Cable maintains a working capital deficiency due to a low level of accounts receivable as a large portion of the
Corporation’s customers pay before their services are rendered, unlike trade and other payables, which are paid after products are delivered or
services are rendered, thus enabling the Corporation to use cash and cash equivalents to reduce Indebtedness.