Cricket Wireless 2011 Annual Report Download - page 129

LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of the purchase price, Cricket issued a five-year $45.5 million non-negotiable promissory note in favor of the
former holder of such controlling membership interest, which matures on December 27, 2015. Interest on the
outstanding principal balance of the note varies from year to year at rates ranging from approximately 5.0% to
8.3% and compounds annually. Under the note, Cricket is required to make principal payments of $8.5 million
per year, with the remaining principal balance and all accrued interest payable at maturity. Cricket’s obligations
under the note are secured on a first-lien basis by certain assets of Savary Island. On May 4, 2011, Cricket
prepaid approximately $15.1 million in principal amount of the note. As of December 31, 2011 and
December 31, 2010, $21.9 million and $45.5 million in principal amount of indebtedness was outstanding under
the note, respectively.
On November 3, 2011, Savary Island entered into a license purchase agreement with Verizon Wireless, as
further discussed in Note 6, in which Savary Island has agreed to sell certain AWS spectrum in various markets
to Verizon Wireless for $172 million. Certain of the spectrum Savary Island has agreed to sell to Verizon
Wireless is secured by a lien in favor of the holder of the non-negotiable promissory note. Accordingly, in
connection with the closing of the Verizon Wireless transaction, the Company expects to repay the balance of the
non-negotiable promissory note in full. The closing of the Verizon Wireless transaction is subject to customary
closing conditions, including the consent of the FCC. As the Company expects that the closing of the transaction
will occur within a year, it has classified the entire balance of the non-negotiable promissory note as current
maturities of long-term debt on its consolidated balance sheet as of December 31, 2011.
Senior Secured Notes Due 2016
In June 2009, Cricket issued $1,100 million of 7.75% senior secured notes due 2016 in a private placement
to institutional buyers at an issue price of 96.134% of the principal amount, which notes were exchanged in
December 2009 for identical notes that had been registered with the SEC. The $42.5 million discount to the net
proceeds the Company received in connection with the issuance of the notes has been recorded in long-term debt
in the consolidated financial statements and is being accreted as an increase to interest expense over the term of
the notes. At December 31, 2011, the effective interest rate on the notes was 7.96%, which includes the effect of
the discount accretion.
The notes bear interest at the rate of 7.75% per year, payable semi-annually in cash in arrears, which interest
payments commenced in November 2009. The notes are guaranteed on a senior secured basis by Leap and each
of its existing and future domestic subsidiaries (other than Cricket, which is the issuer of the notes) that
guarantees any indebtedness of Leap, Cricket or any subsidiary guarantor. The notes and the guarantees are
Leap’s, Cricket’s and the guarantors’ senior secured obligations and are equal in right of payment with all of
Leap’s, Cricket’s and the guarantors’ existing and future unsubordinated indebtedness.
The notes and the guarantees are effectively senior to all of Leap’s, Cricket’s and the guarantors’ existing
and future unsecured indebtedness (including Cricket’s $1,900 million aggregate principal amount of unsecured
senior notes and, in the case of Leap, Leap’s $250 million aggregate principal amount of convertible senior
notes), as well as to all of Leap’s, Cricket’s and the guarantors’ obligations under any permitted junior lien debt
that may be incurred in the future, in each case to the extent of the value of the collateral securing the senior
secured notes and the guarantees.
The notes and the guarantees are secured on a pari passu basis with all of Leap’s, Cricket’s and the
guarantors’ obligations under any permitted parity lien debt that may be incurred in the future. Leap, Cricket and
the guarantors are permitted to incur debt under existing and future secured credit facilities in an aggregate
principal amount outstanding (including the aggregate principal amount outstanding of the senior secured notes)
of up to the greater of $1,500 million and 2.5 times Leap’s consolidated cash flow (excluding the consolidated
cash flow of Savary Island, STX Wireless and Cricket Music) for the prior four fiscal quarters.
119