Earthlink 2015 Annual Report Download - page 80

Table of Contents
EARTHLINK HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Senior Secured Notes due June 2020
General . In May 2013, the Company completed a private placement of $300.0 million aggregate principal amount of 7.375% Senior Secured Notes due 2020 (the
“Senior Secured Notes”). The Senior Secured Notes were issued at 100% of their principal amount, resulting in gross proceeds of approximately $300.0 million
and net proceeds of $292.6 million after deducting transaction fees and expenses of $7.4 million . The transaction fees and expenses are classified as a direct
deduction of long-term debt and capital lease obligations in the Consolidated Balance Sheet and are being amortized to interest expense on a straight-line basis over
the life of the Senior Secured Notes. The effective interest rate of the Senior Secured Notes is 7.73% , which includes the stated interest rate and the transaction
fees and expenses. In August 2013, in accordance with the registration rights granted to the original purchasers of the Senior Secured Notes, the Company
completed an exchange offer of the privately placed Senior Secured Notes for new 7.375% Senior Secured Notes due 2020 registered with the Securities and
Exchange Commission ("SEC") with substantially identical terms to the original Senior Secured Notes.
The Senior Secured Notes accrue interest at a rate of 7.375% per year, payable on June 1 and December 1 of each year, commencing on December 1, 2013. The
Senior Secured Notes mature on June 1, 2020. No principal amount is due until June 1, 2020.
Redemption . The Company may redeem the Senior Secured Notes, in whole or in part, (i) from June 1, 2016 until May 31, 2017 at a price equal to 105.531% of
the principal amount of the Senior Secured Notes redeemed; (ii) from June 1, 2017 until May 31, 2018 at a price equal to 103.688% of the principal amount of the
Senior Secured Notes redeemed; (iii) from June 1, 2018 until May 31, 2019 at a price equal to 101.844% of the principal amount of the Senior Secured Notes
redeemed; and (iv) from June 1, 2019 and thereafter at a price equal to 100% of the principal amount of the Senior Secured Notes redeemed, in each case plus
accrued and unpaid interest. Prior to June 1, 2016, the Company may also redeem the Senior Secured Notes, in whole or in part, at a price equal to 100% of the
aggregate principal amount of the Senior Secured Notes to be redeemed plus a make-whole premium and accrued and unpaid interest. In addition, prior to June 1,
2016, the Company may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes with the net cash proceeds of certain equity offerings at
a price equal to 107.375% of the principal amount of the Senior Secured Notes redeemed, plus accrued and unpaid interest.
Ranking and Guaranty . The Senior Secured Notes and the related guarantees of certain of the Company’s wholly-owned subsidiaries (the “Guarantors”) senior
secured obligations and rank equally with all of the Company's and the Guarantors' other senior secured indebtedness. The Senior Secured Notes and the guarantees
are secured by a first-priority lien on substantially all of EarthLink's assets and the assets of the Guarantors (subject to certain exceptions and permitted liens).
Covenants . The indenture governing the Senior Secured Notes includes covenants which, subject to certain exceptions, limit the ability of the Company and its
Restricted Subsidiaries (as defined in the indenture) to, among other things, incur additional indebtedness, make certain types of restricted payments, create liens,
transfer and sell assets, enter into certain transactions with affiliates, issue or sell stock of subsidiaries, engage in sale-leaseback transactions and create restrictions
on dividends or other payments by restricted subsidiaries. Upon a change of control (as defined in the indenture), the Company may be required to make an offer to
repurchase the Senior Secured Notes at 101% of their principal amount, plus accrued and unpaid interest. The indenture governing the Senior Secured Notes also
contains customary events of default. As of December 31, 2015 , the Company was in compliance with these covenants.
The indenture governing the Senior Secured Notes contains covenants regarding the Company's ability to make Restricted Payments (as defined in the indenture),
including certain dividends, stock purchases, debt repayments and investments. As of December 31, 2015 , the indenture governing the Company's Senior Secured
Notes permitted approximately $134.5 million in Restricted Payments. The Company's ability to make Restricted Payments varies over time, and is determined, in
part, by the extent that the Company's cumulative EBITDA exceeds 300% of its cumulative interest expense.
Senior Notes due May 2019
General. In May 2011, the Company completed a private placement of $300.0 million aggregate principal amount of Senior Notes. The Senior Notes were issued
at 96.555% of their principal amount, resulting in gross proceeds of approximately $289.7 million and net proceeds of $280.2 million after deducting transaction
fees of $9.5 million . The effective interest rate of the Senior Notes is 9.83% , which includes the stated interest rate, the original issue discount and the transaction
fees. In September 2011, in accordance with the registration rights granted to the original purchasers of the Senior Notes, the Company completed an exchange
offer of the privately placed Senior Notes for new 8.875% Senior Notes due 2019 registered with the SEC with substantially identical terms to the original Senior
Notes.
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