FairPoint Communications 2007 Annual Report Download - page 70

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Table of Contents
 
As of December 31, 2007, approximately 89% of our indebtedness bore interest at fixed rates or effectively at fixed rates. Our
earnings are affected by changes in interest rates as our long-term indebtedness under our existing credit facility has variable interest rates
based on either the prime rate or LIBOR. If interest rates on our variable rate indebtedness (excluding variable rate indebtedness which has
its interest rate effectively fixed under interest rate swap agreements) outstanding at December 31, 2007 increased by 10%, our interest
expense would have increased, and our income from continuing operations before taxes would have decreased, by approximately
$0.1 million for the year ended December 31, 2007.
We have entered into interest rate swaps to manage our exposure to fluctuations in interest rates on our variable rate indebtedness.
The fair value of these swaps was a net liability of approximately $34.1 million at December 31, 2007. The fair value indicates an
estimated amount we would have paid to cancel the contracts or transfer them to other parties.
Subsequent to December 31, 2007, we entered into two additional swap agreements that are contingent on the merger. One swap
agreement is for a notional amount of $300 million at a rate of 4.49% (or 6.24% including the applicable margin). This agreement is
effective as of December 31, 2010 and expires on December 31, 2012. The second swap agreement is for a notional amount of
$250 million at a rate of 3.25% (or 5.00% including the applicable margin). This agreement expires on December 31, 2010.
Subsequent to December 31, 2007, events in the global credit markets have impacted the expectation of near-term variable borrowing
rates. As a result, we have experienced an adverse impact to the fair value liability of our interest rate swaps. As of February 15, 2008, the
fair value liability has increased approximately $24.3 million from a balance of $34.1 million as of December 31, 2007 to $58.4 million
as of February 15, 2008.
We use variable and fixed-rate debt to finance our operations, capital expenditures and acquisitions. The variable-rate debt
obligations expose us to variability in interest payments due to changes in interest rates. We believe it is prudent to limit the variability of a
portion of our interest payments. To meet this objective, we enter into interest rate swap agreements to manage fluctuations in cash flows
resulting from interest rate risk. These swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows.
Under the terms of the interest rate swaps, we pay a variable interest rate plus an additional payment if the variable rate payment is below
a contractual rate, or we receive a payment if the variable rate payment is above the contractual rate. The chart below provides details of
each of our interest rate swap agreements as of December 31, 2007.

    
February 8, 2005 $ 130.0 Million 3.98% 5.73% December 31, 2008
February 8, 2005 $ 130.0 Million 4.11% 5.86% December 31, 2009
April 29, 2005 $ 50.0 Million 4.72% 6.47% March 31, 2012
June 30, 2005 $ 50.0 Million 4.69% 6.44% March 31, 2011
June 30, 2006 $ 50.0 Million 5.36% 7.11% December 31, 2009
December 31, 2007 $ 65.0 Million 4.91% 6.66% December 30, 2011
December 31, 2007 $ 75.0 Million 5.46% 7.21% December 31, 2010
December 31, 2008 $ 100.0 Million 5.02% 6.77% December 31, 2010
December 31, 2009 $ 150.0 Million 5.65% 7.40% December 31, 2011
June 30, 2008* $ 100.0 Million 4.99% 6.74% December 30, 2010
June 30, 2008* $ 100.0 Million 4.95% 6.70% June 30, 2010
June 30, 2008* $ 100.0 Million 5.45% 7.20% December 31, 2010
June 30, 2008* $ 100.0 Million 5.30% 7.05% December 30, 2010
June 30, 2008* $ 100.0 Million 4.50% 6.25% December 31, 2010
June 30, 2008* $ 100.0 Million 4.50% 6.25% December 31, 2010
* Contingent upon the closing of the transactions.
68