First Data 2013 Annual Report Download - page 15


The following are certain risks that could affect the Company’s business and its results of operations. The risks identified below are not all
encompassing but should be considered in establishing an opinion of the Company’s future operations.
The Company’s substantial leverage could adversely affect its ability to raise additional capital to fund its operations, limit the Company’s ability to
react to changes in the economy or its industry, expose the Company to interest rate risk to the extent of its variable rate debt and prevent the
Company from meeting its debt obligations.
The Company is highly leveraged. As of December 31, 2013, the Company had $22.7 billion of total debt. The Company’s high degree of leverage
could have important consequences, including:
· increasing the Company’s vulnerability to adverse economic, industry or competitive developments;
· requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on the Company’s
indebtedness, therefore reducing the Company’s ability to use its cash flow to fund the Company’s operations, capital expenditures and future
business opportunities;
· exposing the Company to the risk of increased interest rates because certain of its borrowings, including and most significantly borrowings
under the Company’s senior secured credit facilities, are at variable rates of interest;
· making it more difficult for the Company to satisfy its obligations with respect to its indebtedness, and any failure to comply with the
obligations of any of the Company’s debt instruments, including restrictive covenants and borrowing conditions, could result in an event of
default under the indenture governing the notes and the agreements governing such other indebtedness;
· restricting the Company from making strategic acquisitions or causing the Company to make non-strategic divestitures;
· making it more difficult for the Company to obtain network sponsorship and clearing services from financial institutions or to obtain or retain
other business with financial institutions;
· limiting the Company’s ability to obtain additional financing for working capital, capital expenditures, product development, debt service
requirements, acquisitions and general corporate or other purposes; and
· limiting the Company’s flexibility in planning for, or reacting to, changes in the Company’s business or market conditions and placing the
Company at a competitive disadvantage compared to its competitors who are less highly leveraged and who, therefore, may be able to take
advantage of opportunities that the Company’s leverage prevents it from exploiting.
The Company’s senior secured revolving credit facility has $1,016.2 million in commitments that mature in September 2016. The Company may not
be able to refinance its senior secured credit facilities or its other existing indebtedness because of the Company’s high levels of debt, debt incurrence
restrictions under the Company’s debt agreements or because of adverse conditions in credit markets generally.
Despite the Company’s high indebtedness level, the Company and its subsidiaries still may be able to incur significant additional amounts of debt,
which could further exacerbate the risks associated with the Company’s substantial indebtedness.
The Company and its subsidiaries may be able to incur substantial additional indebtedness in the future. Although the credit agreement governing the
Company’s senior secured credit facilities and the indentures governing the existing senior secured notes, existing senior unsecured notes, existing senior
subordinated notes and the senior PIK notes of First Data Holdings Inc. (“Holdings”) contain restrictions on the incurrence of additional indebtedness, these
restrictions are subject to a number of significant qualifications and exceptions, and under certain circumstances, the amount of indebtedness that could be
incurred in compliance with these restrictions could be substantial. If new debt is added to the Company’s and its subsidiaries’ existing debt levels, the related
risks that the Company will face would increase.
Increase in interest rates may negatively impact the Company’s operating results and financial condition.
Certain of the Company’s borrowings, including borrowings under the Company’s senior secured credit facilities to the extent the interest rate is not
fixed by an interest rate swap, are at variable rates of interest. An increase in interest rates would have a negative impact on the Company’s results of
operations by causing an increase in interest expense.
As of December 31, 2013, the Company had $8.3 billion aggregate principal amount of variable rate long-term indebtedness, of which interest rate
swaps fix the interest rate on $5 billion in notional amount. The Company also had a $750 million fixed to floating swap to preserve the ratio of fixed and
floating rate debt that the Company had prior to the April 2011 debt modification and amendment. As a result, as of December 31, 2013, the impact of a 100
basis point increase in interest rates would increase the
14