Freeport-McMoRan 2008 Annual Report Download - page 84

Notes to Consolidated Financial Statements
82 FREEPORT-McMoRan COPPER & GOLD INC. 2008 Annual Report
for the preceding four quarters cannot exceed 3.0 to 1.0 on the
last day of any fiscal quarter). For the four quarters ended
December 31, 2008, the Total Debt to Consolidated EBITDA ratio
was 1.1 to 1.0 and the Total Secured Debt to Consolidated
EBITDA ratio was 0.07 to 1.0. In January 2009, the facility was
amended to adjust the calculation for Consolidated EBITDA to
reduce the third quarter of 2008 and increase the fourth quarter
of 2008 by $715 million, which is associated with the adjustment
for provisionally priced copper sales from prior periods that
resulted from the decline in copper prices. The amendment
avoids a distortion in the fourth quarter of 2008 Consolidated
EBITDA for purposes of quarterly calculations through third
quarter of 2009. The senior credit facility is guaranteed by certain
wholly owned subsidiaries of FCX and is secured by the
pledge of equity in substantially all of these subsidiary guarantors
and certain other non-guarantor subsidiaries of FCX, and
intercompany indebtedness owed to FCX. Borrowings by FCX
and PT Freeport Indonesia under the $0.5 billion revolver are also
secured with a pledge of 50.1 percent of the outstanding
stock of PT Freeport Indonesia, over 90 percent of the assets of
PT Freeport Indonesia and, with respect to borrowings by
PT Freeport Indonesia, a pledge of the Contract of Work.
During 2007, FCX recorded net charges totaling $154 million
($120 million to net income or $0.30 per diluted share) for early
extinguishment of debt related to the accelerated recognition
of deferred financing costs associated with the repayment of
amounts under the senior credit facility.
Senior Notes. In March 2007, in connection with financing
FCX’s acquisition of Phelps Dodge, FCX sold $3.5 billion of
8.375% Senior Notes due April 2017, $1.5 billion of 8.25% Senior
Notes due April 2015 and $1.0 billion of Senior Floating Rate
Notes due April 2015 for total net proceeds of $5.9 billion. Interest
on the senior notes is payable semiannually on April 1 and
October 1. Interest on the Senior Floating Rate Notes accrues at
six-month LIBOR plus 3.25 percent. The interest rate on the
Senior Floating Rate Notes was 7.08 percent at December 31,
2008. These notes are redeemable in whole or in part, at the
option of FCX, at make-whole redemption prices prior to the
redemption dates, and afterwards at stated redemption prices.
The terms of the agreements allow for optional make-whole
redemptions prior to April 1, 2009, for the Senior Floating Rate
Notes; April 1, 2011, for the 8.25% Senior Notes; and April 1,
2012, for the 8.375% Senior Notes. The indenture governing the
notes contains covenants that include, among others, restrictions
on incurring debt, creating liens, selling assets, making restricted
payments and entering into certain transactions with affiliates.
In April 2008, Standard & Poor’s Rating Services (S&P) and Fitch
Ratings raised FCX’s corporate credit rating and the ratings on
FCX’s unsecured debt to BBB- (investment grade). As a result of
the upgrade by S&P, the restrictions on incurring debt, making
restricted payments and selling assets were suspended. To the
extent the rating is downgraded below investment grade, these
covenants would again become effective.
In February 2004, FCX sold $350 million of 67/8% Senior Notes
due February 2014 for net proceeds of $344 million. Interest on
the notes is payable semiannually on February 1 and August 1.
These notes are redeemable in whole or in part, at the option of
FCX, at stated redemption prices. During 2004, FCX purchased
in open-market transactions $10 million of its 67/8% Senior Notes.
The indenture governing the notes contains covenants that
include, among others, certain restrictions on incurring debt,
creating liens, selling assets, making restricted payments and
entering into certain transactions with affiliates. At the time of
the Phelps Dodge acquisition, the 67/8% Senior Notes received the
benefit of the same guarantees and subsidiary pledges provided
under the FCX senior credit facility. This security could be
released under certain circumstances involving changes in FCX’s
capital structure. As a result of the aforementioned upgrade
to investment grade by S&P, the restrictions on incurring debt,
making restricted payments, selling assets and entering into
certain transactions with affiliates were suspended. To the extent
the rating is downgraded below investment grade, these
covenants would again become effective.
The 9½% Senior Notes due June 2031 and the 8¾% Senior
Notes due June 2011 bear interest payable semiannually on June 1
and December 1. These notes are redeemable in whole or in part,
at the option of FCX, at a make-whole redemption price. In March
2007, in connection with the acquisition of Phelps Dodge, FCX
assumed these senior notes with a stated value of $306 million,
which was increased by $54 million to reflect the fair market
value of these obligations at the acquisition date. The increase in
value is being amortized over the term of the notes and recorded
as a reduction of interest expense. In February 2008, FCX
purchased in an open-market transaction $33 million of the 9½%
Senior Notes for $46 million and recorded charges of $6 million
($5 million to net loss or $0.01 per diluted share). At December 31,
2008, the outstanding principal amount of the 9½% Senior Notes
was $161 million and the 8¾% Senior Notes was $108 million.
The 61/8% Senior Notes due March 2034 bear interest payable
semiannually on March 15 and September 15. These notes are
redeemable in whole or in part, at the option of FCX, at a
make-whole redemption price. In March 2007, in connection with
the acquisition of Phelps Dodge, FCX assumed these senior notes
with a stated value of $150 million, which was reduced by $11
million to reflect the fair market value of these obligations at the
acquisition date. The decrease in value is being amortized over
the term of the notes and recorded as additional interest expense.
During 2007, FCX purchased in an open-market transaction
$26 million of these notes and recorded charges of $2 million
($2 million to net income or less than $0.01 per diluted share). At
December 31, 2008, the outstanding principal amount of these
senior notes was $124 million.