Frontier Communications 2006 Annual Report Download - page 26

CITIZENS COMMUNICATIONS COMPANY AND SUBSIDIARIES
$27.6 million per year. See the discussion below concerning EPPICS conversions for further information
regarding the issuance of common stock.
We may from time to time repurchase our debt in the open market, through tender offers, exchanges of debt
securities, by exercising rights to call or privately negotiated transactions. We may also exchange existing debt
for newly issued debt obligations.
Issuance of Debt Securities
On December 22, 2006, we issued in a private placement, $400.0 million principal amount of 7.875%
Senior Notes due January 15, 2027. Proceeds from the sale are expected to be used to partially finance our
acquisition of Commonwealth or if the acquisition is not completed, to purchase, redeem or otherwise retire a
portion of our outstanding debt. We have agreed to file with the SEC a registration statement for the purpose of
exchanging these notes for registered notes.
In December 2006, we borrowed $150.0 million under a senior unsecured term loan agreement. The loan
matures in 2012 and bears interest based on an average prime rate or London Interbank Offered Rate or LIBOR,
at our election plus a margin which varies depending on our debt leverage ratio. We intend to use the proceeds to
repurchase a portion of our outstanding debt or to partially finance our acquisition of Commonwealth.
EPPICS
In 1996, our consolidated wholly owned subsidiary, Citizens Utilities Trust (the Trust), issued, in an
underwritten public offering, 4,025,000 shares of 5% Company Obligated Mandatorily Redeemable Convertible
Preferred Securities due 2036 (Trust Convertible Preferred Securities or EPPICS), representing preferred
undivided interests in the assets of the Trust, with a liquidation preference of $50 per security (for a total
liquidation amount of $201.3 million). These securities have an adjusted conversion price of $11.46 per share of
our common stock. The conversion price was reduced from $13.30 to $11.46 during the third quarter of 2004 as a
result of the $2.00 per share of common stock special, non-recurring dividend. The proceeds from the issuance of
the Trust Convertible Preferred Securities and a Company capital contribution were used to purchase $207.5
million aggregate liquidation amount of 5% Partnership Convertible Preferred Securities due 2036 from another
wholly owned consolidated subsidiary, Citizens Utilities Capital L.P. (the Partnership). The proceeds from the
issuance of the Partnership Convertible Preferred Securities and a Company capital contribution were used to
purchase from us $211.8 million aggregate principal amount of 5% Convertible Subordinated Debentures due
2036. The sole assets of the Trust are the Partnership Convertible Preferred Securities, and our Convertible
Subordinated Debentures are substantially all the assets of the Partnership. Our obligations under the agreements
relating to the issuances of such securities, taken together, constitute a full and unconditional guarantee by us of
the Trust’s obligations relating to the Trust Convertible Preferred Securities and the Partnership’s obligations
relating to the Partnership Convertible Preferred Securities.
In accordance with the terms of the issuances, we paid the annual 5% interest in quarterly installments on
the Convertible Subordinated Debentures in 2006, 2005 and 2004. Cash was paid (net of investment returns) to
the Partnership in payment of the interest on the Convertible Subordinated Debentures. The cash was then
distributed by the Partnership to the Trust and then by the Trust to the holders of the EPPICS.
As of December 31, 2006, EPPICS representing a total principal amount of $193.9 million have been
converted into 15.6 million shares of our common stock, and a total of $7.4 million remains outstanding to third
parties. Our long-term debt footnote indicates $17.9 million of EPPICS outstanding at December 31, 2006, of
which $10.5 million is debt of related parties for which we have an offsetting receivable.
Interest Rate Management
In order to manage our interest expense, we have entered into interest rate swap agreements. Under the
terms of these agreements, we make semi-annual, floating rate interest payments based on six month LIBOR and
receive a fixed rate on the notional amount. The underlying variable rate on these swaps is set either in advance
or in arrears.
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