Frontier Communications 2009 Annual Report Download - page 39

liquidation amount of $201.3 million). These securities had 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 were the Partnership Convertible Preferred
Securities, and our Convertible Subordinated Debentures were substantially all the assets of the Partnership.
Our obligations under the agreements relating to the issuances of such securities, taken together, constituted 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 2008 and 2007. 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, 2008, EPPICS representing the total aggregate liquidation preference of $197.8
million have been converted into 15,969,645 shares of our common stock. There were no outstanding EPPICS
as of December 31, 2008 and 2009. As a result of the redemption of all outstanding EPPICS as of December
31, 2008, the $10.5 million in debt with related parties was reclassified by the Company against an offsetting
investment.
Interest Rate Management
On January 15, 2008, we terminated all of our interest rate swap agreements representing $400.0 million
notional amount of indebtedness associated with our 2011 Notes and 2013 Notes. Cash proceeds from the swap
terminations of approximately $15.5 million were received in January 2008. The related gain has been deferred
on the consolidated balance sheet, and is being amortized into interest expense over the term of the associated
debt. We recognized $7.6 million and $5.0 million of deferred gain during 2009 and 2008, respectively, and
anticipate recognizing an additional $1.0 million of deferred gain during 2010. For 2007, the interest expense
resulting from these interest rate swaps totaled approximately $2.4 million. At December 31, 2009 and 2008,
we did not have any derivative instruments.
Credit Facility
As of December 31, 2009, we had an available line of credit under our revolving credit facility with seven
financial institutions in the aggregate amount of $250.0 million and there were no outstanding standby letters of
credit issued under the facility. Associated facility fees vary, depending on our debt leverage ratio, and were
0.225% per annum as of December 31, 2009. The expiration date for this $250.0 million five year revolving
credit agreement is May 18, 2012. During the term of the credit facility we may borrow, repay and reborrow
funds subject to customary borrowing conditions. The credit facility is available for general corporate purposes
but may not be used to fund dividend payments.
Covenants
The terms and conditions contained in our indentures and credit facility agreements include the timely
payment of principal and interest when due, the maintenance of our corporate existence, keeping proper books
and records in accordance with U.S. GAAP, restrictions on liens on our assets, and restrictions on asset sales
and transfers, mergers and other changes in corporate control. We currently have no restrictions on the payment
of dividends either by contract, rule or regulation, other than those imposed by the General Corporation Law of
the State of Delaware. However, we would be restricted under our credit facilities from declaring dividends if
an event of default has occurred and is continuing at the time or will result from the dividend declaration.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES