HR Block 2007 Annual Report Download - page 69

residual interests are classified as available-for-sale securities. AFS returning the purchased loans to us under certain conditions. We may
residual interests retained from NIM securitizations may also be sold in recognize losses as a result of the repurchase of loans under these
a subsequent securitization or sale transaction. arrangements. We maintain reserves for the repurchase of loans based
In connection with the sale of mortgage loans, we provide certain on historical trends. See Item 8, note 20 to our consolidated financial
representations and warranties allowing the purchaser the option of statements.
COMMERCIAL PAPER ISSUANCE
We participate in the U.S. and Canadian commercial paper (CP) markets March 1 to June 30 of each year (the ‘‘Cleandown Requirement’’). We
to meet daily cash needs. CP is issued by BFC and Block Canada, obtained a waiver of the Cleandown Requirement for 2007. See Item 8,
wholly-owned subsidiaries of the Company. The following chart note 8 to the consolidated financial statements for additional
provides the debt ratings for BFC as of April 30, 2007: information.
We entered into a $3.0 billion line of credit agreement with HSBC
Short-term Long-term Outlook
Finance Corporation effective January 2, 2007 for use as a funding
Fitch F1 AStable
source for the purchase of RAL participations. This line was secured by
Moody’s P2 A3 Negative
our RAL participations. All borrowings on this facility were repaid as of
S&P A2 BBB+ Negative
April 30, 2007 and the facility is now closed.
DBRS R-1 (low) A Stable
We entered into a $300.0 million committed line of credit agreement
The following chart provides the debt ratings for Block Canada as of with BNP Paribas for the period January 2 through February 23, 2007 to
April 30, 2007: cover our peak liquidity needs. Both the HSBC and BNP Paribas lines
were subject to various covenants that were similar to our primary
Short-term Long-term Outlook
unsecured CLOCs. This facility expired in February 2007.
DBRS R-1 (low) A Stable
These facilities were undrawn at April 30, 2007. There are no rating
We use capital primarily to fund working capital requirements, pay contingencies under the CLOCs.
dividends, repurchase our shares and acquire businesses. Commercial The Canadian issuances are supported by a credit facility provided by
41 m
paper borrowings peaked at $2.0 billion in January 2007 related to one bank in an amount not to exceed $225.0 million (Canadian). The
working capital needs and funding of our participation interests in Canadian CLOC is subject to annual renewal in November 2007. This
IMALs. As of April 30, 2007, outstanding CP totaled $1.0 billion. No CP CLOC was undrawn at April 30, 2007.
was outstanding at April 30, 2006. We believe the CP market to be stable. Risks to the stability of our CP
U.S. CP issuances are supported by $2.0 billion in unsecured market participation would be a short-term rating downgrade, adverse
committed lines of credit (CLOCs), which mature in August 2010 and changes in our financial performance, non-renewal or termination of the
have an annual facility fee of eight and one-half basis points per annum. CLOCs, adverse publicity and operational risk. We believe if any of
These lines are subject to various affirmative and negative covenants, these events were to occur, the CLOCs, to the extent available, could be
including a minimum net worth covenant. In addition, the CLOCs used for an orderly exit from the CP market, though at a higher cost to
require that we reduce the aggregate outstanding principal amount of us. Additionally, we could turn to other sources of liquidity, including
short-term debt, as defined in the agreement, to $200.0 million or less cash, debt issuance and asset sales or securitizations.
for a minimum period of thirty consecutive days during the period from
H&R BLOCK 2007 Form 10K