Health Net 2002 Annual Report Download - page 44

42 | HEALTH NET, INC.
The Senior Notes are redeemable, at our option , at a
price equal to the greater of (A) 100% of the principal
amount of the Senior Notes to be redeemed; (B) and the
sum of the present values of the remaining scheduled
payments on the Senior Notes to be redeemed consisting of
principal and interest, exclusive of interest accrued through
the date of redemption, at the rate in effect on the date of
calculation of the redemption price, discounted to the date
of redemption on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the applicable
treasury yield plus 40 basis points plus accrued interest to
the date of redemption.
On June 28, 2001, we refinanced our previous
$1.5 billion revolving credit facility with credit agreements
for two new revolving syndicated credit facilities, with
Bank of America, N.A. as administrative agent, that
replaced the $1.5 billion credit facility. The new credit
facilities, provide for an aggregate of $700 million in
borrowings, consisting of:
■a $175 million 364-day revolving credit facility; and
■a $525 million five-year revolving credit and competitive
advance facility.
We established the credit facilities to refinance our then-
existing bank debt and for general corporate purposes,
including acquisitions and working capital. The credit facili-
ties allow us to borrow funds:
■by obtaining committed loans from the group of lenders
as a whole on a pro rata basis;
■by obtaining under the five-year facility loans from
individual lenders within the group by way of a
bidding process; and
■by obtaining under the five-year facility letters of credit
in an aggregate amount of up to $200 million.
The 364-day credit facility was amended on June 27,
2002, to extend the existing credit agreement for an addi-
tional 364-day period. We must repay all borrowings
under the 364-day credit facility by June 26, 2003, unless
the Company avails itself of a two-year term-out option in
the 364-day credit facility. The five-year credit facility
expires in June 2006, and we must repay all borrowings
under the five-year credit facility by June 28, 2006, unless
the five-year credit facility is extended. The five-year credit
facility may, at our request and subject to approval by
lenders holding two-thirds of the aggregate amount of the
commitments under the five-year credit facility, be
extended for up to two 12 month periods to the extent of
the commitments made under the five-year credit facility
by such approving lenders. Swingline loans under the five-
year credit facility are subject to repayment within no
more than seven days.
The credit agreements provide for acceleration of
repayment of indebtedness under the credit facilities upon
the occurrence of customary events of default such as
failing to pay any principal or interest when due; providing
materially incorrect representations; failing to observe any
covenant or condition; judgments against us involving in
the aggregate an unsecured liability of $25 million or more
not paid, vacated, discharged, stayed or bonded pending
appeal within 60 days of the final order; our non-compli-
ance with any material terms of HMO or insurance regula-
tions pertaining to fiscal soundness and not cured or
waived within 30 days, solvency or financial condition; the
occurrence of specified adverse events in connection with
any employee pension benefit plan of ours; our failure to
comply with the terms of other indebtedness with an
aggregate amount exceeding $40 million such that the
other indebtedness can be or is accelerated; or a change in
control of the Company.
The maximum amount outstanding under the new
facilities during 2002 was $120 million and the maximum
commitment level was $700 million at December 31, 2002.
The credit agreements contain negative covenants,
including financial covenants, that impose performance
requirements on our operations. The financial covenants in
the credit agreements provide that:
■for any period of four consecutive fiscal quarters, the
consolidated leverage ratio, which is the ratio of (i) our
consolidated funded debt to (ii) our consolidated net
income before interest, taxes, depreciation, amortization
and other specified items (consolidated EBITDA), must
not exceed 3 to 1;
■for any period of four consecutive fiscal quarters, the
consolidated fixed charge coverage ratio, which is the
ratio of (i) our consolidated EBITDA plus consolidated
rental expense minus consolidated capital expenditures
to (ii) our consolidated scheduled debt payments,
(defined as the sum of scheduled principal payments,
interest expense and rent expense) must be at least
1.5 to 1; and
■we must maintain our consolidated net worth at a level
equal to at least $945 million (less the sum of a pretax
charge associated with our sale of the Florida Health
Plan and specified pretax charges relating to the write-off
of goodwill) plus 50% of our consolidated net income
and 100% of our net cash proceeds from equity
issuances.