Health Net 2002 Annual Report Download - page 70

68 | HEALTH NET, INC.
The weighted average annual interest rate on our
financing arrangements was approximately 7.6%, 7.1%
and 7.9% for the years ended December 31, 2002, 2001
and 2000, respectively.
Senior Notes Payable
On April 12, 2001, we completed our offering of $400
million aggregate principal amount of 8.375 percent Senior
Notes due in April 2011 at a discount of $1.4 million. The
proceeds, net of discount and other issuance costs, of
$395.1 million from the Senior Notes were used to repay
outstanding borrowings under our then-existing revolving
credit facility. Effective October 4, 2001, we completed an
exchange offer for the Senior Notes in which the
outstanding Senior Notes were exchanged for an equal
aggregate principal amount of new 8.375 percent Senior
Notes due 2011 that have been registered under the
Securities Act of 1933, as amended.
Scheduled principal repayment on the senior notes payable for the next five years is as follows (amounts in thousands):
Contractual Cash Obligations Total 2003 2004 2005 2006 2007 Thereafter
Senior notes $400,000 – – – – – $400,000
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.
Revolving Credit Facility
On June 28, 2001, we entered into credit agreements for two
new revolving syndicated credit facilities with Bank of
America, N.A. as administrative agent, that replaced our
previous credit facility. The new 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. Under the five-year facility, we can obtain 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 additional 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. The five-year credit facility may
be extended at our request under certain circumstances for
up to two twelve-month periods. Swingline loans under the
five-year credit facility are subject to repayment within seven
days. Committed loans under the credit facilities bear interest
at a rate equal to either (1) the greater of the federal funds
rate plus 0.5% and the applicable prime rate or (2) LIBOR
plus a margin that depends on our senior unsecured credit
rating. Loans obtained through the bidding process bear
interest at a rate determined in the bidding process. The credit
agreements provide for acceleration of repayment of indebt-
edness under the credit facilities upon the occurrence of
customary events of default such as failing to pay any prin-
cipal 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-compliance with any material terms of HMO
or insurance regulations 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. As of December 31, 2002, we had no outstanding
balances under these credit facilities. The maximum amount
outstanding under the facilities during 2002 was $120
million and the maximum commitment level is $700 million
as of December 31, 2002. The credit agreements contain
negative covenants, including financial covenants that impose
performance requirements on our operations and other
covenants, including, among other things, limitations on
incurrence of indebtedness by subsidiaries of Health Net,
Inc. As of December 31, 2002, we were in compliance
with the covenants of the credit facilities.
The previous credit facility for $1.5 billion was
established in July 1997 with Bank of America (as
Administrative Agent for the Lenders thereto, as amended
in April, July, and November 1998, March 1999, and
September 2000 (the Amendments)). At our election, and