Health Net 2011 Annual Report Download - page 132

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The interest rate payable on the new credit facility is based on the consolidated leverage ratio of the
Company as defined in the new credit facility; however, until the Company delivers a compliance certificate for
the fiscal quarter ending March 31, 2012, the Company will pay, at the Company’s option, either (a) the base rate
(which is a rate per annum equal to the greatest of (i) the federal funds rate plus one-half of one percent, (ii) Bank
of America, N.A.’s “prime rate” and (iii) the Eurodollar Rate (as such term is defined in the new credit facility)
for a one-month interest period plus one percent) plus an applicable margin of 87.5 basis points or (b) the
Eurodollar Rate plus an applicable margin of 187.5 basis points. Following the Company’s delivery of a
compliance certificate for the fiscal quarter ending March 31, 2012, the applicable margins are subject to
adjustment according to our consolidated leverage ratio, as specified in the new credit facility.
Our new revolving credit facility includes, among other customary terms and conditions, limitations (subject
to specified exclusions) on our and our subsidiaries’ ability to incur debt; create liens; engage in certain mergers,
consolidations and acquisitions; sell or transfer assets; enter into agreements which restrict the ability to pay
dividends or make or repay loans or advances; make investments, loans, and advances; engage in transactions
with affiliates; and make dividends. In addition, we are required to be in compliance at the end of each fiscal
quarter with a specified consolidated leverage ratio and consolidated fixed charge coverage ratio.
Our new revolving credit facility contains customary events of default, including nonpayment of principal
or other amounts when due; breach of covenants; inaccuracy of representations and warranties; cross-default and/
or cross-acceleration to other indebtedness of the Company or our subsidiaries in excess of $50 million; certain
ERISA-related events; noncompliance by the Company or any of our subsidiaries with any material term or
provision of the HMO Regulations or Insurance Regulations (as each such term is defined in the new credit
facility) in a manner that could reasonably be expected to result in a material adverse effect; certain voluntary
and involuntary bankruptcy events; inability to pay debts; undischarged, uninsured judgments greater than $50
million against us and/or our subsidiaries which are not stayed within 60 days; actual or asserted invalidity of any
loan document; and a change of control. If an event of default occurs and is continuing under the new revolving
credit facility, the lenders thereunder may, among other things, terminate their obligations under the facility and
require us to repay all amounts owed thereunder.
Letters of Credit
Pursuant to the terms of each of our previous revolving credit facility and our new revolving credit facility,
we can obtain letters of credit in an aggregate amount of $400 million and the maximum amount available for
borrowing is reduced by the dollar amount of any outstanding letters of credit. As of December 31, 2011 and
2010, we had outstanding letters of credit of $59.4 million and $249.1 million, respectively, resulting in a
maximum amount available for borrowing under our new revolving credit facility of $428.1 million and under
our previous revolving credit facility of $650.9 million. As of December 31, 2011 and 2010, no amounts had
been drawn on any of these letters of credit.
Termination of Amortizing Financing Facility
On May 26, 2010, we terminated our five-year non-interest bearing, $175 million amortizing financing
facility with a non-U.S. lender that we entered into on December 19, 2007 by exercising our option to call the
facility. In connection with the call, we recorded a $3.5 million pretax early debt extinguishment charge in the
quarter ended June 30, 2010.
Senior Notes
In 2007 we issued $400 million in aggregate principal amount of 6.375% Senior Notes due 2017 (Senior
Notes). The indenture governing the Senior Notes limits our ability to incur certain liens, or consolidate, merge
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