Health Net 2011 Annual Report Download - page 88

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 the Company 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.
As of December 31, 2011, we were in compliance with all covenants under our revolving credit facility.
Letters of Credit
Pursuant to the terms of 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, we had outstanding letters of credit of $59.4 million,
resulting in a maximum amount available for borrowing under our new revolving credit facility of $428.1
million. As of December 31, 2011, no amount had been drawn on the letters of credit. As of February 21, 2012,
we had $112.5 million in borrowings outstanding under our new revolving credit facility.
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
We have issued $400 million in aggregate principal amount of 6.375% Senior Notes due 2017 (the “Senior
Notes”).
The indenture governing the Senior Notes limits our ability to incur certain liens, or consolidate, merge or
sell all or substantially all of our assets. In the event of the occurrence of both (1) a change of control of Health
Net, Inc. and (2) a below investment grade rating by any two of Fitch, Inc., Moody’s Investors Service, Inc. and
Standard & Poor’s Ratings Services, within a specified period, we will be required to make an offer to purchase
the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes plus accrued and unpaid
interest to the date of repurchase. As of December 31, 2011, we were in compliance with all of the covenants
under the indenture governing the Senior Notes.
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