Virgin Media 2011 Annual Report Download - page 115

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 7—Long Term Debt (continued)
As of December 31, 2011, the remaining discount will be amortized over a period of approximately 5 years.
The amount of interest cost recognized for the contractual interest coupon during the years ended December 31,
2011 and 2010 was approximately £40.5 million and £42.0 million, respectively. The amount of interest cost
recognized for the amortization of the discount on the liability component of the senior convertible notes for the
years ended December 31, 2011 and 2010 was £13.5 million and £12.7 million, respectively.
On October 27, 2010, we entered into capped call option transactions, or conversion hedges, with certain
counterparties relating to our $1.0 billion 6.50% convertible senior notes due 2016. The conversion hedges are
intended to offset a portion of the dilutive effects that could potentially be associated with conversion of the
convertible senior notes at maturity and provide us with the option to receive the number of shares of our
common stock (or in certain circumstances cash) with a value equal to the excess of (a) the value owed by us (up
to the cap price of $35.00 per share) to convertible senior note investors pursuant to the terms of the notes on
conversion of up to 90% of the notes over (b) the aggregate face amount of such converted notes upon maturity
of the convertible senior notes. The conversion hedges also provide various mechanisms for settlement in our
common stock and/or cash in certain circumstances, based primarily on the settlement method elected for the
notes. These conversion hedges have an initial strike price of $19.22 per share of our stock, which is the
conversion price provided under the terms of our convertible senior notes, and a cap price of $35.00 per share of
our stock. We paid £205.4 million in respect of the conversion hedges during the fourth quarter of 2010. The cost
of these transactions was not deductible for U.S. federal income tax purposes, and the proceeds, if any, received
upon exercise of the options will not be taxable for U.S. federal income tax purposes.
The conversion hedges do not qualify for equity classification under the authoritative guidance as there are
potential circumstances in which cash settlement may be required at the discretion of the counterparties. As such,
the fair value of the conversion hedges, which was approximately £138.2 million and £191.9 million as of
December 31, 2011 and 2010, respectively, has been included as a non-current derivative financial asset in the
consolidated balance sheets. The conversion hedges will be recorded at fair value at each reporting period with
changes in fair values reported as a loss (gain) on derivative instruments in the consolidated statement of
operations. Refer to Note 8 for additional discussion of the fair value measurement of the conversion hedges.
Senior Credit Facility
The principal amount outstanding under our senior credit facility at December 31, 2011 was £750.0 million.
Our senior credit facility comprises a term facility denominated in pounds sterling of £750.0 million and a
revolving facility of £450.0 million. At December 31, 2011, £750.0 million of the term facility had been drawn
and £5.8 million of the revolving credit facility had been utilized for bank guarantees and standby letters of
credit.
The term credit facility bears interest at LIBOR, plus a margin currently ranging from 1.625% to 2.125%
based on leverage ratios. The margins on the revolving credit facility range from 1.325% to 1.825% based on
leverage ratios. Interest is payable at least semi-annually. The term credit facility and the revolving credit facility
are repayable in full on their maturity dates, which are June 30, 2015.
On February 15, 2011, we amended our senior credit facility to increase operational flexibility including,
among other things, changing the required level of total net leverage ratio, increasing certain financial
indebtedness baskets, and eliminating certain restrictions on the use of proceeds of secured indebtedness. This
amendment served to modify the amortization schedule by extending £192.5 million of our June 30, 2014
scheduled amortization payment to June 30, 2015.
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