Waste Management 2007 Annual Report Download - page 114

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Debt Covenants
Our revolving credit facility and certain other financing agreements contain financial covenants. The most
restrictive of these financial covenants are contained in our revolving credit facility. The following table sum-
marizes the requirements of these financial covenants and the results of the calculation, as defined by the revolving
credit facility:
Covenant
Requirement
per
Facility
December 31,
2007
December 31,
2006
Interest coverage ratio .......................... ⬎2.75 to 1 4.1 to 1 3.6 to 1
Total debt to EBITDA .......................... ⬍3.5 to 1 2.4 to 1 2.5 to 1
Our revolving credit facility and senior notes also contain certain restrictions intended to monitor our level of
indebtedness, types of investments and net worth. We monitor our compliance with these restrictions, but do not
believe that they significantly impact our ability to enter into investing or financing arrangements typical for our
business. As of December 31, 2007, we were in compliance with the covenants and restrictions under all of our debt
agreements.
Interest rate swaps
We manage the interest rate risk of our debt portfolio largely by using interest rate derivatives to achieve a
desired position of fixed and floating rate debt. As of December 31, 2007, the interest payments on $2.1 billion of
our fixed rate debt have been swapped to variable rates, allowing us to maintain approximately 66% of our debt at
fixed interest rates and approximately 34% of our debt at variable interest rates. We do not use interest rate
derivatives for trading or speculative purposes. Our significant interest rate swap agreements that were outstanding
as of December 31, 2007 and 2006 are set forth in the table below (dollars in millions):
As of
Notional
Amount Receive Pay Maturity Date
Fair Value
Net
Liability(a)
December 31, 2007. . $2,100 Fixed 5.00%-7.65% Floating 4.50%-9.09% Through December 15, 2017 $ (28)(b)
December 31, 2006. . $2,350 Fixed 5.00%-7.65% Floating 5.16%-9.75% Through December 15, 2017 $(118)(c)
(a) These interest rate derivatives qualify for hedge accounting. Therefore, the fair value adjustments to the
underlying debt are deferred and recognized as an adjustment to interest expense over the remaining term of the
hedged instrument.
(b) The fair value for these interest rate derivatives is comprised of $5 million of long-term assets, $4 million of
current liabilities and $29 million of long-term liabilities.
(c) The fair value for these interest rate derivatives is comprised of $3 million of current liabilities and $115 million
of long-term liabilities.
Fair value hedge accounting for interest rate swap contracts increased the carrying value of debt instruments by
$72 million as of December 31, 2007 and $19 million as of December 31, 2006. The following table summarizes the
79
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)