Windstream 2014 Annual Report Download - page 138

F-22
Debt Covenants and Amendments
The terms of the credit facility and indentures issued by Windstream Corp. include customary covenants that, among other things,
require Windstream Corp. to maintain certain financial ratios and restrict its ability to incur additional indebtedness. These financial
ratios include a maximum leverage ratio of 4.5 to 1.0 and a minimum interest coverage ratio of 2.75 to 1.0. In addition, the covenants
include restrictions on dividend and certain other types of payments. The terms of the indentures assumed in connection with the
acquisition of PAETEC include restrictions on the ability of the subsidiary to incur additional indebtedness, including a maximum
leverage ratio, with the most restrictive being 4.75 to 1.0.
Certain of Windstream Corp. debt agreements contain various covenants and restrictions specific to the subsidiary that is the legal
counterparty to the agreement. Under its long-term debt agreements, acceleration of principal payments would occur upon payment
default, violation of debt covenants not cured within 30 days, a change in control including a person or group obtaining 50 percent
or more of Windstream Corp.’s outstanding voting stock, or breach of certain other conditions set forth in the borrowing agreements.
At December 31, 2014, Windstream Corp. was in compliance with all debt covenants and restrictions.
Windstream Corp.’s senior secured credit facility and its indentures include maintenance covenants derived from certain financial
measures that are not calculated in accordance with accounting principles generally accepted in the United States (“non-GAAP
financial measures”). These non-GAAP financial measures are presented below for the sole purpose of demonstrating our
compliance with Windstream Corp.’s debt covenants and were calculated as follows at December 31, 2014:
(Millions, except ratios)
Gross leverage ratio:
Long term debt including current maturities $ 8,651.7
Capital leases, including current maturities 52.9
Total long term debt and capital leases $ 8,704.6
Operating income, last twelve months $ 507.1
Depreciation and amortization, last twelve months 1,386.4
Other non-cash and non-recurring expense adjustments required by the credit facility and indentures (a) 248.1
Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) $ 2,141.6
Leverage ratio (b) 4.06
Maximum gross leverage ratio allowed 4.50
Interest coverage ratio:
Adjusted EBITDA $ 2,141.6
Interest expense, last twelve months $ 571.8
Adjustments required by the credit facility and indentures (c) (10.0)
Adjusted interest expense $ 561.8
Interest coverage ratio (d) 3.81
Minimum interest coverage ratio allowed 2.75
(a) Adjustments required by the credit facility and indentures primarily consist of the inclusion of pension and share-based
compensation expense, non-recurring merger, integration and restructuring charges.
(b) The gross leverage ratio is computed by dividing total debt by adjusted EBITDA.
(c) Adjustments required by the credit facility and indentures primarily consist of the inclusion of capitalized interest and
amortization of the discount on long-term debt, net of premiums.
(d) The interest coverage ratio is computed by dividing adjusted EBITDA by adjusted interest expense.