American Home Shield 2008 Annual Report Download - page 107

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 14. Long-Term Debt (Continued)
The Term Facilities will mature on July 24, 2014. The interest rates applicable to the loans under the Term Facilities are based on a fluctuating rate of
interest measured by reference to either, at ServiceMaster's option, (i) an adjusted London inter-bank offered rate (adjusted for maximum reserves), plus a
borrowing margin (as of December 31, 2008—2.50%), or (ii) an alternate base rate, plus a borrowing margin (as of December 31, 2008—1.50%). The
borrowing margin, in each case, will be adjusted from time to time based on the Consolidated Secured Leverage Ratio (as defined in the Term Facilities
agreement) for the previous fiscal quarter.
In August 2007, the Company entered into three, 3-year interest rate swap agreements, effective September 4, 2007. The total notional amount of the
agreements was $530 million. Under the terms of the agreements, the Company will pay a weighted average fixed rate of interest of approximately 5.05% on
the $530 million notional amount and the Company will receive a floating rate of interest (based on the one month LIBOR) on the notional amount.
Therefore, the effective interest rate for $530 million of the term loans is fixed at approximately 7.55%, including the borrowing margin described above as of
December 31, 2008.
In February 2008, the Company entered into two, 3-year interest rate swap agreements and one 4-year interest rate swap agreement, effective March 3,
2008. The total notional amount of the 3-year agreements was $250 million and the total notional amount of the 4-year swap agreement was $250 million.
Under the terms of the agreements, the Company will pay a weighted average fixed rate of interest of approximately 3.15% on the $250 million notional
amount of 3-year swap agreements and 3.48% on the 4-year swap agreement. The Company will receive a floating rate of interest (based on three month
LIBOR) on the notional amount. Therefore, the effective interest rate for $500 million of the term loans is fixed at a rate between 5.65% and 5.98%, including
the borrowing margin as of December 31, 2008.
In August 2008, the Company entered into two 3-year interest rate swap agreements effective September 2, 2008. The total notional amount of the swap
agreements was $200 million. Under the terms of the agreements, the Company will pay a weighted average fixed rate of interest of approximately 3.83% on
the $200 million notional amount of the swap agreements. The Company will receive a floating rate of interest (based on one month LIBOR) on the notional
amount. Therefore, the effective interest rate for $200 million of the term loans is fixed at a rate of approximately 6.33%, including the borrowing margin as
of December 31, 2008.
In September 2008, the Company entered into a 4-year interest rate swap agreement effective October 1, 2008. The notional amount of the swap
agreement was $200 million. Under the terms of the agreement, the Company will pay a weighted average fixed rate of interest of 3.53% on the $200 million
notional amount of the swap agreement. The Company will receive a floating rate of interest (based on one month LIBOR) on the notional amount. Therefore,
the effective interest rate for $200 million of the term loans is fixed at a rate of approximately 6.03%, including the borrowing margin as of December 31,
2008.
In accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", the Company's interest rate swap agreements are
classified as cash flow hedges and, as such, the hedging instruments are recorded on the balance sheet as either an asset or liability at fair value, with the
effective portion of the changes in fair value attributable to the hedged risks recorded in other comprehensive income.
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