American Home Shield 2008 Annual Report Download - page 21

Table of Contents
obligations under, our debt will depend on the ability of our subsidiaries to make distributions and dividends to us, which, in turn, will depend on their
operating results, cash requirements and financial condition, general business conditions, and any legal and regulatory restrictions on the payment of
dividends to which they may be subject, many of which may be beyond our control, and as described under "Risks Relating to Our Business and Our
Industry" above. The payment of ordinary and extraordinary dividends by our subsidiaries that are regulated as insurance, home warranty, service contract or
similar companies is subject to applicable state law limitations. If we cannot receive sufficient distributions from our subsidiaries, we may not be able to meet
our obligations to fund general corporate expenses or service our debt obligations.
If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell
assets, seek to obtain additional equity capital, elect to pay PIK Interest, or restructure our debt. In the future, our cash flow and capital resources may not be
sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet our
scheduled debt service obligations.
The Revolving Credit Facility will mature on July 24, 2013 and the Term Loan Facilities will mature on July 24, 2014. The Permanent Notes will mature
on July 24, 2015. We cannot assure you that we will be able to refinance any of our debt or obtain additional financing, particularly because of our high levels
of debt. In such event, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service
and other obligations. We cannot assure you we will be able to consummate those sales, or if we do, what the timing of the sales will be, whether the proceeds
that we realize will be adequate to meet debt service obligations when due or whether we would receive fair value for such assets.
Increases in interest rates would increase the cost of servicing our debt and could reduce our profitability.
A significant portion of our outstanding debt, including debt under the Credit Facilities, bears interest at variable rates. As a result, increases in interest
rates would increase the cost of servicing our debt and could materially reduce our profitability and cash flows. As of December 31, 2008, each one
percentage point change in interest rates would result in an approximately $11.8 million change in the annual interest expense on our Term Loan Facilities
after considering the impact of the interest rate swaps into which we have entered. Assuming all revolving loans were fully drawn, each one percentage point
change in interest rates would result in a $5.0 million change in annual interest expense on our Revolving Credit Facility. We are also exposed to increases in
interest rates with respect to our arrangement enabling us to transfer an interest in certain receivables to unrelated third parties. Assuming all available
amounts were transferred under this arrangement, each one percentage point change in interest rates would result in a $0.5 million change in annual interest
expense with respect to this arrangement. We are also exposed to increases in interest rates with respect to our floating rate operating leases, and a one
percentage point change in interest rates would result in an approximately $2.2 million change in annual rent expense with respect to such operating leases.
The impact of increases in interest rates could be more significant for us than it would be for some other companies because of our substantial debt and
floating rate operating leases.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
19