American Home Shield 2008 Annual Report Download - page 53

Table of Contents
Closing Date, the Company also entered into, but then did not draw under, the $500 million Revolving Credit Facility.
The agreements governing the Term Facilities, the Permanent Notes and the Revolving Credit Facility contain certain covenants that limit or restrict the
incurrence of additional indebtedness, debt repurchases, liens, sales of assets, certain payments (including dividends) and transactions with affiliates, subject
to certain exceptions. The Company was in compliance with the covenants under these agreements at December 31, 2008.
The Interim Loan Facility matured on July 24, 2008. On the maturity date, outstanding amounts under the Interim Loan Facility were converted on a one
to one basis into the Permanent Notes. The Permanent Notes were issued pursuant to a refinancing indenture. In connection with the issuance of the
Permanent Notes, ServiceMaster entered into the Registration Rights Agreement, pursuant to which ServiceMaster filed with the SEC a registration statement
with respect to the resale of the Permanent Notes, which was declared effective on January 16, 2009.
Through July 15, 2011, the Company may, at its option prior to the start of any interest period, elect to pay interest on outstanding amounts under the
Permanent Notes entirely in cash ("Cash Interest"), entirely by PIK Interest, or 50% as Cash Interest and 50% as PIK Interest. Interest payable after July 15,
2011 is payable entirely as Cash Interest. The Company has elected to pay interest payable in 2009 entirely as Cash Interest.
Cash and short-and long-term marketable securities totaled approximately $539 million at December 31, 2008, compared with approximately
$475 million at December 31, 2007. Approximately $244 million and $383 million of the cash and short-and long-term marketable securities balance as of
December 31, 2008 and 2007, respectively, is associated with regulatory requirements at American Home Shield and for other purposes. For example, the
payment of ordinary and extraordinary dividends to ServiceMaster by our subsidiaries that are regulated as insurance, home warranty or similar companies is
subject to applicable state law limitations. American Home Shield's investment portfolio has been invested in a combination of high quality, short duration
fixed income securities and equities. The Company closely monitors the performance of the investments. In the ordinary course of business the Company
reviews the statutory reserve requirements to which its regulated entities are subject and may adjust its reserves accordingly. These reviews may result in
identifying excess reserves over minimum statutory reserve requirements in certain states in accordance with our investment policy, reduced statutory reserve
requirements, or a determination that the Company can satisfy certain regulatory reserve requirements through alternate financial vehicles, all of which would
enhance our liquidity.
The Company maintains lease facilities with banks totaling $65 million, which provide for the financing of branch properties to be leased by the
Company. At December 31, 2008, approximately $65 million was funded under these facilities. Approximately $12 million of these leases are treated as
capital leases and have been included on the balance sheet as assets with related debt as of December 31, 2008. The balance of the funded amount is treated as
operating leases. The Company has guaranteed the residual value of the properties under the leases up to 73 percent of the fair market value at the
commencement of the lease. At December 31, 2008, the Company's residual value guarantee related to the leased assets totaled $53 million for which the
Company has recorded the estimated fair value of this guarantee of approximately $0.1 million in the Consolidated Statement of Financial Position. In
connection with the closing of the Merger, the Company amended these leases effective July 24, 2007. Among the modifications, the Company extended the
lease terms through July 24, 2010. The operating lease and capital lease classifications of these leases did not change as a result of the modifications.
The majority of the Company's vehicle fleet and some equipment are leased through operating leases. The lease terms are non-cancelable for the first
twelve-month term, and then are
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