American Home Shield 2009 Annual Report Download - page 115

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 14. Long-Term Debt (Continued)
Company will pay a fixed rate of interest of 2.55% on the notional amount of the agreement. The Company will receive a floating rate of interest (based on
one month LIBOR) on the notional amount. Therefore, during the term of the swap agreement, the effective interest rate for $530.0 million of the term loans
will be fixed at a rate of 5.05%, including the borrowing margin of 2.50% as of December 31, 2009.
In accordance with accounting standards 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.
10.75%/11.50% Senior Toggle Notes
On the Closing Date, in connection with the completion of the Merger, Acquisition Co. entered into the Interim Loan Facility. The rights and obligations
of Acquisition Co. under the Interim Loan Facility were assumed by ServiceMaster on the Closing Date of the Merger.
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 Permanent Notes. The Permanent Notes were issued pursuant to a refinancing indenture. In connection with the issuance of 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. ServiceMaster deregistered the Permanent Notes in
accordance with the terms of the Registration Rights Agreement, and the effectiveness of the registration statement was terminated on November 19, 2009.
Pursuant to the refinancing indenture, ServiceMaster may, at its option prior to the start of any six month interest period through July 15, 2011, elect to
pay Cash Interest, PIK Interest or 50 percent as Cash Interest and 50 percent as PIK Interest. Cash Interest will accrue on the Permanent Notes at a rate per
annum equal to 10.75%. PIK Interest will accrue on the Permanent Notes at a rate per annum equal to 11.50%. If the Company elects to pay PIK Interest, the
principal amount of the notes will increase in an amount equal to the PIK Interest payable for the applicable payment period to the holders of the Permanent
Notes on the relevant record date. Interest payable after July 15, 2011 is payable entirely as Cash Interest. All interest payments due through January 2010
were paid entirely as Cash Interest. The Company has elected to pay all interest payable in 2010 entirely as Cash Interest.
The Permanent Notes are senior unsecured obligations of ours and rank equally in right of payment with all of our other existing and future senior
unsecured indebtedness. The Permanent Notes are guaranteed by certain of our subsidiaries on a senior unsecured basis. The subsidiary guarantees are general
unsecured senior obligations of the subsidiary guarantors and rank equally in right of payment with all of the existing and future senior unsecured
indebtedness of our non-guarantor subsidiaries. The Permanent Notes are effectively junior to all of our existing and future secured indebtedness to the extent
of the value of the assets securing such indebtedness.
During the first quarter of 2009, the Company completed open market purchases of $89.0 million in face value of the Permanent Notes for a cost of
$41.0 million. The debt acquired by the Company has been retired, and the Company has discontinued the payment of interest. The
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