American Home Shield 2009 Annual Report Download - page 70

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Table of Contents
rate for $530.0 million of the term loans is fixed at 7.55%, including the borrowing margin of 2.50% at December 31, 2009.
In February 2008, the Company entered into two, three-year interest rate swap agreements and a four-year interest rate swap agreement, effective
March 3, 2008. The total notional amount of the three-year agreements was $250.0 million and the total notional amount of the four-year swap agreement was
$250.0 million. Under the terms of the agreements, the Company will pay a weighted average fixed rate of interest of 3.15% on the $250.0 million notional
amount under the three-year swap agreements and 3.48% on the $250.0 million notional amount under the four-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 $500.0 million of the term
loans is fixed at a rate between 5.65% and 5.98%, including the borrowing margin of 2.50% at December 31, 2009.
In August 2008, the Company entered into two, three-year interest rate swap agreements effective September 2, 2008. The total notional amount of the
swap agreements was $200.0 million. Under the terms of the agreements, the Company will pay a weighted average fixed rate of interest of 3.83% on the
$200.0 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 $200.0 million of the term loans is fixed at a rate of 6.33%, including the borrowing margin of 2.50% at
December 31, 2009.
In September 2008, the Company entered into a four-year interest rate swap agreement effective October 1, 2008. The notional amount of the swap
agreement was $200.0 million. Under the terms of the agreement, the Company will pay a weighted average fixed rate of interest of 3.53% on the
$200.0 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 $200.0 million of the term loans is fixed at a rate of 6.03%, including the borrowing margin of 2.50% at
December 31, 2009.
In April 2009, the Company entered into a two-year interest rate swap agreement effective August 2, 2010 with a notional amount of $530 million.
Under the terms of the agreement, the 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 million of the term loans will be fixed at a rate of 5.05%, including the borrowing margin of 2.50% at December 31, 2009.
In accordance with accounting standards for derivative instruments and hedging activities, these 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.
The Company believes its exposure to interest rate fluctuations, when viewed on both a gross and net basis, is material to its overall results of operations.
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,
whether because of an increase in market interest rates or a decrease in our creditworthiness, would increase the cost of servicing our debt and could
materially reduce our profitability and cash flows. As of December 31, 2009, each one percentage point change in interest rates would result in approximately
an $11.5 million change in the annual interest expense on our Term Loan Facilities after considering the impact of the interest rate swaps into which we had
entered. Assuming all revolving loans were fully drawn, each one percentage point change in interest rates would result in approximately a $5.0 million
change in annual interest expense on our
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