American Home Shield 2010 Annual Report Download - page 23

Table of Contents
amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay debt, lenders having secured
obligations, such as the lenders under the Credit Facilities, could proceed against the collateral securing the debt. In any such case, we may be unable to
borrow under the Credit Facilities and may not be able to repay the amounts due under the Credit Facilities and the Permanent Notes. This could have a
material adverse impact on our business, financial position, results of operations and cash flows and could cause us to become bankrupt or insolvent.
Our ability to generate the significant amount of cash needed to pay interest and principal on our debt and our ability to refinance all or a portion of
our debt or obtain additional financing depends on many factors beyond our control.
As a holding company, we have no independent operations or material assets other than our ownership of equity interests in our subsidiaries, and we
depend on our subsidiaries to distribute funds to us so that we may pay our obligations and expenses, including satisfying our obligations under our debt. Our
ability to make scheduled payments on, or to refinance our obligations under, our debt depends on the ability of our subsidiaries to make distributions and
dividends to us, which, in turn, depends 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 service, 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. Our insurance subsidiaries and home services and similar subsidiaries (through which we conduct our
American Home Shield business) are subject to significant regulatory restrictions under the laws and regulations of the states in which they operate. Among
other things, such laws and regulations require certain such subsidiaries to maintain minimum capital and net worth requirements and may limit the amount of
ordinary and extraordinary dividends and other payments that these subsidiaries can pay to us. For example, certain states prohibit payment by these
subsidiaries to the Company of dividends in excess of ten percent of their capital as of the most recent year end, as determined in accordance with prescribed
insurance accounting practices in those states. Of the $240.1 million as of December 31, 2010, which we identify as being potentially unavailable to be paid to
the Company by its subsidiaries, approximately $197.7 million is held by our home services and insurance subsidiaries and is subject to these regulatory
limitations on the payment of funds to us. Such limitations will be in effect in 2011. The remainder of the $240.1 million, or $42.4 million, is related to
amounts that the Company's management does not consider readily available to be used to service the Company's indebtedness due, among other reasons, to
the Company's cash management practices and working capital needs at various subsidiaries.
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 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, as amended, is scheduled to mature on July 24, 2014, and the Term Facilities will mature on July 24, 2014. The
Permanent Notes will mature on July 15, 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. It is our understanding that a significant amount of global indebtedness related to the leveraged buy-out boom
will mature between 2012 and 2015,
21