American Home Shield 2010 Annual Report Download - page 64

Table of Contents
interest rate for $500.0 million of the term loans is fixed at a rate between 3.15% and 3.48% plus the incremental borrowing margin of 2.50% as of
December 31, 2010.
In August 2008, the Company entered into two three-year interest rate swap agreements effective September 2, 2008. The total notional amount of the
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, and 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 agreements, the effective interest rate for $200.0 million of the term loans is fixed at a rate of 3.83% plus the incremental
borrowing margin of 2.50% as of December 31, 2010.
In September 2008, the Company entered into a four-year interest rate swap agreement effective October 1, 2008. The notional amount of the agreement
was $200.0 million. Under the terms of the agreement, the Company will pay a fixed rate of interest of 3.53% on the $200.0 million notional amount, and 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 $200.0 million of the term loans is fixed at a rate of 3.53% plus the incremental borrowing margin of 2.50% as of December 31,
2010.
In April 2009, the Company entered into a two-year interest rate swap agreement effective August 2, 2010. The notional amount of the agreement was
$530.0 million. Under the terms of the agreement, the Company will pay a fixed rate of interest of 2.55% on the $530.0 notional amount, and 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 is fixed at a rate of 2.55% plus the incremental borrowing margin of 2.50% as of December 31, 2010.
In June 2010, the Company entered into two two-year interest rate swap agreements effective March 3, 2011. The total notional amount of the
agreements was $250.0 million. Under the terms of the agreements, the Company will pay a weighted average fixed rate of interest of 1.70% on the
$250.0 million notional amount, and 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 agreements, the effective interest rate for $250.0 million of the term loans will be fixed at a rate of 1.70% plus the incremental
borrowing margin of 2.50% as of December 31, 2010.
In June 2010, the Company entered into two two-year interest rate swap agreements effective September 1, 2011. The total notional amount of the
agreements was $200.0 million. Under the terms of the agreements, the Company will pay a weighted average fixed rate of interest of 2.22% on the
$200.0 million notional amount, and 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 agreements, the effective interest rate for $200.0 million of the term loans will be fixed at a rate of 2.22% plus the incremental
borrowing margin of 2.50% as of December 31, 2010.
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 adversely
impact our results of operations and cash flows. As of December 31, 2010, each one percentage point change
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