American Home Shield 2010 Annual Report Download - page 96

Table of Contents
Notes to the Consolidated Financial Statements (Continued)
Note 12. Long-Term Debt (Continued)
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.
10.75%/11.50% Senior Toggle Notes
On the Closing Date, in connection with the completion of the Merger, ServiceMaster became obligated under the Interim Loan Facility. 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, the Company had the option to pay Cash Interest, PIK Interest or 50 percent as Cash Interest and 50 percent as PIK
Interest through July 15, 2011. Interest payable after July 15, 2011 is payable entirely as Cash Interest. All interest payments due through January 2011 were
paid entirely as Cash Interest. The Company has elected to pay all interest payable through July 15, 2011 entirely as Cash Interest. Cash Interest accrues on
the Permanent Notes at a rate per annum equal to 10.75%. PIK Interest would have accrued on the Permanent Notes at a rate per annum equal to 11.50%. If
the Company had elected to pay PIK Interest, the principal amount of the notes would have increased 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.
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 Company recorded a gain
on extinguishment of debt of $46.1 million in its Consolidated Statement of Operations for the year ended December 31, 2009 related to these retirements.
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