Cogeco 2007 Annual Report Download - page 32

30 COGECO CABLE INC. 2007 Management’s Discussion and Analysis
The Corporation benefi ts from a $900 million credit facility in the form of a Term Facility and an operating line of credit
with a group of fi nancial institutions. The Term Facility is composed of four tranches: a fi rst tranche, a revolving loan for an
amount of $700 million available in Canadian, U.S. or euro currencies; a second tranche, a swingline of $25 million available
in Canadian or U.S. currencies; a third tranche of $150 million fully drawn available in Canadian currency and a fourth tranche
of ¤17.4 million fully drawn. On August 14, 2007, the Term Facility was amended to permit Euribor loans under the third
tranche Term commitment in an amount not exceeding $150 million subject to reductions mentioned below. The Term
Facility is repayable on July 28, 2011, except for the third tranche of $150 million, which is repayable as follows: $15 million
on July 28, 2008, $22.5 million on July 28, 2009, $37.5 million on July 28, 2010 and the balance on July 28, 2011. Earlier
repayments can be made without penalty. The Term Facility requires commitment fees and interest rates are based on bankers’
acceptance, LIBOR, EURIBOR, bank prime rate loan or U.S. base rate loan plus stamping fees. The Term Facility is secured
by a fi rst fi xed and fl oating charge on the assets of the Corporation, and certain of its subsidiaries, except for permitted
encumbrances, including purchased money obligations, existing funded obligations and charges granted by any subsidiary
prior to the date when it becomes a subsidiary subject to a maximum amount. Cogeco Cable continues to satisfy the various
conditions stipulated in its fi nancing agreements whilst being on schedule to meet interest and principal repayment
obligations. Of all Cogeco Cable’s debt instruments, the bank facilities usually set the most restrictive limitations on the
Corporation’s activities and operations. The most important restrictions cover maintaining certain fi nancial ratios, authorized
investments, disposal of assets and distributions to shareholders.
During the next fi ve years, Cogeco Cable’s required principal repayments on its long-term debt, excluding those under
capital leases, will amount to $1,022.2 million. In fi scal 2007, Cogeco Cable’s $125 million Second Secured Debentures
Series A has been repaid using a portion of equity shares net proceeds. The $15 million portion of the third tranche
of the Term Facility will have to be repaid in fi scal 2008. The $150 million Senior Secured Debentures Series 1, the
$22.5 million portion of the third tranche of the Term Facility and the US$150 million Senior Secured Notes Series A will
have to be repaid in fi scal 2009 for a total amount of $411.2 million (the Senior Secured Notes Series A are converted into
Canadian dollars using the exchange rate of the cross-currency swap agreements). In addition, the $37.5 million portion
of the third tranche of the Term Facility will have to be repaid in fi scal 2010. The remaining portion of the Term Facility
drawn for an amount of
$383.5 million will have to be repaid in fi scal 2011. Finally, Cogeco Cable’s Senior Secured Notes
Series B of $175 million will have to be repaid in fi scal 2012.
As at August 31, 2007, Cogeco Cable had a working capital defi ciency of $120.7 million compared to $315 million as
at
August 31, 2006. The lower defi ciency is mainly attributable to the portion of the net proceeds of the share issuance
being
used to reimburse the $125 million Second Secured Debentures Series A and to the repayment of certain
suppliers subsequent to the Cabovisão acquisition. Cogeco Cable maintains a working capital defi ciency due to a low level
of accounts
receivable since the majority of the Corporation’s customers pay before their services are rendered, contrary
to accounts
payable and accrued liabilities, which are paid after products or services are rendered. In addition, the
Corporation generally
uses cash and cash equivalents to reduce Indebtedness.
In fi scal 2007, Dominion Bond Rating Service (DBRS) and Standard & Poor’s Ratings Services (S&P) upgraded Cogeco
Cable’s ratings. DBRS upgraded the rating of the Senior Secured Debentures and Notes to a BBB (low) from a BB (high) rating
based on the lower leverage as a result of the issue of 8,000,000 subordinate voting shares to reduce Indebtedness. S&P
also upgraded the Senior Secured Debentures and Notes to a BBB– (positive outlook) from a BB+ rating due to the issue
of 8,000,000 subordinate voting shares to reduce Indebtedness. Based on the Term Facility in place and anticipated free
cash fl ow for fi scal 2008, refi nancing can be postponed until fi scal 2011.
FOREIGN EXCHANGE MANAGEMENT
The Corporation has established guidelines whereby currency swap agreements can be used to manage risks associated
with fl uctuations in exchange rates related to its U.S. dollar denominated long-term debt. All such agreements are exclusively
used for hedging purposes. In order to minimize the risk of counter-party default, Cogeco Cable completes transactions
with fi nancial institutions that carry a credit rating equal or superior to its own credit rating.