Cogeco 2012 Annual Report Download - page 28

Management’s Discussion and Analysis (MD&A) COGECO CABLE INC. 2012 27
OUTSTANDING SHARE DATA
A description of Cogeco Cable’s share data at September 30, 2012 is presented in the table below. Additional details are provided in note 16 of
the consolidated financial statements.
Number o
f
shares/options
Amount
(in thousands
of dollars)
Common shares
Multiple voting shares 15,691,100 98,346
Subordinate voting shares 33,117,508 899,997
Options to purchase subordinate voting shares
Outstanding options 609,686
Exercisable options 440,443
FINANCING
The Corporation benefits from a $750 million Term Revolving facility, which was amended and extended by an additional year on
October 26, 2012, with an option to increase to a total amount of up to $1 billion, subject to lenders’ participation. The Term Revolving Facility
is available in Canadian, US or Euro currencies and includes a swingline of $25 million available in Canadian or US currencies. The Term
Revolving Facility will mature on November 22, 2017, but may be extended by additional one-year periods on an annual basis, subject to
lenders’ approval. The Term Revolving Facility requires commitment fees, and interest rates are based on bankers’ acceptance, LIBOR in
Euros or in US dollars, bank prime rate loan or US base rate loan plus the applicable margin. The Term Revolving Facility is indirectly secured
by a first priority fixed and floating charge on substantially all present and future real and personal property and undertaking of every nature
and kind of the Corporation and certain of its subsidiaries, and provides for certain 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. The provisions under this facility provides for restrictions on the operations and activities of the Corporation. Generally, the
most significant restrictions relate to permitted investments and dividends on multiple and subordinate voting shares, as well as incurrence and
maintenance of certain financial ratios primarily linked to operating income before depreciation and amortization, financial expense and total
indebtedness. At August 31, 2012 and 2011, the Corporation was in compliance with all of its covenants and had used, at August 31, 2012,
$0.1 million of its $750 million Term Revolving Facility for a remaining availability of $749.9 million.
On February 14, 2012, the Corporation completed pursuant to a public debt offering, the issue of $200 million Senior Secured Debentures
Series 3. These Debentures mature on February 14, 2022 and bear interest at 4.925% per annum payable semi-annually. These debentures
are indirectly secured by a first priority fixed and floating charge and a security interest on substantially all present and future real and personal
property and undertaking of every nature and kind of the Corporation.
As at August 31, 2012, the Corporation had a working capital deficiency of $17.2 million compared to $178.2 million at August 31, 2011. The
decrease in the deficiency is mainly due to the issuance, on February 14, 2012, of $200 million Fiscal 2012 debentures for net proceeds of
$198.1 million which were partly used to repay the $110 million Term Revolving Facility, the net proceeds from the sale of the Portuguese
subsidiary and free cash flow of $66.3 million. As part of the usual conduct of its business, Cogeco Cable maintains a working capital
deficiency due to a low level of accounts receivable as a large portion of the Corporation’s customers pay before their services are rendered,
unlike trade and other payables, which are paid after products are delivered or services are rendered, thus enabling the Corporation to use
cash and cash equivalents to reduce Indebtedness.
During the next five years, the required principal repayments on Cogeco Cable’s long-term debt and the related cross-currency swaps,
excluding those under finance leases, will amount to $487.3 million. Cogeco Cable’s Senior Secured Debentures Series 1 for $300 million will
mature in 2014 and the US$190 million Senior Secured Notes Series A will mature in fiscal 2016. Based on the availability of $749.9 million at
August 31, 2012 under its committed Term Revolving Facility, and the anticipated free cash flow of $105 million for fiscal 2013, the Corporation
has the ability to manage its long-term debt maturities until the expiry of its Term Revolving Facility. In the years to come, management expects
to use most of its annual free cash flows after dividend payments to reduce Indebtedness. Management believes that the committed Term
Revolving Facility will provide sufficient liquidity to manage the maturities of its long-term debt and satisfy working capital requirements. Refer
to page 18 for a detailed description of financial risks.
On August 21, 2012, Dominion Bond Rating Service (“DBRS”) confirmed their rating on the Senior Secured Debentures and Notes to “BBB
(low)” and assigned an Issuer Rating of BB (high). The “BBB (low)” rating is one notch above the Issuer ratings of “BB (high)” and reflects very
high recovery prospects of first lien secured issues. Obligations rated in the “BBB” category are in the fourth highest category and are regarded
as of adequate credit quality, where the degree of protection afforded interest and principal is considered acceptable, but the entity is fairly
susceptible to adverse changes in financial and economic conditions, or there may be other adverse conditions present which reduce the
strength of the entity and its rated securities. DBRS has assigned a recovery rating of “RR1” to Cogeco Cable’s Senior Secured Debentures
and Notes reflecting the likelihood that holders would recover 100% of principal in the event of payment default.
On July 19, 2012, Standard & Poor’s Ratings Services (“S&P”) confirmed their rating on the Senior Secured Debentures and Notes of the
Corporation to “BBB”. The “BBB” rating is two notches above the corporate credit ratings of “BB+” and reflects very high recovery prospects of