Earthlink 2010 Annual Report Download - page 83

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Table of Contents
As of December 31, 2009, our investments in marketable securities included $42.9 million of auction rate securities with a weighted
average interest rate of 1.42%. During the year ended December 31, 2010, we sold our auction rate securities to the selling broker at par, plus
accrued interest. As a result, we no longer held investments in auction rate securities as of December 31, 2010. These securities were variable-
rate debt instruments whose underlying agreements had contractual maturities of up to 40 years. These securities were issued by various
municipalities and state regulated higher education agencies and were predominantly secured by pools of student loans guaranteed by the
agencies and reinsured by the U.S. Department of Education. Liquidity for these auction rate securities is typically provided by an auction
process that resets the applicable interest rate at pre-
determined intervals, usually every 28 days. In October 2008, we entered into an agreement
with the broker that sold us our auction rate securities that gave us the right to sell our existing auction rate securities back to the broker at par
plus accrued interest, beginning on June 30, 2010 until July 2, 2012. We elected a one-
time transfer of our auction rate securities from the
available-for-
sale category to the trading category. We also elected the fair value option for the put right to offset the fair value changes of the
auction rate securities.
We are also exposed to interest rate risk with respect to our convertible senior notes due November 15, 2026 (the "EarthLink Notes") and
with ITC^DeltaCom's senior secured notes due April 1, 2016 (the "ITC^DeltaCom Notes"). The fair value of these notes may be adversely
impacted due to a rise in interest rates. In general, securities with longer maturities are subject to greater interest rate risk than those with shorter
maturities. The EarthLink Notes bear interest at a fixed rate of 3.25% per year until November 15, 2011, and 3.50% interest per year thereafter,
and the ITC^DeltaCom Notes bear interest at a fixed rate of 10.5% per year until April 1, 2016. As of December 31, 2009 and 2010, the
principal amount of the EarthLink Notes was $258.8 million and $255.8 million, respectively, and the fair value was approximately
$279.8 million and $300.3 million, respectively, which was based on the quoted market price. As of December 31, 2010, the principal amount of
the ITC^DeltaCom notes was $325.0 million and the fair value of the ITC^DeltaCom Notes was approximately $352.6 million, based on quoted
market prices.
Equity Risk
We are exposed to equity price risk as it relates to changes in the market value of our equity investments. In the past, we have invested in
equity instruments of public and private companies for operational and strategic purposes. These securities are subject to significant fluctuations
in fair market value due to volatility of the stock market and the industries in which the companies operate. We typically do not attempt to
reduce or eliminate our market exposure in these equity instruments.
During the year ended December 31, 2009, we sold our remaining equity investments in other companies. As a result, we no longer held
investments in other companies as of December 31, 2010. The following table presents the carrying value and fair value of our financial
instruments subject to equity risk as of December 31, 2009:
77
As of December 31, 2009
Carrying
Amount
Estimated
Fair
Value
(in thousands)
Investments in other companies for which it is:
Practicable to estimate fair value
$
1,529
$
1,529
Not practicable to estimate fair value
—
N/A