Health Net 2001 Annual Report Download - page 18

we must repay all borrowings under the five-year credit facility by, June 28, 2006, unless the five-year
credit facility is extended. The five-year credit facility may, at our request and subject to approval by
lenders holding two-thirds of the aggregate amount of the commitments under the five-year credit
facility, be extended for up to two twelve-month periods to the extent of the commitments made under
the five-year credit facility by such approving lenders. Swingline loans under the five-year credit facility
are subject to repayment within no more than seven days.
Covenants. The credit agreements contain negative covenants, including financial covenants, that
impose restrictions on our operations. The financial covenants in the credit agreements provide that:
• for any period of four consecutive fiscal quarters, the consolidated leverage ratio, which is the
ratio of (i) our consolidated funded debt to (ii) our consolidated net income before interest,
taxes, depreciation, amortization and other specified items (consolidated EBITDA), must not
exceed 3 to 1;
• for any period of four consecutive fiscal quarters, the consolidated fixed charge coverage ratio,
which is the ratio of (i) our consolidated EBITDA plus consolidated rental expense minus
consolidated capital expenditures to (ii) our consolidated scheduled debt payments, (defined as
the sum of scheduled principal payments, interest expense and rent expense) must be at least 1.5
to 1; and
• we must maintain our consolidated net worth at a level equal to at least $945 million (less the
sum of a pretax charge associated with our sale of our Florida health plan and specified pretax
charges relating to the write-off of goodwill) plus 50% of our consolidated net income and 100%
of our net cash proceeds from equity issuances.
The other covenants in the credit agreements include, among other things, limitations on
incurrence of indebtedness by our subsidiaries and on our ability to
• incur liens;
• extend credit and make investments;
• merge, consolidate, dispose of stock in subsidiaries, lease or otherwise dispose of assets and
liquidate or dissolve;
• engage in transactions with affiliates;
• substantially alter the character or conduct of the business of Health Net, Inc. or any of its
‘‘significant subsidiaries’’ within the meaning of Rule 1-02 under Regulation S-X promulgated by
the SEC;
• make restricted payments, including dividends and other distributions on capital stock and
redemptions of capital stock; and
• become subject to other agreements or arrangements that restrict (i) the payment of dividends
by any Health Net, Inc. subsidiary, (ii) the ability of Health Net, Inc. subsidiaries to make or
repay loans or advances to us, (iii) the ability of any subsidiary of Health Net, Inc. to guarantee
our indebtedness or (iv) the creation of any lien on our property.
Interest and fees. Committed loans under the credit facilities bear interest at a rate equal to either
(1) the greater of the federal funds rate plus 0.5% and the applicable prime rate or (2) LIBOR plus a
margin that depends on our senior unsecured credit rating. Loans obtained through the bidding process
bear interest at a rate determined in the bidding process. Swingline loans under the five-year credit
facility bear interest equal to, at our option, either a base rate plus a margin that depends on our
senior unsecured credit rating or a rate quoted to us by the swingline lender. We pay fees on
outstanding letters of credit and a facility fee, computed as a percentage of the lenders’ commitments
under the credit facilities, which varies from 0.130% to 0.320% per annum for the 364-day credit
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