Health Net 2003 Annual Report Download - page 55

Our senior notes payable consists of $400 million in aggregate principal amount of 8.375 % senior notes due April
2011. The effective interest rate on the notes when all offering costs are taken into account and amortized over the term of
the notes is 8.54% per annum. The notes are redeemable, at our option, at a price equal to the greater of:
• 100% of the principal amount of the notes to be redeemed; and
• the sum of the present values of the remaining scheduled payments on the notes to be redeemed consisting of
principal and interest, exclusive of interest accrued to the date of redemption, at the rate in effect on the date of
calculation of the redemption price, discounted to the date of redemption on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the applicable yield to maturity (as specified in the
indenture governing the notes) plus 40 basis points plus, in each case, accrued interest to the date of redemption.
On February 20, 2004, we entered into interest rate swap contracts to hedge against interest rate risk associated with
our fixed rate senior notes payable. See “Quantitative and Qualitative Disclosures About Market Risk” for additional
information regarding the interest rate swap.
Our credit facilities, which provide for an aggregate of $700 million in borrowings, consist of a $175 million 364-day
revolving credit facility and a $525 million five-year revolving credit and competitive advance facility. Under the five-
year facility, we can obtain letters of credit in an aggregate amount of up to $200 million. The 364-day credit facility was
amended on June 25, 2003 to extend the existing credit agreement for an additional 364-day period. We must repay all
borrowings, if any, under the 364-day credit facility by June 23, 2004, unless we avail ourselves of a one-year term-out
option in the 364-day credit facility. The five-year credit facility expires in June 2006, and we must repay all borrowings,
if any, 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 12 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. We did not have any borrowings under the credit
facilities during the year ended December 31, 2003. The maximum commitment level under the credit facilities was $700
million at December 31, 2003.
The credit agreements governing the credit facilities provide for acceleration of repayment of indebtedness under the
credit facilities upon the occurrence of customary events of default including the following:
• failing to pay any principal or interest when due;
• providing materially incorrect representations;
• failing to observe any covenant or condition;
• judgments against us involving in the aggregate an unsecured liability of $25 million or more not paid, vacated,
discharged, stayed or bonded pending appeal within 60 days of the final order; our non-compliance with any
material terms of HMO or insurance regulations pertaining to fiscal soundness and not cured or waived within 30
days;
• solvency or financial condition;
• the occurrence of specified adverse events in connection with any employee pension benefit plan of ours;
• our failure to comply with the terms of other indebtedness with an aggregate amount exceeding $40 million such
that the other indebtedness can be or is accelerated; or
• a change in control of the Company.
The credit agreements contain negative covenants, including financial covenants, that impose performance
requirements 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 (1) our
consolidated funded debt to (2) 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 (1) our consolidated EBITDA plus consolidated rental expense minus consolidated capital expenditures to (2)
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
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