Health Net 2006 Annual Report Download - page 118

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
As a result of our pledge of the Pledged Securities to secure the Senior Notes under the Security and Control
Agreement, Moody’s and S&P upgraded their ratings on the Senior Notes to investment grade (Baa1 and BBB,
respectively) effective June 28, 2006. The increase in the ratings on the Senior Notes caused the interest rate on
the Senior Notes to decrease from 9.875% to 8.375% pursuant to the terms of the Senior Notes indenture. Semi-
annual interest on the Senior Notes was payable on April 15 and October 15 of each year. In connection with the
redemption of the Senior Notes, we made a final interest payment, representing accrued interest on the Senior
Notes from the last interest payment date to the date of the redemption.
In connection with our refinancing, we incurred a total of $70.1 million in costs, including $51.0 million in
redemption premiums with respect to the Senior Notes, $11.1 million for the termination and settlement of our
Swap Contracts and $8.0 million for professional fees and other expenses. As of December 31, 2006, we have
paid $3.0 million, funded by financing activities, related to the costs incurred in connection with the refinancing.
Revolving Credit Facility
We have a $700 million revolving credit facility under a five-year revolving credit agreement with Bank of
America, N.A., as a lender, and, as Administrative Agent, Swing Line Lender and L/C Issuer, and the other
lenders party thereto. As of December 31, 2006, no amounts were outstanding under our revolving credit facility
and the maximum amount available for borrowing under the revolving credit facility was $582.8 million (see
“—Letters of Credit” below).
Borrowings under our revolving credit facility may be used for general corporate purposes, including
acquisitions, and to service our working capital needs. We must repay all borrowings, if any, under the revolving
credit facility by June 30, 2009, unless the maturity date under the revolving credit facility is extended. Interest on
any amount outstanding under the revolving credit facility is payable monthly at a rate per annum of (a) LIBOR
plus a margin ranging from 50 to 112.5 basis points, depending on our debt rating by S&P, or (b) the higher of
(1) the Bank of America prime rate and (2) the federal funds rate plus 0.5%, plus a margin of up to 12.5 basis points,
depending on our debt rating by S&P. Following the redemption of our Senior Notes, Moody’s no longer provides a
debt rating for the Company. We have also incurred and will continue to incur customary fees in connection with
the revolving credit facility. Our revolving credit facility contains customary representations and warranties and
requires us to comply with certain covenants that impose restrictions on our operations, including financial
covenants relating to a minimum borrower cash flow fixed charge coverage ratio (or, if our credit ratings meet
specified criteria, a minimum consolidated fixed charge coverage ratio), a maximum consolidated leverage ratio and
a minimum consolidated net worth, and a limitation on dividends and distributions. As of December 31, 2006, we
were in compliance with all covenants under our revolving credit facility.
The revolving credit facility contains customary events of default subject to materiality and other
qualifications and grace periods. The events of default include nonpayment of principal, interest, fees or other
amounts under the applicable loan documents; failure to comply with specified covenants and agreements; any
representation or warranty of ours in the applicable loan documents having been materially incorrect or
misleading when made or deemed made; specified defaults by us or any of our subsidiaries under other
indebtedness; specified bankruptcy and insolvency events; specified events involving the entry of judgments
against us and/or our subsidiaries; non compliance by us or any of our subsidiaries under specified HMO or
insurance regulations; specified events related to compliance with ERISA; actual or asserted invalidity of
applicable loan documentation; and a change of control. Upon an event of a default under the revolving credit
facility, the obligations under the revolving credit facility may be accelerated and the applicable interest rate
increased.
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