Health Net 2006 Annual Report Download - page 70

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.
On September 26, 2006, we terminated the Swap Contracts that we had maintained as a part of our hedging
strategy to manage certain exposures related to the effect of changes in interest rates on our Senior Notes. See
“Quantitative and Qualitative Disclosures About Market Risk” and Note 6 to our consolidated financial
statements for additional information regarding the Swap Contracts.
We incurred a total of $70.1 million in costs associated with the refinancing of the Senior Notes, consisting
of the $51.0 million redemption premium, the $8.0 million of professional fees and expenses and the $11.1
million of costs incurred in the termination and settlement of our Swap Contracts, which we recorded as a debt
refinancing charge in our statement of operations for the year ended December 31, 2006. See Note 6 to our
consolidated financial statements for additional information on the debt refinancing charge and Senior Note
redemption.
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.
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) London Interbank of America prime rate (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 withdrew its public 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.
We can obtain letters of credit in an aggregate amount of $300 million under our revolving credit facility.
The maximum amount available for borrowing under our revolving credit facility is reduced by the dollar amount
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