Health Net 2006 Annual Report Download - page 71

of any outstanding letters of credit. As of December 31, 2006, we had an aggregate of $117.2 million in letters of
credit issued pursuant to the revolving credit facility. In addition, we secured two letters of credit effective
January 31, 2007 for a total amount of $3.5 million. As a result of the issuance of these letters of credit, the
maximum amount available for borrowing under the revolving credit facility is $579.3 million as of January 31,
2007. No amounts have been drawn on any of these letters of credit.
As a result of our non-credit-enhanced, senior unsecured long-term debt rating not being at or above BBB-
by S&P, we are currently subject to a minimum borrower cash flow fixed charge coverage ratio rather than the
minimum consolidated fixed charge coverage ratio and are subject to additional reporting requirements to the
lenders under the revolving credit facility. The minimum borrower cash flow fixed charge coverage ratio
calculates fixed charges on a parent-company-only basis. In the event our non-credit-enhanced, senior unsecured
long-term debt rating is upgraded to at least BBB- by S&P, our coverage ratio covenant will revert to the
consolidated fixed charge coverage ratio. In addition, as a result of our non-credit-enhanced, senior unsecured
long-term debt rating not being at or above BBB- by S&P, the revolving credit facility prohibits us from making
dividends, distributions or redemptions in respect of our capital stock in excess of $75 million (plus proceeds
received by us from the exercise of stock options held by employees, management or directors of the company
and any tax benefit to us related to such exercise) in any consecutive four-quarter period, less other restricted
payments made in such period, except that we may repurchase up to $500 million of our capital stock, subject to
specified conditions contained in the revolving credit facility (including a maximum leverage ratio), without
limitation as to the source of funds used to make the repurchases. On November 6, 2006, we amended the
revolving credit facility to, among other things, allow for the repurchase of up to $500 million of our capital
stock, subject to specified conditions contained in such agreements (including a maximum leverage ratio),
without limitation as to the source of funds used to make the repurchases. See “—Recent Amendments,” below.
Bridge Loan Agreement
On June 23, 2006, we borrowed $200 million under a bridge loan agreement with The Bank of Nova Scotia,
as administrative agent and lender (Bridge Loan Agreement). As of December 31, 2006, $200 million was
outstanding under the Bridge Loan Agreement. We may voluntarily prepay amounts outstanding under the
Bridge Loan Agreement, in whole or in part, at any time without penalty or premium (subject to certain
customary breakage costs). The bridge loan is mandatorily prepayable only to the extent that loans made under
the Bridge Loan Agreement exceed unutilized commitments under our revolving credit facility. At our option,
borrowings under the Bridge Loan Agreement generally may be designated and maintained as either base rate
loans or eurodollar rate loans. Base rate loans generally bear interest at a rate per annum equal to the sum of
(i) the higher of (a) the applicable prime commercial rate and (b) the Federal Funds Rate plus 0.5% and (ii) 0.5%.
Eurodollar rate loans generally bear interest at a rate per annum equal to the sum of (i) the applicable eurodollar
interest rate (LIBOR) and (ii) 1.5%. The interest rate on the bridge loan at December 31, 2006 was 6.95%.
Borrowings under the Bridge Loan Agreement initially had a final maturity date of September 22, 2006. On
September 21, 2006, we amended the Bridge Loan Agreement to, among other things, extend the final maturity
date of borrowings under the Bridge Loan Agreement to March 22, 2007. On November 6, 2006, we amended
the Bridge Loan Agreement to, among other things, allow for the repurchase of up to $500 million of our capital
stock, subject to specified conditions contained in such agreements (including a maximum leverage ratio),
without limitation as to the source of funds used to make the repurchases. See “—Recent Amendments” below.
We currently expect to repay the outstanding borrowings under our Bridge Loan Agreement with a draw on the
revolving credit facility.
The Bridge Loan Agreement contains representations and warranties, affirmative and negative covenants
and events of default substantially similar to those contained in our revolving credit facility. Upon an event of
default under the Bridge Loan Agreement, the obligations under the Bridge Loan Agreement may be accelerated
and the applicable interest rate increased. As of December 31, 2006, we were in compliance with all covenants
under the Bridge Loan Agreement.
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