Health Net 2007 Annual Report Download - page 120

HEALTH NET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
in transactions with affiliates; enter into agreements which will restrict the ability to pay dividends or other
distributions with respect to any shares of capital stock or the ability to make or repay loans or advances; make
dividends; and alter the character of ours or their business conducted on the closing date of the financing facility.
In addition, the financing facility also requires that we maintain a specified consolidated leverage ratio and
consolidated fixed charge coverage ratio throughout the term of the financing facility. As of December 31, 2007,
we were in compliance with all of the covenants under the financing facility.
In connection with the financing facility, we entered into an interest rate swap agreement. Under the interest
rate swap agreement, we pay an amount equal to LIBOR times a notional principal amount and receive in return
an amount equal to 4.3% times the same notional principal amount. The notional amount of the interest rate swap
at December 31, 2007 was $175 million and the amount amortizes to be equal to the net outstanding amount due
under the financing facility. The interest rate swap does not qualify for hedge accounting. Accordingly, the
interest rate swap is reflected at positive fair value of $1.1 million in our consolidated balance sheet with an
offset to net investment income in our consolidated statement of operations for the year ended December 31,
2007.
Senior Notes
On May 18, 2007 we issued $300 million in aggregate principal amount of 6.375% Senior Notes due 2017.
On May 31, 2007, we issued an additional $100 million of 6.375% Senior Notes due 2017 which were
consolidated with, and constitute the same series as, the Senior Notes issued on May 18, 2007 (collectively,
Senior Notes). The aggregate net proceeds from the issuance of the Senior Notes were $393.5 million and were
used to repay $300 million outstanding under a term loan agreement and $100 million outstanding under our
$700 million revolving credit facility.
The indenture governing the Senior Notes limits our ability to incur certain liens, or consolidate, merge or
sell all or substantially all of our assets. In the event of the occurrence of both (1) a change of control of Health
Net, Inc. and (2) a below investment grade rating by any two of Fitch, Inc., Moody’s Investors Service, Inc. and
Standard & Poor’s Ratings Services, within a specified period, we will be required to make an offer to purchase
the Senior Notes at a price equal to 101% of the principal amount of the Senior Notes plus accrued and unpaid
interest to the date of repurchase. As of December 31, 2007, we were in compliance with all of the covenants
under the indenture governing the Senior Notes.
The Senior Notes may be redeemed in whole at any time or in part from time to time, prior to maturity at
our option, at a redemption price equal to the greater of:
• 100% of the principal amount of the Senior Notes then outstanding to be redeemed; or
• the sum of the present values of the remaining scheduled payments of principal and interest on the
Senior Notes to be redeemed (not including any portion of such payments of interest accrued to the
date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the applicable treasury rate plus 30 basis points
plus, in each case, accrued and unpaid interest on the principal amount being redeemed to the redemption date.
Each of the following will be an Event of Default under the indenture governing the Senior Notes:
• failure to pay interest for 30 days after the date payment is due and payable; provided that an extension
of an interest payment period by us in accordance with the terms of the Senior Notes shall not
constitute a failure to pay interest;
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