Lifetime Fitness 2011 Annual Report Download - page 46

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40
Interest Rate Swap
In August 2011, we entered into an interest rate swap contract that effectively fixed the rates paid on a total of
$200.0 million of variable rate borrowings at 1.32% plus the applicable spread (which depends on our EBITDAR
leverage ratio) until June 2016. The contract has been designated a cash flow hedge against interest rate volatility.
We currently apply this hedge to variable rate interest debt under the U.S. Bank Facility. Changes in the fair market
value of the swap contract are recorded in accumulated other comprehensive (loss) income. As of December 31,
2011, the $1.8 million net of tax, fair market value of the swap contract was recorded as accumulated other
comprehensive loss in the shareholder equity section and the $3.0 million gross fair market value of the swap
contract was included in long-term debt.
Commercial Mortgage-Backed Notes Financing
In connection with the purchase of six previously leased Life Time Fitness centers, on December 30, 2011, LTF Real
Estate MN-FL, LLC, a wholly owned subsidiary, assumed a securitized commercial mortgage-backed loan dated
December 1, 2006 in the original principal amount of $80.0 million from the landlord. The assumed amount of the
loan was $72.1 million, which approximates fair value, and matures in December 2016. Interest on the loan is 5.75%
per annum, with a constant monthly debt service payment of $0.5 million. The loan is secured by mortgages on the
six properties purchased by the subsidiary and certain other tangible and intangible property of the subsidiary.
See footnote 4, “Long-Term Debt” to our consolidated financial statements for a description of all of our outstanding
financing arrangements.
Debt Covenants
We are in compliance in all material respects with all restrictive and financial covenants under our various credit
facilities as of December 31, 2011.
Our primary financial covenants as of December 31, 2011 were:
Covenant
Revolving credit facility (1):
Total Consolidated Debt to Adjusted EBITDAR
Fixed Charge Coverage Ratio
Unencumbered Asset Ratio
Sale-leaseback (2):
Tangible Net Worth
Requirement
Not more than 4.00 to 1.00
Not less than 1.50 to 1.00
Not less than 1.30 to 1.00
Not less than $200.0 million
Actual as of
December 31, 2011
2.83 to 1.00
3.51 to 1.00
2.79 to 1.00
$888.8 million
(1) The formulas for these covenants are specifically defined in the Third Amended and Restated Credit
Agreement and include, among other things, an add back of share-based compensation expense to
EBITDAR. See footnote 4, “Long-Term Debt” for more information on our revolving credit facility.
(2) The formula for this covenant is specifically defined in our Senior Housing Properties Trust agreement. See
footnote 8, “Commitments and Contingencies” to our consolidated financial statements for more
information on this sale-leaseback transaction.