Southwest Airlines 2007 Annual Report Download - page 64

floating rate based upon LIBOR. If the facility had been
fully drawn at December 31, 2007, the spread over
LIBOR would have been 62.5 basis points given South-
west’s credit rating at that date. The facility also contains
a financial covenant requiring a minimum coverage ratio
of adjusted pre-tax income to fixed obligations, as
defined. As of December 31, 2007, the Company was
in compliance with this covenant, and there were no
outstanding amounts borrowed under this facility.
7. Long-Term Debt
2007 2006
(In millions)
77⁄8% Notes due 2007.............................................. $ — $ 100
French Credit Agreements due 2012 ................................... 32 37
61⁄2% Notes due 2012.............................................. 386 369
51⁄4% Notes due 2014.............................................. 352 336
53⁄4% Notes due 2016.............................................. 300 300
51⁄8% Notes due 2017.............................................. 311 300
French Credit Agreements due 2017 ................................... 94 100
Pass Through Certificates ........................................... 480 —
73⁄8% Debentures due 2027 .......................................... 103 100
Capital leases (Note 8) ............................................ 52 63
2,110 1,705
Less current maturities ............................................. 41 122
Less debt discount and issuance costs ................................... 19 16
$2,050 $1,567
On September 1, 2007, the Company redeemed its
$100 million senior unsecured 77⁄8% notes on their
scheduled maturity date.
On October 3, 2007, grantor trusts established by
the Company issued $500 million Pass Through Certif-
icates consisting of $412 million 6.15% Series A certif-
icates and $88 million 6.65% Series B certificates. A
separate trust was established for each class of certificates.
The trusts used the proceeds from the sale of certificates
to acquire equipment notes in the same amounts, which
were issued by Southwest on a full recourse basis. Pay-
ments on the equipment notes held in each trust will be
passed through to the holders of certificates of such trust.
The equipment notes were issued for each of 16 Boeing
737-700 aircraft owned by Southwest and are secured by
a mortgage on each aircraft. Interest on the equipment
notes held for the certificates is payable semi-annually,
beginning February 1, 2008. Also beginning February 1,
2008, principal payments on the equipment notes held
for both series of certificates are due semi-annually until
the balance of the certificates mature on August 1, 2022.
The Company utilized the proceeds from the issuance of
the Pass Through Certificates for general corporate pur-
poses. Prior to their issuance, the Company also entered
into swap agreements to hedge the variability in interest
rates on the Pass Through Certificates. The swap agree-
ments were accounted for as cash flow hedges, and
resulted in a payment by the Company of $20 million
upon issuance of the Pass Through Certificates. The
effective portion of the hedge is being amortized to
interest expense concurrent with the amortization of
the debt and is reflected in the above table as a reduction
in the debt balance. The ineffectiveness of the hedge
transaction was immaterial.
During December 2006, the Company issued
$300 million senior unsecured Notes due 2016. The
notes bear interest at 5.75 percent, payable semi-annually
in arrears, with the first payment made on June 15, 2007.
Southwest used the net proceeds from the issuance of the
notes for general corporate purposes.
During February 2005, the Company issued
$300 million senior unsecured Notes due 2017. The notes
bear interest at 5.125 percent, payable semi-annually in
arrears, with the first payment made on September 1,
2005. Southwest used the net proceeds from the issuance
of the notes for general corporate purposes. In January
2007, the Company entered into an interest-rate swap
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)