Debt And Subordinated Convertible Debentures

9 Months Ended

Sep. 30, 2011

Debt And Subordinated Convertible Debentures

Debt And Subordinated Convertible Debentures

6. Debt and Subordinated Convertible Debentures

Debt consists of the following:

	September 30, 2011			December 31, 2010
URNA and subsidiaries debt:
Accounts Receivable Securitization Facility (1)	$	269		$	221
$1.360 billion ABL Facility (2)		756			683
10  7/8 percent Senior Notes		489			488
9 1/4 percent Senior Notes		493			492
8 3/8 percent Senior Subordinated Notes		750			750
1 7/8 percent Convertible Senior Subordinated Notes		22			22
Other debt, including capital leases		24			25
Total URNA and subsidiaries debt		2,803			2,681
Holdings:
4 percent Convertible Senior Notes (3)		127			124
Total debt (4)		2,930			2,805
Less short-term portion (5)		(401	)		(229	)
Total long-term debt	$	2,529		$	2,576

(1) In September 2011, we amended our accounts receivable securitization facility. The amended facility became effective on September 28, 2011 and expires on September 26, 2012. The amended facility may be extended on a 364-day basis by mutual agreement of the Company and the purchasers under the facility. The amended facility provides for , among other things, (i) a decrease in the facility size from $325 to $300, (ii) adjustments to the receivables subject to purchase, (iii) generally lower borrowing costs, which are based on commercial paper rates plus a specified spread, and (iv) a commitment fee based on the utilization of the facility. Borrowings under the amended facility will continue to be reflected as short-term debt on our condensed consolidated balance sheets. Key provisions of the amended facility include the following:

• borrowings are permitted only to the extent that the face amount of the receivables in the collateral pool, net of applicable reserves, exceeds the outstanding loans by a specified amount. As of September 30, 2011, there were $399 of receivables in the collateral pool;

• the receivables in the collateral pool are the lenders' only source of repayment;

• upon early termination of the facility, no new amounts will be advanced under the facility and collections on the receivables securing the facility will be used to repay the outstanding borrowings;

• standard termination events including, without limitation, a change of control of Holdings, URNA or certain of its subsidiaries, a failure to make payments, a failure to comply with standard default, delinquency, dilution and days sales outstanding covenants, or breach of certain financial ratio covenants under the ABL facility.

At September 30, 2011, $5 was available under our accounts receivable securitization facility. The interest rate applicable to the accounts receivable securitization facility was 1.1 percent at September 30, 2011. During the nine months ended September 30, 2011, the monthly average amount outstanding under the accounts receivable securitization facility, including the former facility and the amended facility, was $218, and the weighted-average interest rate thereon was 1.5 percent. The maximum month-end amount outstanding under the accounts receivable securitization facility, including the former facility and the amended facility, during the nine months ended September 30, 2011 was $269.

(2) At September 30, 2011, $553 was available under our ABL facility, net of $51 of letters of credit. The interest rate applicable to the ABL facility was 3.4 percent at September 30, 2011. During the nine months ended September 30, 2011, the monthly average amount outstanding under the ABL facility was $689, and the weighted-average interest rate thereon was 3.4 percent. The maximum month-end amount outstanding under the ABL facility during the nine months ended September 30, 2011 was $768. As discussed in note 10 to the condensed consolidated financial statements, in October 2011, we amended the ABL facility. The amended facility, which expires on October 13, 2016, provides for, among other things, an increase in the facility size from $1.36 billion to $1.80 billion, an uncommitted incremental increase in the size of the facility of up to $500, and generally lower borrowing costs.

(3) The difference between the September 30, 2011 carrying value of the 4 percent Convertible Senior Notes and the $168 principal amount reflects the $41 unamortized portion of the original issue discount recognized upon issuance of the notes, which is being amortized through the maturity date of November 15, 2015. Because the 4 percent Convertible Senior Notes were convertible at September 30, 2011, an amount equal to the $41 unamortized portion of the original issue discount is separately classified in our condensed consolidated balance sheets and referred to as "temporary equity." Based on the price of our common stock during the first and second quarters of 2011, holders of the 4 percent Convertible Senior Notes had the right to convert the notes during the second and third quarters of 2011 at a conversion price of $11.11 per share of common stock, and $5 of the 4 percent Convertible Senior Notes were converted during the nine months ended September 30, 2011. Based on the price of our common stock during the third quarter of 2011, holders of the 4 percent Convertible Senior Notes have the right to convert the notes during the fourth quarter of 2011 at the initial conversion price of $11.11 per share of common stock. Between October 1, 2011 (the beginning of the fourth quarter) and October 14, 2011, none of the 4 percent Convertible Senior Notes were converted.

(4) In August 1998, a subsidiary trust of Holdings (the "Trust") issued and sold $300 of 6  ¹/2 percent Convertible Quarterly Income Preferred Securities ("QUIPS") in a private offering. The Trust used the proceeds from the offering to purchase 6  ¹/2 percent subordinated convertible debentures due 2028 (the "Debentures"), which resulted in Holdings receiving all of the net proceeds of the offering. The QUIPS are non-voting securities, carry a liquidation value of $50 (fifty dollars) per security and are convertible into Holdings' common stock. Total debt at September 30, 2011 and December 31, 2010 excludes $87 and $124, respectively, of these Debentures, which are separately classified in our condensed consolidated balance sheets and referred to as "subordinated convertible debentures." The subordinated convertible debentures reflect the obligation to our subsidiary that has issued the QUIPS. This subsidiary is not consolidated in our financial statements because we are not the primary beneficiary of the Trust. During the nine months ended September 30, 2011, we purchased an aggregate of $37 of QUIPS for $36. In connection with this transaction, we retired $37 principal amount of our subordinated convertible debentures and recognized a loss of $1, inclusive of the write-off of capitalized debt issuance costs. This loss is reflected in interest expense-subordinated convertible debentures in our condensed consolidated statements of operations. As discussed in note 10 to the condensed consolidated financial statements, we have provided notice to holders of the QUIPS that we will redeem $32 of the QUIPS in October 2011. In connection with this redemption, we will retire $32 principal amount of our subordinated convertible debentures.

(5) As of September 30, 2011, our short-term debt primarily reflects $269 of borrowings under our accounts receivable securitization facility and $127 of 4 percent Convertible Senior Notes. The 4 percent Convertible Senior Notes mature in 2015, but are reflected as short-term debt because they are convertible at September 30, 2011.

Convertible Note Hedge Transactions

        In connection with the November 2009 issuance of $173 aggregate principal amount of 4 percent Convertible Senior Notes, Holdings entered into convertible note hedge transactions with option counterparties. The convertible note hedge transactions cost $26, and decreased additional paid-in capital by $17, net of taxes, in our accompanying condensed consolidated statements of stockholders' equity (deficit). The convertible note hedge transactions cover, subject to anti-dilution adjustments, 15.1 million shares of our common stock. The convertible note hedge transactions are intended to reduce, subject to a limit, the potential dilution with respect to our common stock upon conversion of the 4 percent Convertible Senior Notes. The effect of the convertible note hedge transactions is to increase the effective conversion price to $15.56 per share, equal to an approximately 75 percent premium over the $8.89 closing price of our common stock at issuance. The effective conversion price is subject to change in certain circumstances, such as if the 4 percent Convertible Senior Notes are converted prior to May 15, 2015. In the event the market value of our common stock exceeds the effective conversion price per share, the settlement amount received from such transactions will only partially offset the potential dilution. For example, if, at the time of exercise of the conversion right, the price of our common stock was $20.00 or $25.00 per share, assuming an effective conversion price of $15.56 per share, on a net basis, we would issue 3.4 million or 5.7 million shares, respectively. During the nine months ended September 30, 2011, $5 of the 4 percent Convertible Senior Notes were converted at an effective conversion price of $13.70. Upon the conversion of the $5 of the notes, we received $1 from the hedge counterparties, and recognized a $1 increase in additional paid-in capital. Additionally, upon the conversion of the $5 of the 4 percent Convertible

Senior Notes, additional paid-in capital was reduced by $7 reflecting the excess of the cash transferred upon settlement over the $5 principal amount that was settled.

Loan Covenants and Compliance

As of September 30, 2011, we were in compliance with the covenants and other provisions of the ABL facility, the accounts receivable securitization facility, the senior notes and the QUIPS. Any failure to be in compliance with any material provision or covenant of these agreements could have a material adverse effect on our liquidity and operations.

As discussed in note 10 to the condensed consolidated financial statements, in October 2011, we amended the ABL facility. The only material financial covenants which currently exist relate to the fixed charge coverage ratio and the senior secured leverage ratio under the amended ABL facility. Both of these covenants were suspended on June 9, 2009 because the availability, as defined in the agreement governing the ABL facility then in effect, had exceeded 20 percent of the maximum revolver amount under the ABL facility. Since the June 9, 2009 suspension date and through September 30, 2011, availability under the ABL facility has exceeded 10 percent of the maximum revolver amount under the ABL facility and, as a result, these maintenance covenants remained inapplicable. Subject to certain limited exceptions specified in the amended ABL facility, the fixed charge coverage ratio and the senior secured leverage ratio under the amended ABL facility will only apply in the future if availability under the amended ABL facility falls below the greater of 10 percent of the maximum revolver amount under the amended ABL facility and $150. Under our amended accounts receivable securitization facility, we are required, among other things, to maintain certain financial tests relating to: (i) the default ratio, (ii) the delinquency ratio, (iii) the dilution ratio and (iv) days sales outstanding.