Debt

3 Months Ended

Mar. 31, 2012

8. Debt

Long-Term Debt, Capital Leases and Financing Obligations

Long-term debt, capital leases and financing obligations consist of the following (dollars in thousands):

	March 31, 2012		December 31, 2011
Mortgage notes payable due 2013 through 2022; weighted average interest rate of 4.90% for the three months ended March 31, 2012, net of debt discount of $0.5 million (weighted average interest rate of 5.04% in 2011)	$	1,573,629	$	1,470,462
$150,000 Series A notes payable, secured by five communities and by a $3.0 million cash collateral deposit, bearing interest at LIBOR plus 0.88%, payable in monthly installments of interest only until August 2011 and payable thereafter in monthly installments of principal and interest through maturity in August 2013		147,554		148,601
Discount mortgage note payable due 2013, weighted average interest rate of 2.57% for the three months ended March 31, 2012, net of debt discount of $2.5 million (weighted average interest rate of 2.52% in 2011)		80,068		79,911
Variable rate tax-exempt bonds credit-enhanced by Fannie Mae; weighted average interest rate of 1.80% for the three months ended March 31, 2012 (weighted average interest rate of 1.65% in 2011), due 2032, payable in monthly installments of principal and interest through maturity, secured by the underlying assets of the portfolio		100,288		100,423
Capital and financing lease obligations payable through 2026; weighted average interest rate of 8.62% for the three months ended March 31, 2012 (weighted average interest rate of 8.61% in 2011)		342,643		348,195
Convertible notes payable in aggregate principal amount of $316.3 million, less debt discount of $72.1 million, interest at 2.75% per annum, due June 2018		244,186		241,897
Construction financing due 2024; weighted average interest rate of 7.0%		7,194		6,591
Notes payable issued to finance insurance premiums, weighted average interest rate of 2.64% for the three months ended March 31, 2012 (weighted average interest rate of 3.11% in 2011), due 2012		10,680		2,545
Total debt		2,506,242		2,398,625
Less current portion		125,316		47,654
Total long-term debt	$	2,380,926	$	2,350,971

2011 Credit Facility

On January 31, 2011, the Company entered into an Amended and Restated Credit Agreement with General Electric Capital Corporation, as administrative agent and lender, and the other lenders from time to time parties thereto. The amended credit agreement amended and restated in its entirety the Company's existing Credit Agreement dated as of February 23, 2010, as previously amended. The amended credit agreement increased the commitment under the credit facility from $120.0 million to $200.0 million and extended the maturity date to January 31, 2016. Effective February 24, 2011, the commitment under the Amended and Restated Credit Agreement was further increased to $230.0 million.

The revolving line of credit can be used to finance acquisitions and fund working capital and capital expenditures and for other general corporate purposes.

The facility is secured by a first priority lien on certain of the Company's communities. The availability under the line will vary from time to time as it is based on borrowing base calculations related to the value and performance of the communities securing the facility.

Amounts drawn under the facility bear interest at 90-day LIBOR plus an applicable margin, as described below. For purposes of determining the interest rate, in no event will LIBOR be less than 2.0%. The applicable margin varies with the percentage of the total commitment drawn, with a 4.5% margin at 35% or lower utilization, a 5.0% margin at utilization greater than 35% but less than or equal to 50%, and a 5.5% margin at greater than 50% utilization. The Company is also required to pay a quarterly commitment fee of 1.0% per annum on the unused portion of the facility.

The credit agreement contains typical affirmative and negative covenants, including financial covenants with respect to minimum consolidated fixed charge coverage and minimum consolidated tangible net worth. A violation of any of these covenants could result in a default under the credit agreement, which would result in termination of all commitments under the credit agreement and all amounts owing under the credit agreement and certain other loan agreements becoming immediately due and payable.

As of March 31, 2012, the Company had an available secured line of credit with a $230.0 million commitment and $199.8 million of availability (of which $85.0 million had been drawn as of such date). The Company also had secured and unsecured letter of credit facilities of up to $82.7 million in the aggregate as of March 31, 2012. $77.8 million of letters of credit had been issued under these facilities as of such date.

Financings

On January 5, 2012, the Company obtained a $63.0 million first mortgage loan, secured by the underlying community. The loan bears interest at a variable rate equal to 30-day LIBOR plus a margin of 300 basis points and matures in January 2017. In connection with the transaction, the Company repaid $62.8 million of existing variable rate debt.

On February 29, 2012, the Company obtained a $20.0 million first mortgage loan, secured by the underlying community. The loan bears interest at a variable rate equal to 30-day LIBOR plus a margin of 275 basis points and matures in February 2017.

The $77.9 million first mortgage facility used to partially finance the acquisition of the underlying real estate of nine communities (Note 4) has a ten year term. 75% of the facility bears interest at a fixed rate of 4.2% and the remaining 25% of the facility bears interest at a variable rate of 30-day LIBOR plus a margin of 276 basis points. The $15.0 million mortgage loan used to partially finance the acquisition has a two year term and bears interest at a fixed rate of 7.0%.

As of March 31, 2012, the Company is in compliance with the financial covenants of its outstanding debt and lease agreements.

Interest Rate Swaps and Caps

In the normal course of business, a variety of financial instruments are used to manage or hedge interest rate risk. Interest rate protection and swap agreements were entered into to effectively cap or convert floating rate debt to a fixed rate basis, as well as to hedge anticipated future financing transactions.

All derivative instruments are recognized as either assets or liabilities in the condensed consolidated balance sheets at fair value. The change in mark-to-market of the value of the derivative is recorded as an adjustment to income or other comprehensive loss depending upon whether it has been designated and qualifies as an accounting hedge.

Derivative contracts are not entered into for trading or speculative purposes. Furthermore, the Company has a policy of only entering into contracts with major financial institutions based upon their credit rating and other factors. Under certain circumstances, the Company may be required to replace a counterparty in the event that the counterparty does not maintain a specified credit rating.

The following table summarizes the Company's swap instrument at March 31, 2012 (dollars in thousands):

Current notional balance	$	27,660
Highest possible notional	$	27,660
Lowest interest rate		5.49	%
Highest interest rate		5.49	%
Average fixed rate		5.49	%
Earliest maturity date		2016
Latest maturity date		2016
Weighted average original maturity	5.0 years
Estimated liability fair value (included in other liabilities at March 31, 2012)	$	(1,793	)
Estimated liability fair value (included in other liabilities at December 31, 2011)	$	(2,809	)

The following table summarizes the Company's cap instruments at March 31, 2012 (dollars in thousands):

Current notional balance	$	418,238
Highest possible notional	$	418,238
Lowest interest rate		5.00	%
Highest interest rate		6.06	%
Average fixed rate		5.49	%
Earliest maturity date		2012
Latest maturity date		2017
Weighted average original maturity	2.7 years
Estimated asset fair value (included in other assets, net at March 31, 2012)	$	-
Estimated asset fair value (included in other assets, net at December 31, 2011)	$	-

The fair value of the Company's interest rate swaps and caps decreased $0.2 million for the three months ended March 31, 2012. This is included as a component of interest expense in the condensed consolidated statements of operations.

During the three months ended March 31, 2012, the Company terminated one swap agreement with a total notional amount of $150.0 million. In conjunction with this transaction, $1.2 million was paid to the counterparty, which had been previously deposited as collateral. The Company also entered into two new cap agreements with an aggregate notional amount of $169.5 million.

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

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