Debt and Other Financing Arrangements

The Company’s debt consists of the following:



	December 31,
(dollars in millions)	2011			2010
Current portion of long-term debt:
Capital lease obligations and other debt	$	13.0		$	16.5
Current portion of long-term debt	13.0			16.5
Long-term debt, less current portion:
7% Senior Notes due 2015*	250.4			251.4
8 1/4% Senior Notes due 2017	500.0			500.0
8 3/4% Senior Subordinated Notes due 2018	625.0			625.0
8 3/8% Senior Notes due 2020	775.0			775.0
7 1/4% Senior Notes due 2023	40.0			40.0
Various Cincinnati Bell Telephone notes	207.5			207.5
Capital lease obligations and other debt	131.4			118.5
	2,529.3			2,517.4
Net unamortized discount	(8.7		)	(10.3		)
Long-term debt, less current portion	2,520.6			2,507.1
Total debt	$	2,533.6		$	2,523.6


*	The face amount of these notes has been adjusted for the unamortized called amounts received on terminated interest rate swaps.

Corporate Credit Facilities

On June 11, 2010, the Company entered into a new Corporate credit facility agreement, which included a new revolving credit facility, replacing the existing revolving credit facility that would have expired in August 2012, and a $760 million secured term loan credit facility ("Tranche B Term Loan"). The new Corporate revolving credit facility, as amended, provides a $210.0 million revolving line of credit and expires in June 2014. In 2010, the Company used the net proceeds from the Tranche B Term Loan of $737 million to fund the acquisition of CyrusOne, to repay the Company’s previous term loan facility totaling $204.3 million, and to pay related fees and expenses. In the fourth quarter of 2010, the Company extinguished the entire $760 million Tranche B Term Loan. We incurred a loss on extinguishment of debt of $36.1 million consisting of the write-off of unamortized discount and debt issuance costs.

The Corporate revolving credit facility is funded by 11 different financial institutions, with no financial institution having more than 15% of the total facility. Borrowings under the Corporate revolving credit facility bear interest, at the Company’s election, at a rate per annum equal to (i) LIBOR plus the applicable margin or (ii) the base rate plus the applicable margin. The applicable margin is based on certain Company financial ratios and ranges between 4.25% and 5.00% for LIBOR rate advances, and 3.25% and 4.00% for base rate advances. Base rate is the greater of the bank prime rate, the LIBOR rate plus one percent or the federal funds rate plus one-half percent. As of December 31, 2011, the Company had no outstanding borrowings and no outstanding letters of credit on this facility, leaving $210.0 million in additional borrowing availability under its revolving credit facility.

The Company pays commitment fees for the unused amount of borrowings on the revolving credit facility and letter of credit fees on outstanding letters of credit at an annual rate ranging from 0.50% to 0.75% and 4.25% to 5.00%, respectively, based on certain of our financial ratios. These fees were $2.3 million in 2011 and 2010, and $1.4 million in 2009.

The borrowings of Cincinnati Bell Inc. ("CBI") under the Corporate credit facility are guaranteed by CBI's current and future subsidiaries, excluding Cincinnati Bell Telephone Company LLC ("CBT"), Cincinnati Bell Extended Territories LLC ("CBET"), Cincinnati Bell Funding LLC ("CBF"), its foreign subsidiaries and certain immaterial subsidiaries. Each of the Company’s current subsidiaries that is a guarantor of the Corporate credit facility is also a guarantor of the 7% Senior Notes due 2015, 8¹/₄% Senior Notes due 2017, 8 ³/₄% Senior Subordinated Notes due 2018, and 8 ³/₈% Senior Notes due 2020, with certain immaterial exceptions. Refer to Notes 17 and 18 for supplemental guarantor information. The Company’s obligations under the Corporate credit facility are also collateralized by perfected first priority pledges and security interests in the following:


•	substantially all of the equity interests of the Company’s U.S. subsidiaries (other than CBF and subsidiaries of CBT, CBET, and certain immaterial subsidiaries) and 66% of its equity interests in its foreign subsidiaries; and


•	certain personal property and intellectual property of the Company and its subsidiaries (other than that of CBT, CBET, CBF, its foreign subsidiaries and certain immaterial subsidiaries) with a total carrying value of approximately $700 million at December 31, 2011.

There were no borrowings under the revolving credit facility in 2011. The average interest rate charged on borrowings under the revolving credit facilities was 3.7% and 3.3% for 2010 and 2009, respectively. Under the Tranche B Term Loan, the average interest rate charged was 6.5% in 2010. Interest charged on the previous term loan facility was 1.8% and 2.5% in 2010 and 2009, respectively.

Accounts Receivable Securitization Facility

CBI and certain of its subsidiaries have an accounts receivable securitization facility ("Receivables Facility"), which permits borrowings of up to $105.0 million. The available borrowing capacity is calculated monthly based on the quantity and quality of outstanding accounts receivable and thus may be lower than the maximum borrowing limit. CBT, CBET, Cincinnati Bell Wireless, LLC ("CBW"), Cincinnati Bell Any Distance Inc. ("CBAD"), Cincinnati Bell Any Distance of Virginia LLC, CBTS, eVolve Business Solutions LLC ("eVolve"), and CyrusOne Inc. (collectively, "transferors") sell their respective trade receivables on a continuous basis to CBF, a wholly-owned limited liability company. In turn, CBF grants, without recourse, a senior undivided interest in the pooled receivables to various purchasers, including commercial paper conduits, in exchange for cash while maintaining a subordinated undivided interest in the form of over-collateralization in the pooled receivables. The transferors have agreed to continue servicing the receivables for CBF at market rates; accordingly, no servicing asset or liability has been recorded. The Receivables Facility is subject to bank renewal every 364 days, and in any event expires in June 2014. In the event the Receivables Facility is not renewed, management believes it would be able to refinance any outstanding borrowings under the Corporate credit facility.

Although CBF is a wholly-owned consolidated subsidiary of the Company, CBF is legally separate from the Company and each of the Company’s other subsidiaries. Upon and after the sale or contribution of the accounts receivable to CBF, such accounts receivable are legally assets of CBF, and, as such, are not available to creditors of other subsidiaries or the parent company.

For the purposes of consolidated financial reporting, the Receivables Facility is accounted for as a secured financing. Because CBF has the ability to prepay the Receivables Facility at any time by making a cash payment and effectively repurchasing the receivables transferred pursuant to the facility, the transfers do not qualify for "sale" treatment on a consolidated basis under ASC 860, "Transfers and Servicing." At December 31, 2011, the Company had $23.2 million letters of credit outstanding on this facility, leaving $79.6 million remaining on the available borrowing amount of $102.8 million. Interest on the Receivables Facility is based on the commercial paper rate plus 1.20%. There were nominal borrowings and repayments on the Receivables Facility in 2011. The average interest rate on the Receivables Facility was 1.6% in 2010, and 1.8% in 2009. The Company pays commitment fees for the unused amount of borrowings on the securitization facility, and letter of credit fees on this facility. These fees were $0.7 million in 2011, $0.6 million in 2010, and $0.1 million in 2009.

7% Senior Notes due 2015

The Company has $250.0 million of 7% Senior Notes due 2015 ("7% Senior Notes"). Net proceeds from this issuance together with those of other concurrently issued bonds and amounts under the Corporate credit facility were used to repay and terminate the Company's prior credit facility. The 7% Senior Notes are fixed rate bonds to maturity.

Interest on the 7% Senior Notes is payable semi-annually in cash in arrears on February 15 and August 15 of each year. The 7% Senior Notes are unsecured senior obligations ranking equally with all existing and future senior debt and ranking senior to all existing and future senior subordinated indebtedness and subordinated indebtedness. Each of the Company’s current and future subsidiaries that is a guarantor under the Corporate credit facility is also a guarantor of the 7% Senior Notes on an unsecured senior basis, with certain immaterial exceptions. The indenture governing the 7% Senior Notes contains covenants including but not limited to the following: limitations on dividends to shareowners and other restricted payments; dividend and other payment restrictions affecting the Company’s subsidiaries such that the subsidiaries are not permitted to enter into an agreement that would limit their ability to make dividend payments to the parent; issuance of indebtedness; asset dispositions; transactions with affiliates; liens; investments; issuances and sales of capital stock of subsidiaries; and redemption of debt that is junior in right of payment. The indenture governing the 7% Senior Notes provides for customary events of default, including for nonpayment at final maturity and for a default of any other existing debt instrument that exceeds $20.0 million.

The Company may redeem the 7% Senior Notes for a redemption price of 101.167% on or after February 15, 2012 and 100.000% on or after February 15, 2013.

8 ¹/₄% Senior Notes due 2017

In October 2009, the Company issued $500 million of 8 ¹/₄% Senior Notes due 2017 ("8 ¹/₄% Senior Notes"). Net proceeds of $492.8 million after debt discount, were used to redeem the outstanding 7 ¹/₄% Senior Notes due 2013 of $439.9 million plus accrued and unpaid interest, related call premium, and for general corporate purposes, including the repayment of other debt. The 8 ¹/₄% Senior Notes are fixed rate bonds to maturity.

Interest on the 8 ¹/₄% Senior Notes is payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing April 15, 2010. The 8 ¹/₄% Senior Notes are unsecured senior obligations ranking equally with all existing and future senior debt and ranking senior to all existing and future senior subordinated indebtedness and subordinated indebtedness. Each of the Company’s current and future subsidiaries that is a guarantor under the Corporate credit facility is also a guarantor of the 8 ¹/₄% Senior Notes on an unsecured senior basis, with certain immaterial exceptions. The indenture governing the 8 ¹/₄% Senior Notes contains covenants including but not limited to the following: limitations on dividends to shareowners and other restricted payments; dividend and other payment restrictions affecting the Company’s subsidiaries such that the subsidiaries are not permitted to enter into an agreement that would limit their ability to make dividend payments to the parent; issuance of indebtedness; asset dispositions; transactions with affiliates; liens; investments; issuances and sales of capital stock of subsidiaries; and redemption of debt that is junior in right of payment. The indenture governing the 8 ¹/₄% Senior Notes provides for customary events of default, including for nonpayment at final maturity and for a default of any other existing debt instrument that exceeds $35 million.

The Company may redeem the 8 ¹/₄% Senior Notes for a redemption price of 104.125%, 102.063%, and 100.000% on or after October 15, 2013, 2014, and 2015, respectively. At any time prior to October 15, 2013, the Company may redeem all or part of the 8 ¹/₄% Senior Notes at a redemption price equal to the sum of (1) 100% of the principal, plus (2) the greater of (a) 1% of the face value of the 8 ¹/₄% Senior Notes or (b) the excess over the principal amount of the sum of the present values of (i) 104.125% of the face value of the 8 ¹/₄% Senior Notes, and (ii) interest payments due from the date of redemption to October 15, 2013, in each case discounted to the redemption date on a semi-annual basis at the applicable U.S. Treasury rates plus one-half percent, plus (3) accrued and unpaid interest, if any, to the date of redemption. Prior to October 15, 2012, the Company may redeem up to a maximum of 35% of the aggregate principal amount of the 8 ¹/₄% Senior Notes with the net cash proceeds of one or more equity offerings by the Company, at a redemption price equal to 108.250% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date.

8 ³/₄% Senior Subordinated Notes due 2018

In March 2010, the Company issued $625 million of 8 ³/₄% Senior Subordinated Notes due 2018 (“8 ³/₄% Senior Subordinated Notes”), which are fixed rate bonds to maturity. The net proceeds of $616.2 million, after debt discount, were used to call and redeem $560.0 million of 8 ³/₈% Subordinated Notes plus accrued and unpaid interest and related call premium.

Interest on the 8 ³/₄% Senior Subordinated Notes is payable semi-annually in cash in arrears on March 15 and September 15 of each year, commencing September 15, 2010. The 8 ³/₄% Senior Subordinated Notes are unsecured senior subordinated obligations ranking junior to all existing and future senior debt, ranking equally to all existing and future senior subordinated indebtedness, and ranking senior to all existing and future subordinated indebtedness. Each of the Company’s current and future subsidiaries that is a guarantor under the Corporate credit facility is also a guarantor of the 8 ³/₄% Senior Subordinated Notes on an unsecured senior subordinated basis, with certain immaterial exceptions. The indenture governing the 8 ³/₄% Senior Subordinated Notes contains covenants including but not limited to the following: limitations on dividends to shareowners and other restricted payments; dividend and other payment restrictions affecting the Company’s subsidiaries such that the subsidiaries are generally not permitted to enter into an agreement that would limit their ability to make dividend payments to the parent; issuance of indebtedness; asset dispositions; transactions with affiliates; liens; investments; issuances and sales of capital stock of subsidiaries; and redemption of debt that is junior in right of payment. The indenture governing the 8 ³/₄% Senior Subordinated Notes provides for customary events of default, including for nonpayment at final maturity and for a default of any other existing debt instrument that exceeds $35 million.

The Company may redeem the 8 ³/₄% Senior Subordinated Notes for a redemption price of 104.375%, 102.188%, and 100.000% on or after March 15, 2014, 2015, and 2016, respectively. At any time prior to March 15, 2014, the Company may redeem all or part of the 8 ³/₄% Senior Subordinated Notes at a redemption price equal to the sum of (1) 100% of the principal, plus (2) the greater of (a) 1% of the face value of the 8 ³/₄% Senior Subordinated Notes or (b) the excess over the principal amount of the sum of the present values of (i) 104.375% of the face value of the 8 ³/₄% Senior Subordinated Notes, and (ii) interest payments due from the date of redemption to March 15, 2014, in each case discounted to the redemption date on a semi-annual basis at the applicable U.S. Treasury rates plus one-half percent, plus (3) accrued and unpaid interest, if any, to the date of redemption. Prior to March 15, 2013, the Company may redeem up to a maximum of 35% of the aggregate principal amount of the 8 ³/₄% Senior Subordinated Notes with the net cash proceeds of one or more equity offerings by the Company, at a redemption price equal to 108.750% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date.

8 ³/₈% Senior Notes due 2020

In the fourth quarter of 2010, the Company issued $775 million of 8 ³/₈% Senior Notes due 2020 ("8 ³/₈% Senior Notes"). The net proceeds of $779.3 million, after premiums, were used to redeem $756.2 million of the Company’s Tranche B Term Loan. The 8 ³/₈% Senior Notes are fixed rate bonds to maturity.

Interest on the 8 ³/₈% Senior Notes is payable semi-annually in cash in arrears on April 15 and October 15 of each year, commencing April 15, 2011. The 8 ³/₈% Senior Notes are unsecured senior obligations ranking equally with all existing and future senior debt and ranking senior to all existing and future senior subordinated indebtedness and subordinated indebtedness. Each of the Company’s current and future subsidiaries that is a guarantor under the Corporate credit facility is also a guarantor of the 8 ³/₈% Senior Notes on an unsecured senior basis, with certain immaterial exceptions. The indenture governing the 8 ³/₈% Senior Notes contains covenants including but not limited to the following: limitations on dividends to shareowners and other restricted payments; dividend and other payment restrictions affecting the Company’s subsidiaries such that the subsidiaries are not permitted to enter into an agreement that would limit their ability to make dividend payments to the parent; issuance of indebtedness; asset dispositions; transactions with affiliates; liens; investments; issuances and sales of capital stock of subsidiaries; and redemption of debt that is junior in right of payment. The indenture governing the 8 ³/₈% Senior Notes provides for customary events of default, including for nonpayment at final maturity and for a default of any other existing debt instrument that exceeds $35 million.

The Company may redeem the 8 ³/₈% Senior Notes for a redemption price of 104.188%, 102.792%, 101.396% and 100.000% on or after October 15, 2015, 2016, 2017, and 2018, respectively. At any time prior to October 15, 2015, the Company may redeem all or part of the 8 ³/₈% Senior Notes at a redemption price equal to the sum of (1) 100% of the principal, plus (2) the greater of (a) 1% of the face value of the 8 ³/₈% Senior Notes or (b) the excess over the principal amount of the sum of the present values of (i) 104.188% of the face value of the 8 ³/₈% Senior Notes, and (ii) interest payments due from the date of redemption to October 15, 2015, in each case discounted to the redemption date on a semi-annual basis at the applicable U.S. Treasury rates plus one-half percent, plus (3) accrued and unpaid interest, if any, to the date of redemption. Prior to October 15, 2013, the Company may redeem up to a maximum of 35% of the aggregate principal amount of the 8 ³/₈% Senior Notes with the net cash proceeds of one or more equity offerings by the Company, at a redemption price equal to 108.375% of the principal amount thereof, plus accrued and unpaid interest thereon, if any, to the redemption date.

7 ¹/₄% Senior Notes due 2023

In 1993, the Company issued $50 million of 7 ¹/₄% Senior Notes due 2023 ("7 ¹/₄% Senior Notes"). The indenture related to these 7 ¹/₄% Senior Notes does not subject the Company to restrictive financial covenants, but it does contain a covenant providing that if the Company incurs certain liens on its property or assets, the Company must secure the outstanding 7 ¹/₄% Senior Notes equally and ratably with the indebtedness or obligations secured by such liens. The 7 ¹/₄% Senior Notes are collateralized on a basis consistent with the Corporate credit facility. Interest on the 7 ¹/₄% Senior Notes is payable semi-annually on June 15 and December 15. The Company may not call the 7 ¹/₄% Senior Notes prior to maturity. The indenture governing the 7 ¹/₄% Senior Notes provides for customary events of default, including for failure to make any payment when due and for a default of any other existing debt instrument that exceeds $20 million. In 2009, the Company purchased and extinguished $10.0 million of 7¹/₄% Senior Notes due 2023 and recognized a gain on extinguishment of debt of $2.1 million.

Cincinnati Bell Telephone Notes

CBT issued $80.0 million in unsecured notes that are guaranteed on a subordinated basis by Cincinnati Bell Inc. but not the subsidiaries of Cincinnati Bell Inc. These notes have various final maturity dates occurring in 2023, and may not be called prior to maturity. The fixed interest rates on these notes range from 7.18% to 7.27%.

CBT also issued $150.0 million in aggregate principal of 6.30% unsecured senior notes due 2028, which is guaranteed on a subordinated basis by Cincinnati Bell Inc. but not the subsidiaries of Cincinnati Bell Inc. All of these 2028 notes may be called at any time, subject to proper notice and redemption price. The indentures governing these notes provide for customary events of default, including for failure to make any payment when due and for a default of any other existing debt instrument of Cincinnati Bell Inc. or CBT that exceeds $20.0 million. In 2009, the Company purchased and extinguished $22.5 million of these notes and recognized a gain on extinguishment of debt of $5.6 million.

Capital Lease Obligations

Capital lease obligations represent our obligation for certain leased assets, including wireless towers, data center facilities and various equipment. These leases generally contain renewal options. We hold a purchase option on two leased data center facilities.

Other Financing Arrangements

CyrusOne leases certain buildings used in its data center operations. Structural improvements were made to these leased facilities in excess of normal tenant improvements and, as such, we are deemed the accounting owner of these facilities. As of December 31, 2011 and 2010, the liability related to these financing arrangements was $47.9 million and $32.5 million, respectively, which was recognized within "Other noncurrent liabilities" in the Consolidated Balance Sheets.

The following table summarizes our annual minimum payments for these financing arrangements for the five years subsequent to December 31, 2011, and thereafter:



(dollars in millions)
2012	$	3.8
2013	5.6
2014	6.4
2015	6.5
2016	6.6
Thereafter	48.7
Total	$	77.6

Debt Maturity Schedule

The following table summarizes our annual principal maturities of debt and capital leases for the five years subsequent to December 31, 2011, and thereafter:



				Capital		Total
(dollars in millions)	Debt			Leases		Debt
Year ended December 31,
2012	$	1.8		$	11.2	$	13.0
2013	1.4			17.5		18.9
2014	0.1			6.2		6.3
2015	247.7			5.5		253.2
2016	—			6.0		6.0
Thereafter	2,147.5			94.5		2,242.0
	2,398.5			140.9		2,539.4
Net unamortized call amounts on terminated rate swaps	2.9			—		2.9
Net unamortized discount	(8.7		)	—		(8.7		)
Total debt	$	2,392.7		$	140.9	$	2,533.6

Total capital lease payments including interest are expected to be $21.4 million for 2012, $26.8 million for 2013, $14.4 million for 2014, $13.4 million for 2015, $13.5 million for 2016, and $150.2 million thereafter.

Deferred Financing Costs

Deferred financing costs are costs incurred in connection with obtaining long-term financing, which are amortized on the effective interest method. As of December 31, 2011 and 2010, deferred financing costs totaled $35.7 million and $41.7 million, respectively. The related amortization, included in "Interest expense" in the Consolidated Statements of Operations, totaled $7.0 million in 2011, $6.6 million in 2010, and $6.0 million in 2009.

Debt Covenants

Credit Facility

The Corporate credit facility has financial covenants that require the Company to maintain certain leverage and interest coverage ratios. Also, for the period from October 1, 2011 to June 11, 2014, capital expenditures are permitted as long as they do not exceed $1.0 billion in the aggregate. The Corporate credit facility also contains certain covenants which, among other things, restrict the Company’s ability to incur additional debt or liens, pay dividends, repurchase Company common stock, sell, transfer, lease, or dispose of assets and make investments or merge with another company. If the Company were to violate any of its covenants and were unable to obtain a waiver, it would be considered a default. If the Company were in default under the Corporate credit facility, no additional borrowings under this facility would be available until the default was waived or cured. The Corporate credit facility provides for customary events of default, including for failure to make any payment when due and for a default on any other existing debt instrument having an aggregate principal amount that exceeds $35 million.

Public Indentures

Various issuances of the Company’s public debt, which include the 7% Senior Notes due 2015, 8 ¹/₄% Senior Notes due 2017, 8 ³/₄% Senior Subordinated Notes due 2018, and 8 ³/₈% Senior Notes due 2020, are governed by indentures which contain covenants that, among other things, limit the Company’s ability to incur additional debt or liens, pay dividends or make other restricted payments, sell, transfer, lease, or dispose of assets and make investments or merge with another company.

One of the financial covenants permits the issuance of additional Indebtedness up to a 4:00 to 1:00 Consolidated Adjusted Senior Debt to EBITDA ratio (as defined by the individual indentures). Once this ratio exceeds 4:00 to 1:00, the Company is not in default; however, additional Indebtedness may only be incurred in specified permitted baskets, including a Credit Agreement basket providing full access to the Corporate credit facility. Also, the Company’s ability to make Restricted Payments (as defined by the individual indentures) would be limited, including common stock dividend payments or repurchasing outstanding Company shares. As of December 31, 2011, the Company was below the 4:00 to 1:00 Consolidated Adjusted Senior Debt to EBITDA ratio. In addition, the Company had in excess of $1.2 billion available in its restricted payment basket as of December 31, 2011. If the Company is under the 4:00 to 1:00 ratio on a proforma basis, the Company may use this basket to make restricted payments, including share repurchases or dividends, and/or the Company may designate one or more of its subsidiaries as Unrestricted (as defined in the various indentures) such that any Unrestricted Subsidiary would generally not be subject to the restrictions of these various indentures. However, certain provisions which govern the Company's relationship with Unrestricted Subsidiaries would begin to apply.

Extinguished Notes

In 2010, the Company redeemed its 8 ³/₈% Senior Subordinated Notes due 2014 ("8 ³/₈% Subordinated Notes") with a principal balance of $560 million and its Tranche B Term Loan with a principal balance of $760 million. The Company also terminated an interest rate swap related to the 8 ³/₈% Subordinated Notes. In 2009, the Company redeemed its 7 ¹/₄% Senior Notes due 2013 with a principal balance of $439.9 million. For the years ended December 31, 2010 and 2009, the Company recognized debt extinguishment losses of $46.5 million and $10.3 million, respectively