Long-term Debt and Derivatives

9 Months Ended

Sep. 30, 2011

Long-term Debt and Derivatives

Long-term Debt and Derivatives

8.  Long-term Debt and Derivatives

Long-term debt, net of current maturities, is as follows:

	September 30,			December 31,
	2011			2010
	(in thousands)
Senior secured credit facility	$	1,639,375		$	1,589,125
$250 million 6 ¾% senior subordinated notes due March 2015	—			250,000
$325 million 8 ¾% senior subordinated notes due August 2019	325,000			325,000
Other long-term obligations	1,919			3,782
Capital leases	3,289			3,216
	1,969,583			2,171,123
Less current maturities of long-term debt	(45,581		)	(357,927		)
Less discount on senior secured credit facility Term Loan B	(1,810		)	—
	$	1,922,192		$	1,813,196

The following is a schedule of future minimum repayments of long-term debt as of September 30, 2011 (in thousands):

Within one year	$	45,581
1-3 years	111,435
3-5 years	775,215
Over 5 years	1,037,352
Total minimum payments	$	1,969,583

Senior Secured Credit Facility

On July 14, 2011, the Company entered into a new $2.15 billion senior secured credit facility, which is comprised of a $700 million revolving credit facility that will mature in July 2016, a $700 million variable rate Term Loan A due in July 2016 and a $750 million variable rate Term Loan B due in July 2018. The interest rates payable on the facilities are based on the leverage ratios of the Company as defined in the debt agreements, however, based on current borrowing levels, the Company will pay LIBOR plus 150 basis points on the revolver and Term Loan A and LIBOR plus 275 basis points on Term Loan B (subject to a 1% LIBOR floor). The Company utilized the proceeds of the two term loan borrowings and cash on hand to retire its previous senior secured credit facility obligation of $1,518.1 million (which had significant principal repayments due at the end of 2011 and 2012) and pay transaction costs and accrued interest and fees on the retired debt. As a result of this refinancing, the Company incurred debt extinguishment charges of $10.2 million during the three months ended September 30, 2011.

The Company’s senior secured credit facility had a gross outstanding balance of $1,639.4 million at September 30, 2011, consisting of $200.0 million drawn under the revolving credit facility, a $691.3 million Term Loan A facility, and a $748.1 million Term Loan B facility. Additionally, at September 30, 2011, the Company was contingently obligated under letters of credit issued pursuant to the $2.15 billion senior secured credit facility with face amounts aggregating $25.0 million, resulting in $475.0 million of available borrowing capacity as of September 30, 2011 under the revolving credit facility.

6 3/4% Senior Subordinated Notes

In July 2011, the Company announced its intention to redeem all of its $250 million senior subordinated notes. The redemption price was $1,022.50 per $1,000 principal amount, plus accrued and unpaid interest, which was paid in August 2011.  The Company funded the redemption of its $250 million senior subordinated notes from its new revolving credit facility and available cash.  The Company recorded a $7.6 million loss on early extinguishment of debt during the three months ended September 30, 2011 related to debt issuance costs write-offs and the call premium on the $250 million senior subordinated notes.

Covenants

The Company’s senior secured credit facility and $325 million 83/4% senior subordinated notes require it, among other obligations, to maintain specified financial ratios and to satisfy certain financial tests, including fixed charge coverage, interest coverage, senior leverage and total leverage ratios. In addition, the Company’s senior secured credit facility and $325 million 83/4% senior subordinated notes restrict, among other things, the Company’s ability to incur additional indebtedness, incur guarantee obligations, amend debt instruments, pay dividends, create liens on assets, make investments, engage in mergers or consolidations, and otherwise restricts corporate activities.

At September 30, 2011, the Company was in compliance with all required covenants.

Interest Rate Swap Contracts

In accordance with the terms of its previous senior secured credit facility, the Company was required to enter into fixed-rate debt or interest rate swap agreements in an amount equal to 50% of the Company’s consolidated indebtedness, excluding the revolving credit facility, within 100 days of the closing date of the previous senior secured credit facility. This requirement was not included in the new senior secured credit facility. As discussed in Note 2, the Company de-designated its cash flow hedges on July 1, 2011 in connection with its new senior secured credit facility.

The effect of derivative instruments on the consolidated statement of income for the three months ended September 30, 2011 was as follows (in thousands):

	Location of Gain (Loss)
Derivatives Not Designated as	Recognized in Income	Gain (Loss) Recognized
Hedging Instruments	on Derivative	in Income on Derivative
Interest rate swap contracts	Interest expense	$	(36	)
Total		$	(36	)

The effect of derivative instruments on the consolidated statement of income for the nine months ended September 30, 2011 was as follows (in thousands):

	Gain (Loss)			Location of Gain (Loss)	Gain (Loss)
	Recognized in			Reclassified from	Reclassified from			Location of Gain (Loss)	Gain (Loss)
Derivatives in a	OCI on Derivative			AOCI into Income	AOCI into Income			Recognized in Income on	Recognized in Income on
Cash Flow Hedging Relationship	(Effective Portion)			(Effective Portion)	(Effective Portion)			Derivative (Ineffective Portion)	Derivative (Ineffective Portion)
Interest rate swap contracts	$	(672	)	Interest expense	$	(8,173	)	None	$	—
Total	$	(672	)		$	(8,173	)		$	—

	Location of Gain (Loss)
Derivatives Not Designated as	Recognized in Income	Gain (Loss) Recognized
Hedging Instruments	on Derivative	in Income on Derivative
Interest rate swap contracts	Interest expense	$	(39	)
Total		$	(39	)

The effect of derivative instruments on the consolidated statement of income for the three months ended September 30, 2010 was as follows (in thousands):

	Gain (Loss)			Location of Gain (Loss)	Gain (Loss)
	Recognized in			Reclassified from	Reclassified from			Location of Gain (Loss)	Gain (Loss)
Derivatives in a	OCI on Derivative			AOCI into Income	AOCI into Income			Recognized in Income on	Recognized in Income on
Cash Flow Hedging Relationship	(Effective Portion)			(Effective Portion)	(Effective Portion)			Derivative (Ineffective Portion)	Derivative (Ineffective Portion)
Interest rate swap contracts	$	(3,462	)	Interest expense	$	(6,363	)	None	$	—
Total	$	(3,462	)		$	(6,363	)		$	—

	Location of Gain (Loss)
Derivatives Not Designated as	Recognized in Income	Gain (Loss) Recognized
Hedging Instruments	on Derivative	in Income on Derivative
Interest rate swap contracts	Interest expense	$	(18	)
Total		$	(18	)

The effect of derivative instruments on the consolidated statement of income for the nine months ended September 30, 2010 was as follows (in thousands):

	Gain (Loss)			Location of Gain (Loss)	Gain (Loss)
	Recognized in			Reclassified from	Reclassified from			Location of Gain (Loss)	Gain (Loss)
Derivatives in a	OCI on Derivative			AOCI into Income	AOCI into Income			Recognized in Income on	Recognized in Income on
Cash Flow Hedging Relationship	(Effective Portion)			(Effective Portion)	(Effective Portion)			Derivative (Ineffective Portion)	Derivative (Ineffective Portion)
Interest rate swap contracts	$	(13,640	)	Interest expense	$	(19,222	)	None	$	—
Total	$	(13,640	)		$	(19,222	)		$	—

	Location of Gain (Loss)
Derivatives Not Designated as	Recognized in Income	Gain (Loss) Recognized
Hedging Instruments	on Derivative	in Income on Derivative
Interest rate swap contracts	Interest expense	$	(56	)
Total		$	(56	)

In addition, during the three and nine months ended September 30, 2011, the Company amortized $2.8 million and $5.3 million, respectively, in OCI related to the derivatives that were de-designated as hedging instruments under ASC 815, “Derivatives and Hedging,” as compared to $4.2 million and $12.7 million for the three and nine months ended September 30, 2010, respectively.

In the coming twelve months, the Company anticipates that losses of approximately $1.8 million will be reclassified from OCI to earnings, as part of interest expense.

The following table sets forth the fair value of the interest rate swap contract liabilities included in accrued interest within the consolidated balance sheets at September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
	(in thousands)
	Balance Sheet	Fair		Balance Sheet	Fair
	Location	Value		Location	Value
Derivatives designated as hedging instruments
Interest rate swap contracts	Accrued interest	$	—	Accrued interest	$	13,034
Total derivatives designated as hedging instruments		$	—		$	13,034
Derivatives not designated as hedging instruments
Interest rate swap contracts	Accrued interest	$	1,437	Accrued interest	$	3,712
Total derivatives not designated as hedging instruments		$	1,437		$	3,712
Total derivatives		$	1,437		$	16,746