Windstream 2007 Annual Report Download - page 143

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Debt, Continued:
borrowing under the revolving credit agreement. Accordingly, the total amount outstanding under the letters of
credit and the indebtedness incurred under the revolving credit agreement may not exceed $500.0 million. At
December 31, 2007, the amount available for borrowing under the revolving credit agreement was $394.1 million.
The terms of the credit facility and indentures include customary covenants that, among other things, require
Windstream to maintain certain financial ratios and restrict its ability to incur additional indebtedness. These
financial ratios include a maximum leverage ratio of 4.5 to 1.0 and a minimum interest coverage ratio of 2.75 to
1.0. In addition, the covenants include restrictions on capital expenditures, which must not exceed a specified
amount for any fiscal year (for 2007 this amount was $530.0 million, which included $80.0 million of unused
capacity from 2006). The Company was in compliance with all covenants as of December 31, 2007.
Maturities and sinking fund requirements for the five years after 2007 for long-term debt outstanding as of
December 31, 2007, were $24.3 million for 2008 and 2009, $24.0 million for 2010, $403.8 million for 2011, and
$27.5 million for 2012.
Interest expense was as follows for the years ended December 31:
(Millions) 2007 2006 2005
Interest expense related to long-term debt $ 443.6 (a) $ 210.8 $ 20.3
Other interest expense 0.2 0.4 1.4
Impacts of interest rate swaps 4.3 1.1 -
Less capitalized interest expense (3.7) (2.7) (2.6)
$ 444.4 $ 209.6 $ 19.1
(a) In connection with the refinancing transaction, the Company recorded additional non-cash interest expense of
$5.3 million due to a write-off of the unamortized debt issuance costs associated with $500.0 million of the
Tranche B loan that was repaid.
During the third quarter of 2006, the Company incurred $7.9 million in prepayment penalties upon the early
retirement of a portion of its subsidiary. This debt was repaid using proceeds from a portion of the senior secured
credit facilities issued pursuant to the spin off from Alltel. These debt prepayment penalties are included in loss on
extinguishment of debt in the accompanying consolidated statement of income for the year ended December 31,
2006.
In order to mitigate the interest rate risk inherent in its variable rate senior secured credit facilities, the Company
entered into four identical pay fixed, receive variable interest rate swap agreements totaling $1,600.0 million in
notional value. The four interest rate swap agreements amortize quarterly to a notional value of $906.3 million at
maturity on July 17, 2013, and have an unamortized notional value of $1,412.5 million at December 31, 2007. The
weighted average fixed rate paid by Windstream is 5.60 percent, and the variable rate received by Windstream is
the three-month LIBOR (London-Interbank Offered Rate), which was 5.21 percent at December 31, 2007, and
which resets on the seventeenth day of each quarter. The Company’s interest rate swap agreements are designated
as cash flow hedges of the interest rate risk created by the variable interest rate paid on Tranche B of the senior
secured credit facilities, which matures on July 17, 2013. The variable interest rate paid on Tranche B is based on
the three-month LIBOR, and it also resets on the seventeenth day of each quarter.
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