Windstream 2010 Annual Report Download - page 118

During 2009, the Company repurchased 13.0 million shares totaling $121.3 million bringing total repurchases under a
stock repurchase program, which expired on December 31, 2009, to 29.0 million shares for approximately $321.6
million.
As of December 31, 2010, the Company had $7,362.8 million in long-term debt outstanding, including current
maturities and excluding the discount, (see Note 5). On January 24, 2011, Windstream completed the private placement
of an additional $200.0 million in aggregate principal amount of 7.750 percent senior unsecured notes due October 15,
2020 at 103 percent to yield 7.23 percent as an add-on to the notes issued during the fourth quarter. Proceeds from the
private placement will be used, together with borrowings under our revolving line of credit, to retire the Valor
Telecommunications Enterprises LLC and Valor Telecommunications Finance Corp debt (“Valor Debt”), including
any accrued and unpaid interest on the notes, together with related fees and expenses, which is estimated to total
approximately $424.0 million. This resulted in an extension of the maturity date for $200.0 million associated with the
Valor Debt that was previously due to mature on February 15, 2015. The debt outstanding as of December 31, 2010 is
principally comprised of $2,286.8 million secured primarily under the Company’s senior secured credit facility and
$5,076.0 million in unsecured senior notes.
During October of 2009, Windstream received consent from its lenders to an amendment and restatement of its senior
secured credit facility (the “Amendment”). Windstream amended and restated its senior secured credit facility to,
among other things, extend the maturities of the facility and amend certain covenants to afford Windstream additional
flexibility, resulting in increased interest rates on the extended maturities. Scheduled principal payments for debt
outstanding as of December 31, 2010 for each of the twelve month periods ended December 31, 2011, 2012, 2013,
2014 and 2015 were $139.2 million, $43.9 million, $1,400.4 million, $10.9 million and $1,421.4 million, respectively.
Scheduled principal payments remaining after 2015 are $4,347.0 million. We expect that cash flows from operations
will be sufficient to fund scheduled principal and interest payments through fiscal 2012. We would anticipate
refinancing the majority of the principal amounts maturing in fiscal 2013 as we do not expect that cash flows from
operations will be sufficient to fund the scheduled maturities. See also our discussion of “Windstream’s substantial
debt could adversely affect our cash flow and impair our ability to raise additional capital on favorable terms” within
“Risk Factors” in Item 1A of Part I.
As of December 31, 2010, the Company had approximately $773.4 million of restricted payment capacity as governed
by its credit facility. The Company builds additional capacity through cash generated from operations while dividend
payments, share repurchases and other certain restricted investments reduce the available restricted payments capacity.
The Company will continue to opportunistically consider free cash flow accretive initiatives, including strategic
opportunities and debt repurchases.
Due to the interest rate risk inherent in the variable rate senior secured credit facilities, the Company entered into four
pay fixed, receive variable interest rate swap agreements, designated as a cash flow hedge, with a maturity on July 17,
2013. The variable rate received by Windstream on the swaps was the three-month LIBOR, which was 0.29 percent at
December 31, 2010. The weighted-average fixed rate paid by Windstream was 5.604 percent.
During the fourth quarter of 2010, the Company modified the four interest rate swaps designated as cash flow
hedges. The modifications, commonly referred to as “blend and extends,” extended the maturity of, and re-priced these
four interest rate swaps to October 17, 2015 with a weighted-average fixed rate paid by Windstream of 4.553 percent,
resulting in an estimated 2011 cash interest expense savings of $11.2 million.
As part of these modifications, the accumulated losses of the original interest rate swaps associated with the original
cash flow hedges, as well as a certain amount of accrued interest, were incorporated into the fair values of the new
modified cash flow hedges. The related accumulated other comprehensive loss associated with the negative fair values
of the original cash flow hedges on their dates of modification, which has an unamortized value of $107.6 million as of
December 31, 2010, will be amortized using the swaplet method to interest expense through July 17, 2013, the maturity
date of the original cash flow hedges. This method is based upon the principle that the balance in accumulated other
comprehensive loss will be equivalent to the sum of the current values of the cash flows of each swaplet, or each
calculation period of the interest rate swaps.
The terms of our senior secured credit facilities and indentures include customary covenants that, among other things,
require us to maintain certain financial ratios, restrict our ability to incur additional indebtedness and limit our cash
payments. 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 to the restrictions on dividend and certain other types of payments previously discussed, the
credit facility contains restrictions on capital expenditures capacity. On September 17, 2010, Windstream amended its
credit facility to permit the signing of rural broadband stimulus grant agreements with the Rural Utilities
Service. Windstream also increased the size of its secured leverage capacity. Specifically, Windstream increased the
size of the secured incremental facility basket from $800 million to $1.6 billion. Windstream is required to show
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