Windstream 2010 Annual Report Download - page 119

pro-forma compliance with a secured debt leverage ratio of 2.25 to 1.0 in order to borrow in excess of the first $800
million of the $1.6 billion basket. On November 22, 2010, Windstream increased the capacity under its senior secured
revolving credit facility from $500.0 million to $750.0 million, leaving $1.35 billion available. For 2011, the
Company’s capital expenditure capacity, as calculated under these covenants, is approximately $665.7 million, which
includes $125.2 million of unused capacity from 2010 and approximately $72.8 million in additional capacity
attributable to the adjusted earnings before interest, taxes, depreciation and amortization of the Acquired Companies.
The financial ratios required by the Company’s senior secured credit facility and indentures include certain financial
measures that are not calculated in accordance with accounting principles generally accepted in the United States
(“non-GAAP financial measures”). These non-GAAP financial measures are presented below for the sole purpose of
demonstrating the Company’s compliance with its debt covenants and were calculated as follows:
(Millions, except ratios)
December 31,
2010
Gross leverage ratio:
Total debt $ 7,325.8
Operating income, last twelve months $ 1,030.3
Depreciation and amortization, last twelve months 693.6
Other non-cash and non-recurring expense adjustments required
by the credit facilities and indentures (a) 277.6
Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) $ 2,001.5
Leverage ratio (b) 3.66
Maximum gross leverage ratio allowed 4.50
Interest coverage ratio:
Adjusted EBITDA $ 2,001.5
Interest expense, last twelve months $ 521.7
Adjustments required by the credit facilities and indentures (c) 57.5
Adjusted interest expense $ 579.2
Interest coverage ratio (d) 3.46
Minimum interest coverage ratio allowed 2.75
(a) Adjustments required by the credit facility and indentures primarily consist of the inclusion of the Acquired
Companies’ preacquisition operating income before depreciation and amortization, pension and stock-based
compensation expense and non-recurring merger, integration and restructuring charges.
(b) The gross leverage ratio is computed by dividing total debt by adjusted EBITDA.
(c) Adjustments required by the credit facility and indentures primarily consist of the inclusion of interest expense
related to the 2018 and 2020 Notes as if they were issued January 1, 2010, the net Revolver activity during the
fourth quarter of 2010, capitalized interest and amortization of the discount on long-term debt, net of premiums.
(d) The interest coverage ratio is computed by dividing adjusted EBITDA by adjusted interest expense.
In addition, certain of the Company’s debt agreements contain various covenants and restrictions specific to the
subsidiary that is the legal counterparty to the agreement. Under the Company’s long-term debt agreements,
acceleration of principal payments would occur upon payment default, violation of debt covenants not cured within 30
days, a change in control including a person or group obtaining 50 percent or more of Windstream’s outstanding voting
stock, or breach of certain other conditions set forth in the borrowing agreements. At December 31, 2010, the Company
was in compliance with all such covenants and restrictions.
As of February 16, 2011, Moody’s Investors Service, Standard & Poor’s Corporation and Fitch Ratings had granted
Windstream the following senior secured, senior unsecured and corporate credit ratings:
Description Moody’s S&P Fitch
Senior secured credit rating Baa3 BB+ BBB-
Senior unsecured credit rating Ba3 B+ BB+
Corporate credit rating Ba2 BB- BB+
Outlook Stable Stable Stable
F-19