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Debt

9 Months Ended

Sep. 30, 2011

Debt

Note 9 – Debt

The carrying value of debt is composed of the following as of September 30, 2011 and December 31, 2010 (in millions):


Description		Maturity Date		September 30, 2011				December 31, 2010

Credit Facility		August 2016		$	27.0			$	—
7.625% senior notes		February 2017			150.0				150.0
New 4.0% senior convertible notes, $105.3 million principal amount		June 2014			97.6				—
New 4.25% senior convertible notes, $97.0 million principal amount		December 2014			89.4				—
Original 4.0% senior convertible notes		June 2014			9.7				115.0
Original 4.25% senior convertible notes		December 2014			3.0				100.0
3.5267% equipment term loan, $13.5 million principal amount		In installments through 2013			9.6				12.9
Capital lease obligations, weighted average interest rate of 3.7%		In installments through 2017			42.0				24.5
Notes payable for equipment, weighted average interest rate of 4.2%		In installments through 2015			23.6				10.2

Total debt				$	451.9			$	412.6
Less current maturities					(25.0	)			(18.4	)

Long-term debt				$	426.9			$	394.2

Credit Facility

In August 2011, the Company entered into a Third Amended and Restated Credit Agreement (the "Credit Facility"), which amended and restated the Company's then-existing credit facility in its entirety, expanded maximum available borrowing capacity from $260 million to $600 million and extended the maturity date from May 2013 until August 2016. The amount of borrowings available to the Company under its previous credit facility was based on a formula that could result in availability of less than the full $260 million of borrowing capacity. The amended Credit Facility allows the Company to borrow up to the full $600 million of availability, provided that the Company is in compliance with all of the terms and provisions of the Credit Facility.

The Credit Facility provides for a $600 million senior secured revolving credit facility maturing on August 22, 2016. Up to $350 million of the Credit Facility is available for the issuance of letters of credit. Subject to the conditions and terms specified in the Credit Facility, the Company has the option to increase the revolving commitments and/or establish additional term loan tranches from time to time in an aggregate amount of up to $200 million. Borrowings under the Credit Facility will be used to refinance existing indebtedness and for working capital, capital expenditures and other corporate purposes, including the repurchase or prepayment of indebtedness; however, the Credit Facility restricts the repurchase or prepayment of certain unsecured indebtedness, including the Company's senior notes due 2017 and senior convertible notes due 2014, unless the Company has at least $50 million of remaining liquidity (as defined in the Credit Facility) after any such repurchase or prepayment.

The Credit Facility requires that the Company maintain a consolidated leverage ratio (as defined in Credit Facility) below 3.50 to 1.00 and a consolidated interest coverage ratio (as defined in the Credit Facility) above 3.00 to 1.00. Subject to customary exceptions, the Credit Facility also limits the Company's ability to engage in certain activities, including acquisitions, mergers and consolidations, debt incurrence, investments, capital expenditures, asset sales, debt prepayments, lien incurrence and the making of distributions on or repurchases of capital stock.

Following the date on which the Company delivers its financial information to the lenders for the quarter ending March 30, 2012 (the "Interest Adjustment Date"), amounts borrowed under the Credit Facility will bear interest, at the Company's option, at a rate equal to either (a) the eurocurrency rate (as defined in the Credit Facility), plus a margin of 1.50% to 2.50%, as determined based on the Company's consolidated leverage ratio (as defined in the Credit Facility) as of the most recent fiscal quarter, or (b) the base rate, which is equal to the highest of (i) the federal funds rate (as defined in the Credit Facility) plus 0.5%, (ii) Bank of America's prime rate and (iii) the eurocurrency rate plus 1.00%, plus a margin of 0.50% to 1.50%, as determined based on the Company's consolidated leverage ratio as of the most recent fiscal quarter. Prior to the Interest Adjustment Date, the margin for eurocurrency rate loans will be fixed at 2.00%, and the margin for base rate loans will be fixed at 1.00%. Following the Interest Adjustment Date, financial standby letters of credit and commercial letters of credit issued under the Credit Facility will be subject to a letter of credit fee of 1.50% to 2.50% and performance standby letters of credit will be subject to a letter of credit fee of 0.75% to 1.25%, based on the Company's consolidated leverage ratio as of the then most recent fiscal quarter. Prior to the Interest Adjustment Date, this fee will be fixed at 2.00% and 1.00% respectively. The Company must also pay a commitment fee to the lenders on any unused availability under the Credit Facility which fee, following the Interest Adjustment Date, will be equal to 0.25% to 0.45%, based on the Company's consolidated leverage ratio as of the then most recent fiscal quarter. Prior to the Interest Adjustment Date, this fee will be fixed at 0.35%.

As of September 30, 2011, the Company had outstanding revolving loans of $27.0 million and approximately $89.5 million of letters of credit issued under the Credit Facility. The remaining $483.5 million of Credit Facility borrowing capacity was available for revolving loans or up to $260.5 million of new letters of credit. Outstanding letters of credit mature at various dates and most have automatic renewal provisions, subject to prior notice of cancellation. As of September 30, 2011, interest on outstanding revolving loans accrued at a rate of 4.25% per annum and interest on outstanding letters of credit accrued at either 1% or 2% per annum, based on the type of letter of credit issued, as defined above. The unused facility fee as of September 30, 2011 was 0.35%.

The Credit Facility is guaranteed by most of the Company's U.S. subsidiaries, and it is collateralized by a first priority security interest in substantially all of the Company's assets and the assets of its wholly-owned subsidiaries and a pledge of the outstanding equity interests in certain of the Company's operating subsidiaries. The Credit Facility also provides for customary events of default and carries cross-default provisions with the Company's other significant debt instruments, including the Company's indemnity agreement with its surety provider, as well as customary remedies upon an event of default (as defined in the Credit Facility), including the acceleration of repayment of outstanding amounts and other remedies with respect to the collateral securing the Credit Facility obligations.

Cash Overdrafts

On a daily basis, available funds are swept from the Company's depository accounts into a concentration account and are used to repay debt under the Company's Credit Facility. Cash overdrafts principally represent the balance of outstanding checks that have not yet cleared through the banking system. Other cash balances maintained by certain operating subsidiaries, which are not available for sweep into the concentration account, as well as deposits made subsequent to the daily cash sweep, are classified as cash. The Company generally does not fund its disbursement accounts for checks it has written until the checks are presented to the bank for payment. Cash overdrafts are classified within accounts payable. There are no compensating balance requirements associated with the Company's depository accounts, and, with the exception of cash balances maintained by certain operating subsidiaries that are not available for sweep, there are no other restrictions on the transfer of cash associated with the Company's depository accounts. As of September 30, 2011, cash overdrafts totaled $22.7 million.

Acquisition Debt

During the second quarter of 2011, the Company assumed approximately $26.0 million of debt and capital lease obligations in connection with certain acquisitions, of which $12.1 million was repaid immediately. As of September 30, 2011, approximately $10.2 million of related debt and capital lease obligations remained outstanding. Certain equipment debt related to these acquisitions is secured by the financed equipment. There are no financial covenants associated with this acquisition-related debt. See Note 3 – Acquisitions and Other Investments for a description of the acquisitions to which this debt is related.

Senior Convertible Note Exchange

During the first quarter of 2011, the Company exchanged $105.3 million of its Original 4.0% Notes and $97.0 million of its Original 4.25% Notes for identical principal amounts of New 4.0% Notes and New 4.25% Notes, respectively, for an exchange fee of approximately 50 basis points, or 0.5%. The terms of the New Notes are substantially identical to those of the Original Notes, except that the New Notes have an optional physical, cash or combination settlement feature and contain certain conditional conversion features. Exchange fees of approximately $1.0 million will be recognized over the remaining life of the New Notes as interest expense. Transaction costs of approximately $0.7 million have been recognized within general and administrative expenses, of which $0.5 million was recognized during the quarter ended December 31, 2010. During 2011, an immaterial principal amount of Original Notes was converted into shares of the Company's common stock. As of September 30, 2011, $12.7 million principal amount of the Original Notes remains outstanding.

The Company has separated the principal balance of the New Notes between the fair value of the debt component and the fair value of the common stock conversion feature. Using an income approach, management discounted the values of the New Notes at an estimated rate of 6.73%, which represents the estimated market interest rate for a similar nonconvertible instrument as of the date of the exchange. The resulting total debt discount of $17.4 million for the New Notes will be accreted to interest expense over the remaining terms of the New Notes. This will increase interest expense during the term of the New Notes above their 4.0% and 4.25% cash coupon interest rates to an effective interest rate of 6.73%. The fair value of the common stock conversion feature is recorded as a component of shareholders' equity.

The carrying values of the debt and equity components of the New Notes as of September 30, 2011 are as follows (in millions):


		September 30, 2011
		New 4.0% Senior Convertible Notes				New 4.25% Senior Convertible Notes
Principal amount		$	105.3			$	97.0
Unamortized debt discount			(7.3	)			(7.2	)
Unamortized balance of investor fees			(0.4	)			(0.4	)

Net carrying amount of debt component		$	97.6			$	89.4

Carrying amount of equity component		$	8.9			$	8.5

The New Notes are guaranteed by the Company's subsidiaries that guarantee the Original Notes.

Other Debt Activity

In January 2011, the Company modified the terms of certain of its equipment held under operating leases. The modifications led to a change in classification of the corresponding leases from operating to capital as of the effective date of the lease modifications. Accordingly, $23.4 million of capital lease assets and corresponding capital lease obligations were recorded in the Company's consolidated balance sheet as of January 1, 2011.

Debt Guarantees and Covenants

The subsidiary guarantees related to the Company's senior convertible notes and senior notes are full and unconditional and joint and several, and there are generally no contractual restrictions on the Company's ability to obtain funds from its subsidiaries. Also, MasTec, Inc. is a holding company with no independent assets or operations, and the Company's subsidiaries that do not guarantee the senior convertible notes and senior notes are minor, individually and in the aggregate, as such term is defined under the rules and regulations of the SEC. Accordingly, condensed unaudited consolidating financial information for MasTec, Inc. and its subsidiaries is not presented.

MasTec was in compliance with all debt covenants as of September 30, 2011 and December 31, 2010.

Interest Expense, Net

Details of interest expense, net, for the periods indicated is as follows:


		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
Interest expense:
Contractual interest payments and other interest expense		$	7.0			$	6.7			$	20.2			$	20.3
Senior convertible note discount and related investor fee accretion			1.2				—				3.0				—
Amortization of deferred financing costs			0.8				0.8				2.4				2.4

Total interest expense		$	9.0			$	7.5			$	25.6			$	$22.7
Interest income			(0.1	)			(0.2	)			(0.5	)			(0.8	)

Interest expense, net		$	8.9			$	7.3			$	25.1			$	$21.9