Note 9 - Debt

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


Description	Maturity Date	June 30, 2011			December 31, 2010

7.625% senior notes	February 2017	$	150.0		$	150.0
New 4.0% senior convertible notes, $105.3 million principal amount	June 2014		96.9			—
New 4.25% senior convertible notes, $97.0 million principal amount	December 2014		88.9			—
Original 4.0% senior convertible notes	June 2014		9.7			115.0
Original 4.25% senior convertible notes	December 2014		3.0			100.0
3.5276% equipment term loan, $13.5 million principal amount	In installments through 2013		10.7			12.9
Capital lease obligations, weighted average interest rate of 3.8%	In installments through 2017		42.2			24.5
Notes payable for equipment, weighted average interest rate of 4.2%	In installments through 2015		22.2			10.2

Total debt		$	423.6		$	412.6
Less current maturities			(23.6	)		(18.4	)

Long-term debt		$	400.0		$	394.2

Credit Facility

In May 2011, MasTec exercised the accordion option (the "Accordion Option") under its senior secured credit facility (the "Credit Facility"). In connection with the exercise of the Accordion Option, the Company entered into an amendment to its Credit Facility, pursuant to which the aggregate principal amount of revolving loans available to the Company under the Credit Facility was increased from $210 million to $260 million, subject to adjustment, as provided by the terms and conditions of the Credit Facility. The Company may amend its Credit Facility in the future to extend the maturity date and to provide additional borrowing capacity to accommodate future growth in its business.

Acquisition Debt

During the second quarter of 2011, the Company assumed approximately $20.9 million of debt and capital lease obligations in connection with certain acquisitions, of which $10.4 million was repaid immediately. As of June 30, 2011, approximately $10.4 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% senior convertible notes and $97 million of its original 4.25% senior convertible notes (together, the "Original Notes") for identical principal amounts of new 4.0% and 4.25% senior convertible notes (the "New Notes") 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. Following the exchange, $12.7 million of the Original Notes remains outstanding.

In accordance with U.S GAAP, issuers of convertible debt instruments that may be settled in cash or other assets on conversion are required to separately account for the liability component of the instrument in a manner that reflects the entity's estimated market interest rate for a similar nonconvertible instrument as of the instrument's issuance date. As a result, the Company 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 June 30, 2011 are as follows (in millions):


	June 30, 2011
	New 4.0% Senior Convertible Notes			New 4.25% Senior Convertible Notes
Principal amount	$	105.3		$	97.0
Unamortized debt discount (1)		(7.9	)		(7.7	)
Unamortized balance of investor fees (2)		(0.5	)		(0.4	)

Net carrying amount of debt component	$	96.9		$	88.9

Carrying amount of equity component	$	8.9		$	8.5

(1)

Represents the unamortized portion of the discount created from separation of the debt portion of the New Notes from the equity portion. This discount will be accreted to interest expense over the term of the New Notes.

(2)

Represents the unamortized portion of exchange fees paid in connection with the debt exchange. These fees will be accreted to interest expense over the term of the New Notes.

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 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, $24.0 million of capital lease assets and corresponding capital lease obligations were recorded in the Company's condensed unaudited 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 June 30, 2011 and December 31, 2010.

Interest Expense, Net

Interest expense for the three and six months ended June 30, 2011 includes $0.9 million and $1.9 million, respectively, of debt discount and investor fee accretion associated with the New Notes. Details of interest expense, net, for the periods indicated is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2011			2010			2011			2010
Interest expense:
Contractual interest payments and other interest expense	$	6.8		$	6.7		$	13.1		$	13.6
Senior convertible note discount and related investor fee accretion		0.9			—			1.9			—
Amortization of deferred financing costs		0.8			0.8			1.6			1.6

Total interest expense	$	8.5		$	7.5		$	16.6		$	15.2
Interest income		(0.2	)		(0.2	)		(0.4	)		(0.6	)

Interest expense, net	$	8.3		$	7.3		$	16.2		$	14.6