v3.19.3

Long-Term Debt and Revolving Credit Arrangements | 9 Months Ended
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Sep. 30, 2019
Debt Disclosure [Abstract] |
Long-Term Debt and Revolving Credit Arrangements | Note 8 - Long-Term Debt and Revolving Credit Arrangements Components of debt, including the associated effective interest rates were as follows (in millions, except for percentages):
|  | As of |  |
|  | December 31, 2018 |  | September 30, 2019 |  | Effective Interest Rate
2016 Senior Secured Term Loan |  | $ | 1,124 |  |  | $ | 1,116 |  |  | 6.1 | %
2018 Senior Secured Term Loan |  | 1,493 |  |  | 1,481 |  |  | 6.2 | %
2021 Convertible Notes |  | 1,844 |  |  | — |  |  | 23.5 | %
2022 Convertible Notes |  | 1,030 |  |  | — |  |  | 13.7 | %
2023 Senior Note |  | 500 |  |  | 500 |  |  | 7.7 | %
2026 Senior Note |  | 1,500 |  |  | 1,500 |  |  | 8.1 | %
2027 Senior Note |  | — |  |  | 1,200 |  |  | 7.7 | %
Total debt |  | 7,491 |  |  | 5,797 |  |  |
Less: unamortized discount and issuance costs |  | (595 | ) |  | (59 | ) |  |
Less: current portion of long-term debt |  | (27 | ) |  | (27 | ) |  |
Total long-term debt |  | $ | 6,869 |  |  | $ | 5,711 |  |  |
2016 Senior Secured Term Loan In July 2016, the Company entered into a secured term loan agreement with a syndicate of lenders to issue senior secured floating-rate term loans for a total of $1.2 billion in proceeds, net of debt discount of $23 million and debt issuance costs of $13 million, with a maturity date of July 2023 (the “2016 Senior Secured Term Loan”). On June 13, 2018, the Company entered into an amendment to the 2016 Senior Secured Term Loan agreement which increased the effective interest rate to 6.1% on the outstanding balance of the 2016 Senior Secured Term Loan as of the amendment date. The maturity date for the 2016 Senior Secured Term Loan remains July 13, 2023. The amendment qualified as a debt modification that did not result in an extinguishment except for an immaterial syndicated amount of the loan. The 2016 Senior Secured Term Loan is guaranteed by certain material domestic restricted subsidiaries of the Company. The 2016 Senior Secured Term Loan agreement contains customary covenants restricting the Company and certain of its subsidiaries’ ability to incur debt, incur liens and undergo certain fundamental changes, as well as certain financial covenants specified in the contractual agreement. The Company was in compliance with all covenants as of September 30, 2019. The credit agreement also contains customary events of default. The loan is secured by certain intellectual property of the Company and equity of certain material foreign subsidiaries. The 2016 Senior Secured Term Loan also contains restrictions on the payment of dividends. 2018 Senior Secured Term Loan In April 2018, the Company entered into a secured term loan agreement with a syndicate of lenders to issue secured floating-rate term loans totaling $1.5 billion in proceeds, net of debt discount of $8 million and debt issuance costs of $15 million, with a maturity date of April 2025 (the “2018 Senior Secured Term Loan”). The 2018 Senior Secured Term Loan was issued on a pari passu basis with the existing 2016 Senior Secured Term Loan. The debt discount and debt issuance costs are amortized to interest expense at an effective interest rate of 6.2%. The 2018 Senior Secured Term Loan is guaranteed by certain material domestic restricted subsidiaries of the Company. The 2018 Senior Secured Term Loan agreement contains customary covenants restricting the Company and certain of its subsidiaries’ ability to incur debt, incur liens and undergo certain fundamental changes, as well as certain financial covenants specified in the contractual agreement. The Company was in compliance with all covenants as of September 30, 2019. The credit agreement also contains customary events of default. The loan is secured by certain intellectual property of the Company and equity of certain material foreign subsidiaries. The fair values of the Company’s 2016 Senior Secured Term Loan and 2018 Senior Secured Term Loan were $1.1 billion and $1.5 billion, respectively, as of September 30, 2019 and were determined based on quoted prices in markets that are not active, which is considered a Level 2 valuation input. 2021 and 2022 Convertible Notes During 2015, the Company issued convertible notes at par for a total of $1.7 billion in proceeds, net of $1 million in debt issuance costs, with an initial maturity date of January 2021 (the “2021 Convertible Notes”) and convertible notes at par for a total of $949 million in proceeds, net of $0.1 million in debt issuance costs with an initial maturity date of June 2022 (the “2022 Convertible Notes” collectively, the “2021 and 2022 Convertible Notes”). The 2021 Convertible Notes contained various extension options triggered by the events defined in the note agreement and allowed the maturity date to be extended up to 2030. For the 2022 Convertible Notes, the Company had the option to elect to extend the maturity date by one year if a material financial market disruption (as defined in the note agreement) existed at initial maturity. The interest rate for the 2021 Convertible Notes was 2.5% per annum, payable semi-annually in arrears. During the first four years from the issuance date, at the election of the holders, interest was to be paid in cash or by increasing the principal amount of the 2021 Convertible Notes by payment in kind (“PIK interest”). The holders had elected to receive PIK interest during the first four years. The interest rate increased to 12.5% during the last 2 years of the initial term of the 2021 Convertible Notes and was to be paid in cash at the election of the Company. The interest rate during the maturity extension period varied from 3.5% to 12.5% depending on the type of extension option elected. The interest rate for the 2022 Convertible Notes was 2.5% per annum, compounded semi-annually and payable in PIK interest. If no conversion or settlement event was triggered prior to the 2022 Convertible Notes’ maturity, the 2022 Convertible Notes were to be redeemed at an 8.0% internal rate of return (“IRR”) either immediately or over a 3-year period, at the Company’s election. The 8.0% IRR payout at maturity was incorporated into the effective interest rate calculation. On May 14, 2019, the Company closed its IPO and the holders of 2021 and 2022 Convertible Notes elected to convert the outstanding notes into common stock. Refer to Note 1 - Basis of Presentation and Summary of Significant Accounting Policies for further information. The 2021 and 2022 Convertible Notes also contained other embedded features, such as conversion options that were exercisable upon the occurrence of various contingencies. The conversion options for the 2021 Convertible Notes involved a discount to the conversion price, which ranged from 18.0% to 30.5% increasing with the passage of time. The conversion options for the 2022 Convertible Notes involved a discount to the conversion price, which ranged from 8.1% to 44.5% increasing with the passage of time. All of the embedded features were analyzed to determine whether they should be bifurcated and separately accounted for as a derivative. Pursuant to such analysis, the Company valued and bifurcated the QIPO Conversion Option, which enabled the holders to convert their 2021 and 2022 Convertible Notes to the shares offered in a QIPO at a predefined discount from the public offering price, and recorded its initial fair value of $1.1 billion and $312 million, respectively, as a discount on the 2021 and 2022 Convertible Notes face amount. The debt discount for the 2021 and 2022 Convertible Notes was amortized to interest expense at an effective interest rate of 23.5% and 13.7%, respectively. The Company was amortizing the discount over the period until the initial maturity date of the respective notes. The fair value of the QIPO Conversion Option was determined in accordance with the methodology described in Note 3 - Investments and Fair Value Measurement, and the changes in fair value were recognized as a component of other income (expense), net in the condensed consolidated statements of operations. The Company recorded $80 million and $419 million of expense for the three and nine months ended September 30, 2018, respectively, and $0 million of expense and $20 million of income for the three and nine months ended September 30, 2019, respectively, related to the change in the fair value of the 2021 Convertible Notes embedded derivative liability, which was included in total other income (expense), net in the condensed consolidated statements of operations. The Company recorded $9 million and $72 million of expense for the three and nine months ended September 30, 2018, respectively, and $0 million of expense and $38 million of income for the three and nine months ended September 30, 2019, respectively, related to the change in the fair value of the 2022 Convertible Notes embedded derivative liability, which was included in total other income (expense), net in the condensed consolidated statements of operations. No value was attributed to other embedded features as they are triggered by events with a remote probability of occurrence. The agreements contained customary covenants that restricted the Company’s ability to, among other things, declare dividends or make certain distributions. 2023, 2026 and 2027 Senior Notes In October 2018, the Company issued five-year notes with aggregate principal amount of $500 million due on November 1, 2023 and eight-year notes with aggregate principal amount of $1.5 billion due on November 1, 2026 (the “2023 and 2026 Senior Notes”) in a private placement offering totaling $2.0 billion. The Company issued the 2023 and 2026 Senior Notes at par and paid approximately $9 million for debt issuance costs. The interest is payable semi-annually on May 1 and November 1 of each year at 7.5% per annum and 8.0% per annum, respectively, beginning on May 1, 2019, and the entire principal amount is due at the time of maturity. In September 2019, the Company issued eight-year notes with aggregate principal amount of $1.2 billion due on September 15, 2027 (the “2027 Senior Notes”) in a private placement to qualified institutional buyers pursuant to Rule144A under the Securities Act. The Company issued the 2027 Senior Notes at par and paid approximately $11 million for debt issuance costs. The interest is payable semi-annually in arrears on March 15 and September 15 of each year at 7.5% per annum, beginning on March 15, 2020, and the entire principal amount is due at the time of maturity. The 2023, 2026 and 2027 Senior Notes are guaranteed by certain material domestic restricted subsidiaries of the Company. The indentures governing the 2023, 2026 and 2027 Senior Notes contain customary covenants restricting the Company and certain of its subsidiaries’ ability to incur debt and incur liens, as well as certain financial covenants specified in the contractual agreements. The Company was in compliance with all covenants as of September 30, 2019. The fair values of the Company’s 2023, 2026 and 2027 Senior Notes were $503 million, $1.5 billion, and $1.2 billion, respectively, as of September 30, 2019 and were determined based on quoted prices in markets that are not active, which is considered a Level 2 valuation input. The following table presents the amount of interest expense recognized relating to the contractual interest coupon, amortization of the debt discount and issuance costs, and the IRR payout with respect to the Senior Secured Term Loan, the Convertible Notes, and the Senior Notes for the three and nine months ended September 30, 2018 and 2019 (in millions):
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2018 |  | 2019 |  | 2018 |  | 2019
Contractual interest coupon |  | $ | 59 |  |  | $ | 83 |  |  | $ | 148 |  |  | $ | 338 |
Amortization of debt discount and issuance costs |  | 82 |  |  | 2 |  |  | 231 |  |  | 80 |
8% IRR payout |  | 16 |  |  | — |  |  | 45 |  |  | 26 |
Total interest expense from long-term debt |  | $ | 157 |  |  | $ | 85 |  |  | $ | 424 |  |  | $ | 444 |
Revolving Credit Arrangements The Company has an unsecured revolving credit agreement with certain lenders, which provides for $2.3 billion in unsecured credit maturing on June 13, 2023 (“Unsecured Revolving Credit Facility”). In conjunction with the Company’s entry into the 2016 Senior Secured Term Loan, the revolving credit facility agreements were amended to include as collateral the same intellectual property of the Company and the same equity of certain material foreign subsidiaries that were pledged as collateral under the 2016 Senior Secured Term Loan. The credit facility may be guaranteed by certain material domestic restricted subsidiaries of the Company based on certain conditions. As of September 30, 2019, no subsidiary met those conditions and, therefore, were not guarantors of the facility. The credit facility has a term of five years from the original execution date. The credit agreement contains customary covenants restricting the Company and certain of its subsidiaries’ ability to incur debt, incur liens, and undergo certain fundamental changes, as well as certain financial covenants specified in the contractual agreement. The credit agreement also contains customary events of default. The Unsecured Revolving Credit Facility also contains restrictions on the payment of dividends. As of September 30, 2019, there was no balance outstanding on the Unsecured Revolving Credit Facility. Letters of Credit The Company’s insurance subsidiary maintains agreements for letters of credit to guarantee the performance of insurance related obligations that are collateralized by cash or investments of the subsidiary. For purposes of securing obligations related to leases and other contractual obligations, the Company also maintains an agreement for letters of credit, which is collateralized by the Company’s Unsecured Revolving Credit Facility and reduces the amount of credit available. As of December 31, 2018 and September 30, 2019, the Company had letters of credit outstanding of $470 million and $561 million, respectively, of which the letters of credit that reduced the available credit under the Unsecured Revolving Credit Facility were $166 million and $204 million, respectively.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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