Debt and Capital Leases

This footnote should be read in conjunction with the complete description under Note 12, Debt and Capital Leases, to the Company's 2017 Form 10-K. Long-term debt and capital leases consisted of the following:



(In millions, except rates)	September 30, 2018			December 31, 2017			September 30, 2018 interest rate %^(a)

Recourse debt:
Senior Notes, due 2022	$	485		$	992		6.250
Senior Notes, due 2024	733			733			6.250
Senior Notes, due 2026	1,000			1,000			7.250
Senior Notes, due 2027	1,230			1,250			6.625
Senior Notes, due 2028	821			870			5.750
Convertible Senior Notes, due 2048	575			—			2.750
Term loan facility, due 2023	1,857			1,872			L+1.75
Tax-exempt bonds	466			465			4.125 - 6.00
Subtotal recourse debt	7,167			7,182
Non-recourse debt:
Ivanpah, due 2033 and 2038^(b)	—			1,073			2.285 - 4.256
Agua Caliente, due 2037^(c)	—			818			2.395 - 3.633
Agua Caliente Borrower 1, due 2038	86			89			5.430
Midwest Generation, due 2019	78			152			4.390
Other	105			180			various
Subtotal all non-recourse debt	269			2,312
Subtotal long-term debt (including current maturities)	7,436			9,494
Capital leases	2			5			various
Subtotal long-term debt and capital leases (including current maturities)	7,438			9,499
Less current maturities	(593		)	(204		)
Less debt issuance costs	(82		)	(103		)
Discounts	(105		)	(12		)
Total long-term debt and capital leases	$	6,658		$	9,180

(a) As of September 30, 2018, L+ equals 3-month LIBOR plus 1.75%.

(b) The Company deconsolidated Ivanpah during the second quarter of 2018.

Recourse Debt

2023 Term Loan Facility

On March 21, 2018, NRG repriced the 2023 Term Loan Facility, reducing the interest rate margin by 50 basis points to LIBOR plus 1.75% and reducing the LIBOR floor to 0.00%.

In accordance with the terms of the Credit Agreement, on October 5, 2018, the Company initiated an asset sale offer to purchase a portion of its Term Loan following the sale of NRG Yield and the Renewables Platform. The offer expired on November 5, 2018, and $260 million of Term Loan holders accepted the offer. As a result, the Company prepaid $155 million of Term Loans as part of its de-leveraging plan, as well as established an incremental first lien secured loan term facility under the Senior Credit Facility in the aggregate principal amount of $105 million on the same terms and conditions to stay within its debt reduction target.

Senior Notes

Issuance of 2048 Convertible Senior Notes

During the second quarter of 2018, NRG issued $575 million in aggregate principal amount of 2.75% Convertible Senior Notes due 2048, or the Convertible Notes. The Convertible Notes are convertible, under certain circumstances, into the Company's common stock, cash or a combination thereof (at NRG's option) at an initial conversion price of $47.74 per common share, which is equivalent to an initial conversion rate of approximately 20.9479 shares of common stock per $1,000 principal amount of Convertible Notes. Interest on the Convertible Notes is payable semi-annually in arrears on June 1 and December 1 of each year, commencing on December 1, 2018. The Convertible Notes mature on June 1, 2048, unless earlier repurchased, redeemed or converted in accordance with their terms. The Convertible Notes are guaranteed by certain NRG subsidiaries. Prior to the close of business on the business day immediately preceding December 1, 2024, the Convertible Notes will be convertible only upon the occurrence of certain events and during certain periods, and thereafter during specified periods as follows:

•from December 1, 2024 until the close of business on the second scheduled trading day immediately before June 1, 2025; and

•from December 1, 2047 until the close of business on the second scheduled trading day immediately before the maturity date.

The Convertible Notes are accounted for in accordance with ASC 470-20, Debt with Conversion and Other Options. Under ASC 470-20, issuers of convertible debt instruments that may be settled in cash upon conversion, including partial cash settlement, are required to separately account for the liability (debt) and equity (conversion option) components. The carrying amount of the liability component at issuance date of $472 million was calculated by estimating the fair value of similar liabilities without a conversion feature. The residual principal amount of the notes of $103 million was allocated to the equity component with offset to debt discount. The debt discount will be amortized to interest expense using the effective interest method over seven years which is determined to be the expected life of the Convertible Notes.

The Company incurred approximately $12 million in transaction costs in connection with the issuance of the notes. These costs were allocated to the liability and equity components in proportion to the allocation of proceeds. Transaction costs of $10 million, allocated to the liability component, were recognized as deferred financing costs and are amortized over the seven years. Transaction costs of $2 million, allocated to the equity component, were recognized as a reduction of additional paid-in capital.

Senior Note Repurchases

In order to remain leverage neutral with the issuance of the Convertible Notes, during the second and third quarter, the Company completed open market senior note repurchases and partially redeemed the 6.250% notes due 2022, as detailed in the table below. During the nine months ended September 30, 2018, a $22 million loss on debt extinguishment was recorded for these repurchases, which included the write-off of previously deferred financing costs of $6 million.



	Principal Repurchased		Cash Paid ^(a)		Average Early Redemption Percentage
In millions, except rates
5.750% senior notes due 2028	$	29	$	30	99.24	%
6.250% senior notes due 2022	14		15		103.25	%
Total at June 30, 2018	$	43	$	45
6.250% senior notes due 2022^(b)	492		512		103.13	%
5.750% senior notes due 2028	20		20		99.13	%
6.625% senior notes due 2027	20		21		103.06	%
Total at September 30, 2018	$	575	$	598

(a) Includes payment for accrued interest of $7 million as of September 30, 2018

(b) Includes partial redemption of $486 million during the third quarter of 2018

On October 9, 2018, the Company redeemed all of its outstanding 6.250% senior notes due 2022 in the aggregate principal amount of $485 million. The Company has completed its targeted $640 million debt reduction, through this redemption and the $155 million Term Loan repurchase, and is on track to achieve a target net debt to adjusted EBITDA ratio of 3.0/1 for 2018.