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Debt | 6 Months Ended
--- | ---
Jun. 30, 2024
Debt Disclosure [Abstract] |
Debt | 10. Debt Current portion of long-term debt and debt, long-term consists of the following commitments as of June 30, 2024 and December 31, 2023 (in thousands):
|  | As of
|  | June 30, 2024 |  | December 31, 2023
Convertible notes |  | $ | 790,553 |  |  | $ | 788,909 |
Term Loan |  | 380,720 |  |  | 366,404 |
Less: current portion of convertible notes |  | (224,448) |  |  | — |
Debt, long-term |  | $ | 946,825 |  |  | $ | 1,155,313 |
Convertible Notes In May 2021, the Company completed an underwritten public offering of $575.0 million aggregate principal amount of the 2028 Convertible Notes, including the exercise in full of the underwriters' option to purchase an additional $75.0 million in aggregate principal amount of 2028 Convertible Notes. The Company's net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses of $15.7 million, were approximately $559.3 million. The 2028 Convertible Notes bear interest payable semiannually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021. The 2028 Convertible Notes mature on June 1, 2028, unless earlier converted, redeemed, or repurchased. In January 2018, the Company completed an underwritten public offering of $450.0 million aggregate principal amount of the 2025 Convertible Notes, including the exercise in full of the underwriters' option to purchase an additional $50.0 million in aggregate principal amount of 2025 Convertible Notes. The Company's net proceeds from the offering, after deducting underwriting discounts and commissions and other offering expenses of $14.2 million, were approximately $435.8 million. The 2025 Convertible Notes bear interest payable semiannually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The 2025 Convertible Notes would have matured on January 15, 2025 but, on June 27, 2024, the Company called the outstanding 2025 Convertible Notes for redemption, with a redemption date of August 9, 2024. See Redemption of the 2025 Convertible Notes below for further details. A portion of the net proceeds from the 2028 Convertible Notes was used to repurchase $225.0 million of the Company's outstanding 2025 Convertible Notes. The Company recorded a loss on early extinguishment of debt of $17.7 million, primarily related to the premium paid on extinguishment of a portion the 2025 Convertible Notes. On or after March 1, 2028, until the close of business on the second scheduled trading day immediately preceding June 1, 2028, holders may convert their 2028 Convertible Notes at any time. The initial conversion rate for the 2028 Convertible Notes is 30.7692 shares of common stock per $1,000 principal amount of 2028 Convertible Notes (equivalent to an initial conversion price of approximately $32.50 per share of common stock). Upon conversion of either the 2025 Convertible Notes or the 2028 Convertible Notes, holders may receive cash, shares of the Company's common stock or a combination of cash and shares of the Company's common stock, at the Company's option. The conversion rates will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. Holders may convert their 2028 Convertible Notes prior to March 1, 2028, only under the following circumstances, subject to the conditions set forth in the indenture: (i) during the five business day period immediately after any five consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of the 2028 Convertible Notes, as determined following a request by a holder of such notes, for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the common stock and the conversion rate on such trading day, (ii) the Company elects to distribute to all or substantially all holders of the common stock (a) any rights, options or warrants (other than in connection with a stockholder rights plan for so long as the rights issued under such plan have not detached from the associated shares of common stock) entitling them, for a period of not more than 45 days from the declaration date for such distribution, to subscribe for or purchase shares of common stock at a price per share that is less than the average of the last reported sale prices of the common stock for the 10 consecutive trading day period ending on, and including, the trading day immediately preceding the declaration date for such distribution, or (b) the Company's assets, debt securities or rights to purchase securities of the Company, which distribution has a per share value, as reasonably determined by the board of directors, exceeding 10% of the last reported sale price of the common stock on the trading day immediately preceding the declaration date for such distribution, (iii) if a transaction or event that constitutes a fundamental change or a make-whole fundamental change occurs, or if the Company is a party to (a) a consolidation, merger, combination, statutory or binding share exchange or similar transaction, pursuant to which the common stock would be converted into, or exchanged for, cash, securities or other property or assets, or (b) any sale, conveyance, lease or other transfer or similar transaction in one transaction or a series of transactions of all or substantially all of the consolidated assets of the Company and its subsidiaries, taken as a whole, all or any portion of the 2028 Convertible Notes may be surrendered by a holder for conversion at any time from or after the date that is 30 scheduled trading days prior to the anticipated effective date of the transaction, (iv) if during any calendar quarter commencing after the calendar quarter ending on June 30, 2021 (and only during such calendar quarter), the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day (each, a Stock Price Convertibility Trigger), or (v) if the Company sends a notice of redemption, a holder may surrender all or any portion of its 2028 Convertible Notes to which the notice of redemption relates for conversion at any time on or after the date the applicable notice of redemption was sent until the close of business on (a) the second business day immediately preceding the related redemption date or (b) if the Company fails to pay the redemption price on the redemption date as specified in such notice of redemption, such later date on which the redemption price is paid. As of June 30, 2024, there have not been any holder-initiated conversion requests for either series of convertible notes. Each series of convertible notes can be settled in cash, common stock, or a combination of cash and common stock at the Company's option, and thus, the Company determined the embedded conversion options in both series of convertible notes are not required to be separately accounted for as a derivative. However, since the convertible notes are within the scope of the accounting guidance for cash convertible instruments, the Company is required to separate each series of convertible notes into liability and equity components. The carrying amount of the liability component of each series of convertible notes as of the date of issuance was calculated by measuring the fair value of a similar liability that did not have an associated equity component. The fair value was based on data from readily available pricing sources which utilize market observable inputs and other characteristics for similar types of instruments. The carrying amount of the equity component representing the embedded conversion option for each series of convertible notes was determined by deducting the fair value of the liability component from the gross proceeds of the applicable convertible notes. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the expected life of a similar liability that does not have an associated equity component using the effective interest method. The equity component is not remeasured as long as it continues to meet the conditions for equity classification in the accounting guidance for contracts in an entity’s own equity. The fair value of the liability component of the 2025 Convertible Notes on the date of issuance was estimated at $309.1 million using an effective interest rate of 7.6% and, accordingly, the residual equity component on the date of issuance was $140.9 million. The fair value of the liability component of the 2028 Convertible Notes on the date of issuance was estimated at $371.6 million using an effective interest rate of 7.1% and, accordingly, the residual equity component on the date of issuance was $203.4 million. The respective discounts were amortized to interest expense over the term of the applicable series of convertible notes through December 31, 2022, prior to the adoption of ASU 2020-06. The 2028 Convertible Notes have a remaining term of approximately 3.92 years. The $566.1 million carrying value of the 2028 Convertible Notes as of June 30, 2024 is net of $8.9 million of unamortized debt issuance costs. The $224.4 million carrying value of the 2025 Convertible Notes as of June 30, 2024 is net of $0.6 million of unamortized debt issuance costs. The 2028 Convertible Notes and 2025 Convertible Notes are long-term and current liabilities, respectively, as of June 30, 2024. The following table presents the carrying value of the Company's convertible notes balance (in thousands):
| As of
| June 30, 2024 |  | December 31, 2023
Face value of outstanding convertible notes | $ | 800,000 |  |  | 800,000 |
Debt issuance costs | (9,447) |  |  | (11,091) |
Less: current convertible notes | (224,448) |  |  | — |
Total long-term convertible notes | $ | 566,105 |  |  | $ | 788,909 |
Redemption of the 2025 Convertible Notes On June 27, 2024, the Company issued a redemption notice for its 2025 Convertible Notes with a redemption date of August 9, 2024 (the Redemption Date). All then outstanding 2025 Convertible Notes will be redeemed at a redemption price equal to 100% of the principal amount of the 2025 Convertible Notes, plus accrued and unpaid interest on the 2025 Convertible Notes to, but excluding, the Redemption Date (the Redemption Price). For each $1,000 principal amount of 2025 Convertible Notes, the Redemption Price will be equal to approximately $1,001.17. The Company has elected to settle any conversions of the 2025 Convertible Notes that occur on or before the business day prior to the Redemption Date in shares of common stock. As of June 30, 2024, none of the 2025 Convertible Notes converted. Secured Senior Term Loan In October 2022, the Company entered into a $350 million senior secured term loan agreement with Pharmakon Advisors LP (Pharmakon), manager of the BioPharma Credit funds (the Term Loan). The Term Loan matures on October 19, 2027 and bears interest at a rate based upon the secured overnight financing rate (SOFR), subject to a SOFR floor of 2.5%, in addition to a margin of 7.75% per annum. Up to 50% of the interest payable during the first 24 months from the closing of the Term Loan may be paid-in-kind at the Company's election. If elected, paid-in-kind interest will be capitalized and added to the principal amount of the Term Loan. The Term Loan, including the paid-in-kind interest, will be repaid in eight equal quarterly payments starting in the 13th quarter following the closing of the Term Loan (i.e., the quarter ending March 31, 2026), except that the repayment start date may be extended at the Company's option for an additional four quarters, so that repayments start in the 17th quarter following the closing of the Term Loan, subject to the achievement of specified ARIKAYCE data thresholds and certain other conditions. Net proceeds from the Term Loan, after deducting the lenders' fees and deal expenses of $15.2 million, were $334.8 million. During the six months ended June 30, 2024, paid-in-kind interest capitalized was $12.6 million. The following table presents the carrying value of the Company’s Term Loan balance as of June 30, 2024 (in thousands):
|  | As of
|  | June 30, 2024 |  | December 31, 2023 |  |
Original Term Loan balance |  | $ | 350,000 |  |  | $ | 350,000 |  |  |
Paid-in-kind interest capitalized |  | 40,108 |  |  | 27,537 |  |  |
Term Loan issuance costs, unamortized |  | (9,388) |  |  | (11,133) |  |  |
Term Loan |  | $ | 380,720 |  |  | $ | 366,404 |  |  |
As of June 30, 2024, future principal repayments of debt for each of the years through maturity were as follows (in thousands):
Year Ending December 31: |
2024 | $ | 225,000 |
2025 | — |
2026 | 195,054 |
2027 | 195,054 |
2028 | 575,000 |
2029 and thereafter | — |
| $ | 1,190,108 |
In connection with the redemption notice the Company issued for its 2025 Convertible Notes, the principal balance of the 2025 Convertible Notes was reclassified to due within the current year. Interest Expense Interest expense related to debt and finance leases for the three and six months ended June 30, 2024 and 2023 is as follows (in thousands):
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Convertible debt contractual interest expense | $ | 2,062 |  |  | $ | 2,062 |  |  | $ | 4,125 |  |  | $ | 4,125 |
Term Loan contractual interest expense | 12,658 |  |  | 11,490 |  |  | 25,141 |  |  | 22,401 |
Royalty Financing Agreement interest expense | 4,893 |  |  | 4,805 |  |  | 9,715 |  |  | 9,569 |
Amortization of debt issuance costs | 1,800 |  |  | 2,004 |  |  | 3,651 |  |  | 3,728 |
Swap interest income | (710) |  |  | (354) |  |  | (1,464) |  |  | (427) |
Total debt interest expense | 20,703 |  |  | 20,007 |  |  | 41,168 |  |  | 39,396 |
Finance lease interest expense | 564 |  |  | 612 |  |  | 1,141 |  |  | 1,226 |
Total interest expense | $ | 21,267 |  |  | $ | 20,619 |  |  | $ | 42,309 |  |  | $ | 40,622 |

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