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Long-term Debt | 12 Months Ended
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Dec. 31, 2020
Debt Disclosure [Abstract] |
Long-term Debt | Long-term Debt: Our long-term debt outstanding consists of the following (in millions):
| As of December 31,
| 2020 |  | 2019
Credit Agreement— |  |  |
Advances under revolving credit facility | $ | — |  |  | $ | 45.0 |
Term loan facilities | 251.6 |  |  | 265.2 |
Bonds payable— |  |  |
5.125% Senior Notes due 2023 | 298.1 |  |  | 297.3 |
5.75% Senior Notes due 2024 | — |  |  | 697.3 |
5.75% Senior Notes due 2025 | 346.3 |  |  | 345.6 |
4.50% Senior Notes due 2028 | 785.0 |  |  | 491.7 |
4.75% Senior Notes due 2030 | 783.2 |  |  | 491.7 |
4.625% Senior Notes due 2031 | 393.2 |  |  | — |
Other notes payable | 39.8 |  |  | 44.7 |
Finance lease obligations | 391.7 |  |  | 384.1 |
| 3,288.9 |  |  | 3,062.6 |
Less: Current portion | (38.3) |  |  | (39.3) |
Long-term debt, net of current portion | $ | 3,250.6 |  |  | $ | 3,023.3 |
The following chart shows scheduled principal payments due on long-term debt for the next five years and thereafter (in millions):
Year Ending December 31, |  | Face Amount |  | Net Amount
2021 |  | $ | 38.3 |  |  | $ | 38.3 |
2022 |  | 49.4 |  |  | 49.4 |
2023 |  | 337.3 |  |  | 335.4 |
2024 |  | 252.5 |  |  | 251.0 |
2025 |  | 384.0 |  |  | 380.2 |
Thereafter |  | 2,273.2 |  |  | 2,234.6 |
Total |  | $ | 3,334.7 |  |  | $ | 3,288.9 |
As a result of the 2020 and 2019 redemptions discussed below, we recorded a $2.3 million and $7.7 million Loss on early extinguishment of debt in 2020 and 2019, respectively. There were no redemptions resulting in a Loss on early extinguishment of debt during 2018. Senior Secured Credit Agreement— Credit Agreement The credit agreement provided for a $270 million term loan commitment and a $1 billion revolving credit facility, with a $260 million letter of credit subfacility and a swingline loan subfacility, all of which mature in November 2024. Outstanding term loan borrowings are payable in equal consecutive quarterly installments, commencing on December 31, 2019, of 1.25% of the aggregate principal amount of the term loans outstanding as of December 31, 2019, with the remainder due at maturity. We have the right at any time to prepay, in whole or in part, any borrowing under the term loan facilities. Amounts drawn on the term loan facilities and the revolving credit facility bear interest at a rate per annum of, at our option, (1) LIBOR or (2) the higher of (a) Barclays Bank PLC’s (“Barclays”) prime rate and (b) the federal funds rate plus 0.5%, in each case, plus, in each case, an applicable margin that varies depending upon our leverage ratio. We are also subject to a commitment fee of 0.375% per annum on the daily amount of the unutilized commitments under the term loan facilities and revolving credit facility. The current interest rate on borrowings under the credit agreement is LIBOR plus 1.50%. The credit agreement contains affirmative and negative covenants and default and acceleration provisions, including a minimum interest coverage ratio and a maximum leverage ratio. Under one such negative covenant, we are restricted from paying common stock dividends, prepaying certain senior notes, making certain investments, and repurchasing preferred and common equity unless (1) we are not in default under the terms of the credit agreement and (2) our senior secured leverage ratio, as defined in the credit agreement, does not exceed 2x. In the event the senior secured leverage ratio exceeds 2x, these payments are subject to a limit of $200 million plus an amount equal to a portion of available excess cash flows each fiscal year. Our obligations under the credit agreement are secured by the current and future personal property of the Company and its subsidiary guarantors. In April 2020, we amended our existing credit agreement and the amendments included the following material provisions: 1.Amendment of the financial covenants to update the applicable interest coverage ratio and leverage ratio included in that covenant. The revised applicable ratios are set forth below.
Fiscal Quarters Ending | Interest Coverage Ratio
December 31, 2019 and March 31, 2020 | 3.00 to 1.00
June 30, 2020, September 30, 2020, December 31, 2020, March 31, 2021, June 30, 2021, September 30, 2021 and December 31, 2021 | 2.00 to 1.00
March 31, 2022 and thereafter | 3.00 to 1.00
Fiscal Quarters Ending | Leverage Ratio
December 31, 2019 and March 31, 2020 | 4.50 to 1.00
June 30, 2020 | 4.75 to 1.00
September 30, 2020 | 5.50 to 1.00
December 31, 2020 | 6.50 to 1.00
March 31, 2021 | 6.50 to 1.00
June 30, 2021 | 6.00 to 1.00
September 30, 2021 | 5.50 to 1.00
December 31, 2021 | 5.00 to 1.00
March 31, 2022 and thereafter | 4.25 to 1.00
2.Amendment of the definition of “Material Adverse Effect” to carve out the direct and indirect impacts of pandemic and the related legislative, regulatory and executive actions on us from that definition for a period of 364 days; and 3.Amendment of the investment limitation covenant and the restricted payment limitation covenant, to add to each a leverage ratio condition (not in excess of 4.50x) to the provisions allowing unlimited investments and restricted payments in the event certain conditions are met including a senior secured leverage ratio (not in excess of 2:00x) and the existence of no events of default in addition to the new leverage ratio condition. As of December 31, 2020, no amount was drawn under the revolving credit facility. As of December 31, 2019, $45 million was drawn under the revolving credit facility with an interest rate of 3.2%. As of December 31, 2020 and 2019, $36.7 million and $38.9 million, respectively, were being utilized under the letter of credit subfacility, which were being used in the ordinary course of business to secure workers’ compensation and other insurance coverages and for general corporate purposes. Currently, there are no undrawn term loan commitments under the credit agreement. Bonds Payable— Nonconvertible Notes The Company’s 2023 Notes, 2024 Notes, 2025 Notes, 2028 Notes, 2030 Notes, and 2031 Notes (collectively, the “Senior Notes”) were issued pursuant to an indenture (the “Base Indenture”) dated as of December 1, 2009, as supplemented by each Senior Notes’ respective supplemental indenture (together with the Base Indenture, the “Indenture”). Pursuant to the terms of the Indenture, the Senior Notes are jointly and severally guaranteed on a senior, unsecured basis by all of our existing and future subsidiaries that guarantee borrowings under our Credit Agreement and other capital markets debt. The Senior Notes are senior, unsecured obligations of Encompass Health and rank equally with our other senior indebtedness, senior to any of our subordinated indebtedness, and effectively junior to our secured indebtedness to the extent of the value of the collateral securing such indebtedness. Upon the occurrence of a change in control (as defined in the Indenture), each holder of the Senior Notes may require us to repurchase all or a portion of the notes in cash at a price equal to 101% of the principal amount of the Senior Notes to be repurchased, plus accrued and unpaid interest. The Senior Notes contain covenants and default and acceleration provisions, that, among other things, limit our and certain of our subsidiaries’ ability to (1) incur additional debt, (2) make certain restricted payments, (3) consummate specified asset sales, (4) incur liens, and (5) merge or consolidate with another person. 2023 Notes In March 2015, we issued $300 million of 5.125% Senior Notes due 2023 (“the 2023 Notes”) at par, which resulted in approximately $295 million in net proceeds from the public offering. The 2023 Notes mature on March 15, 2023 and bear interest at a per annum rate of 5.125%. Inclusive of financing costs, the effective interest rate on the 2023 Notes is 5.4%. Interest on the 2023 Notes is payable semiannually in arrears on March 15 and September 15. We may redeem the 2023 Notes, in whole or in part, at any time on or after March 15, 2018 at the redemption prices set forth below:
Period |  | Redemption Price*
2019 |  | 102.563 | %
2020 |  | 101.281 | %
2021 and thereafter |  | 100.000 | %
* Expressed in percentage of principal amount 2024 Notes In September 2012, we completed a public offering of $275 million aggregate principal amount of the 5.75% Senior Notes due 2024 (“the 2024 Notes”) at par. In September 2014, we issued an additional $175 million of the 2024 Notes at a price of 103.625% of the principal amount, in January 2015, we issued an additional $400 million of the 2024 Notes at a price of 102% of the principal amount, and in August 2015, we issued an additional $350 million of our 2024 Notes at a price of 100.5% of the principal amount. In June 2019, we redeemed $100 million of outstanding principal amount of our 2024 Notes using cash on hand and capacity under our revolving credit facility. Pursuant to the terms of the 2024 Notes, this optional redemption was made at a price of 101.917%, which resulted in a total cash outlay of approximately $102 million. In November 2019, we redeemed $400 million of the outstanding principal amount of our 2024 Notes. Pursuant to the terms of the 2024 Notes, this optional redemption was made at a price of 100.958%, which resulted in a total cash outlay of approximately $404 million. In November 2020, we redeemed the remaining $700 million of outstanding principal amount of the 2024 Notes. Pursuant to the terms of the 2024 Notes, this full redemption was made at a price of par. We used the net proceeds from the 2031 Notes offering, discussed and defined below, together with approximately $300 million of cash on hand to fund the redemption. The 2024 Notes would have matured on November 1, 2024. Inclusive of premiums and financing costs, the effective interest rate on the 2024 Notes was 5.8%. Interest was payable semiannually in arrears on May 1 and November 1 of each year. 2025 Notes In September 2015, we issued $350 million of 5.75% Senior Notes due 2025 (“the 2025 Notes”) at par. The 2025 Notes mature on September 15, 2025 and bear interest at a per annum rate of 5.75%. Inclusive of financing costs, the effective interest rate on the 2025 Notes is 6.0%. Interest on the 2025 Notes is payable semiannually in arrears on March 15 and September 15. We may redeem the 2025 Notes, in whole or in part, at any time on or after September 15, 2020, at the redemption prices set forth below:
Period |  | Redemption Price*
2020 |  | 102.875 | %
2021 |  | 101.917 | %
2022 |  | 100.958 | %
2023 and thereafter |  | 100.000 | %
* Expressed in percentage of principal amount 2028 and 2030 Notes In September 2019, we issued $500 million of 4.50% Senior Notes due 2028 (the “2028 Notes”) at par and $500 million of 4.75% Senior Notes due 2030 (the “2030 Notes”) at par. The proceeds from this offering were used to fund the purchase of equity and vested stock appreciation rights from management investors of our home health and hospice segment, redeem a portion of our 2024 Notes as discussed above, and repay borrowings under our revolving credit facility. In May 2020, we issued an additional $300 million of our 2028 Notes at a price of 99.0% of the principal amount and an additional $300 million of our 2030 Notes at a price of 98.5% of the principal amount, which resulted in approximately $583 million in net proceeds. We used a portion of the net proceeds from this borrowing, together with cash on hand, to repay borrowings under our revolving credit facility. The 2028 Notes mature on February 1, 2028. Inclusive of financing costs, the effective interest rate on the 2028 Notes is 4.8%. Interest on the 2028 Notes is payable semiannually in arrears on February 1 and August 1. We may redeem the 2028 Notes, in whole or in part, at any time on or after February 1, 2023 at the redemption prices set forth below:
Period |  | Redemption Price*
2023 |  | 102.250 | %
2024 |  | 101.125 | %
2025 and thereafter |  | 100.000 | %
* Expressed in percentage of principal amount The 2030 Notes mature on February 1, 2030. Inclusive of financing costs, the effective interest rate on the 2030 Notes is 5.2%. Interest on the 2030 Notes is payable semiannually in arrears on February 1 and August 1. We may redeem the 2030 Notes, in whole or in part, at any time on or after February 1, 2025 at the redemption prices set forth below:
Period |  | Redemption Price*
2025 |  | 102.375 | %
2026 |  | 101.583 | %
2027 |  | 100.792 | %
2028 and thereafter |  | 100.000 | %
* Expressed in percentage of principal amount 2031 Notes In October 2020, we issued $400 million aggregate principal amount of 4.625% Senior Notes due 2031 (the “2031 Notes”) at par. The 2031 Notes mature on April 1, 2031 and bear interest at a per annum rate of 4.625%. Inclusive of financing costs, the effective interest rate on the 2031 Notes is 4.8%. Interest is payable semiannually in arrears on April 1 and October 1 of each year. We may redeem the 2031 Notes, in whole or in part, at any time on or after April 1, 2026 at the redemption prices set forth below:
Period |  | Redemption Price*
2026 |  | 102.313 | %
2027 |  | 101.542 | %
2028 |  | 100.771 | %
2029 and thereafter |  | 100.000 | %
* Expressed in percentage of principal amount Other Notes Payable— Our notes payable consist of the following (in millions):
| As of December 31, |  |
| 2020 |  | 2019 |  | Interest Rates
Sale/leaseback transactions involving real estate accounted for as financings | $ | 28.0 |  |  | $ | 28.0 |  |  | 8.1% to 11.2%
Construction of a new hospital | 11.8 |  |  | 12.9 |  |  | 5.0%
Other | — |  |  | 3.8 |  |  | 4.3% to 6.8%
Other notes payable | $ | 39.8 |  |  | $ | 44.7 |  |  |

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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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