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Long-term Debt | 12 Months Ended
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Dec. 31, 2022
Debt Disclosure [Abstract] |
Long-term Debt | Long-term Debt: Our long-term debt outstanding consists of the following (in millions):
| As of December 31,
| 2022 |  | 2021
Credit Agreement— |  |  |
Advances under revolving credit facility | $ | 55.0 |  |  | $ | 200.0 |
Term loan facilities | — |  |  | 238.5 |
Bonds payable— |  |  |
5.125% Senior Notes due 2023 | — |  |  | 99.6 |
5.75% Senior Notes due 2025 | 347.7 |  |  | 347.0 |
4.50% Senior Notes due 2028 | 781.8 |  |  | 786.8 |
4.75% Senior Notes due 2030 | 779.0 |  |  | 784.7 |
4.625% Senior Notes due 2031 | 390.6 |  |  | 393.7 |
Other notes payable | 53.1 |  |  | 47.7 |
Finance lease obligations | 359.8 |  |  | 380.3 |
| 2,767.0 |  |  | 3,278.3 |
Less: Current portion | (25.2) |  |  | (37.8) |
Long-term debt, net of current portion | $ | 2,741.8 |  |  | $ | 3,240.5 |
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
2023 |  | $ | 25.2 |  |  | $ | 25.2 |
2024 |  | 39.2 |  |  | 39.2 |
2025 |  | 381.8 |  |  | 379.5 |
2026 |  | 27.6 |  |  | 27.6 |
2027 |  | 96.6 |  |  | 96.6 |
Thereafter |  | 2,247.5 |  |  | 2,198.9 |
Total |  | $ | 2,817.9 |  |  | $ | 2,767.0 |
As a result of the redemptions discussed below, we recorded a $1.4 million, $1.0 million, and $2.3 million Loss on early extinguishment of debt in 2022, 2021, and 2020, respectively. Senior Secured Credit Agreement— The credit agreement provides for a $1 billion revolving credit facility, with a $260 million letter of credit subfacility and a swingline loan subfacility, all of which mature in October 2027. The credit agreement previously provided for a $270 million term loan commitment, the outstanding amount of which was repaid in June 2022. Amounts drawn on the revolving credit facility bear interest at a rate per annum of, at our option, (1) secured overnight financing rate (“SOFR”) or (2) the higher of (a) Barclays Bank PLC’s 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 0.25% or 0.30%, depending on our leverage ratio, per annum on the daily amount of the unutilized commitments under the revolving credit facility. The current interest rate on SOFR borrowings under the credit agreement includes a credit spread of 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 the Available Amount, as defined in the credit agreement. 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. In June 2022, we further amended our existing credit agreement and the amendments included the following material provisions: 1.Amendment of definition of “Consolidated Net Income” to exclude from the calculation thereof, at Encompass Health’s option, net income or loss from disposed, abandoned, transferred, closed or discontinued operations until such disposition, abandonment, transfer, closure of discontinuance of operations shall have been consummated. 2.Addition of Section 1.08, “SpinCo Credit Facilities Transactions,” to provide that the Loan Documents will not prevent the consummation of the SpinCo Credit Facilities Transactions and that the SpinCo Credit Facilities Transactions will not give rise to any Default or constitute a utilization of any basket under any Loan Document. 3.Amendment of Section 2.11(e) to provide that a Prepayment Notice may be conditioned upon the effectiveness of other credit facilities, indentures or similar agreements or other transactions. 4.Addition of Section 5.18, “SpinCo Distribution,” to provide that within three (3) Business Days following the incurrence of indebtedness under the SpinCo Credit Facilities, Encompass will have consummated the SpinCo Distribution in compliance with the Restricted Payments covenants of the Credit Agreement, and following the consummation of the SpinCo Distribution, no obligors in respect of the SpinCo Credit Facilities will be Restricted Subsidiaries. 5.Amendment of the definition of “Senior Notes” to include Encompass’ 4.625% Senior Notes due 2031 and the definition of “Consolidated Total Indebtedness” to exclude Indebtedness under any Senior Note for which an irrevocable notice of redemption has been issued in connection with or incidental to any SpinCo Distribution. In October 2022, we further amended our existing credit agreement and the amendments included the following material provisions: 1.Amendment of the definition of “Maturity Date” for the revolving borrowings to October 7, 2027. 2.Change the reference rate for borrowings from LIBOR to SOFR. 3.Reduction of the fee for the undrawn portion of the revolving loan commitment from 37.5 basis points to a maximum of 30 basis points and a minimum of 25 basis points, with such rate to be determined based on the Leverage Ratio as of the most recently ended four quarter period. 4.Restatement of the Leverage Ratio maintenance covenant in Section 6.01(b) to the following: On the last day of each fiscal quarter, the Borrower will not permit the Leverage Ratio, calculated as of the end of each such fiscal quarter occurring during the time periods set forth below on a pro forma basis, to exceed the ratio set forth below opposite the time period during which such fiscal quarter ends; provided, however, that the Borrower may elect (the “Step-Up Election”) at any time after the Effective Date to increase the maximum Leverage Ratio permitted hereunder by 0.50 to 1.00 for the 4 immediately succeeding fiscal quarters as of and immediately following the consummation of any Significant Acquisition, in each case, by providing a written notice to the Administrative Agent of such Step-Up Election prior to the last day of the first fiscal quarter for which the Step-Up Election is to take effect (this sentence, the “Leverage Covenant”). Upon the expiration of the Step-Up Election, the maximum Leverage Ratio permitted under the Leverage Covenant shall revert to the Leverage Ratio set forth below for at least two consecutive fiscal quarters before the Borrower may make another Step-Up Election.
Fiscal Quarters Ending | Leverage Ratio
September 30, 2022 – September 30, 2024 | 4.75 to 1.00
December 31, 2024 and thereafter | 4.50 to 1.00
5.Insertion of an add back of certain restructuring charges and synergies in calculating Adjusted Consolidated EBITDA under the credit agreement. 6.Amendment of definition of “Available Amount” to include a $900 million “starter amount” and a “grower component” tied to 50% of cumulative Consolidated Net Income. 7.Amendment of certain negative covenant baskets to include a “grower component” tied to a percentage of Adjusted Consolidated EBITDA for a trailing 12-month period. In June 2022, Enhabit distributed $566.6 million to Encompass Health who used it to fully repay both the $250 million outstanding balance of the Encompass Health revolving credit facility and approximately $236 million of the Encompass Health term loan. Currently, there are no term loan commitments under the credit agreement. As of December 31, 2022, $55 million were drawn under the revolving credit facility with an interest rate of 7.0%. As of December 31, 2021, $200 million were drawn under the revolving credit facility with an interest rate of 2.6%. As of December 31, 2022 and 2021, $32.7 million and $38.2 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. Bonds Payable— Senior Notes The Company’s 5.125% Senior Notes due 2023 (“the 2023 Notes”), 5.75% Senior Notes due 2025 (the “2025 Notes”), 4.50% Senior Notes due 2028 (the “2028 Notes”), 4.75% Senior Notes due 2030 (the “2030 Notes”), and 4.625% Senior Notes due 2031 (the “2031 Notes” and 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. On December 9, 2021, we announced the commencement of a consent solicitation of holders of the 2025 Notes, 2028 Notes, 2030 Notes, and 2031 Notes (collectively the “Notes”) for the adoption of certain amendments to the Indenture, which provided us with greater flexibility in effecting the Spin Off discussed in Note 2, Spin Off of Home Health and Hospice Business. Each Indenture contains restrictive covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to make certain asset dispositions, investments, and distributions to holders of our capital stock. The amendments to the Indentures permit us, subject to the leverage ratio condition set forth below, to distribute to our equity holders in one or more transactions (a “Distribution”) some or all of the common stock of a subsidiary that holds substantially all of the assets of our home health and hospice business. We may make any such distribution so long as the Leverage Ratio (as defined in each Indenture) is no more than 3.5 to 1.0 on a pro forma basis after giving effect thereto. The amendments also reduce the capacity under our restricted payments builder basket under each existing Indenture for the 2028 Notes, 2030 Notes, and 2031 Notes by $200 million and amends the definition of “Consolidated Net Income” to allow us to exclude from Consolidated Net Income (a component of the Leverage Ratio) any fees, expenses or charges related to any Distribution and the solicitation of consents from the holders of the Notes. In December 2021 and January 2022, we received the requisite consents for the adoption of these amendments. Under the terms of the amendments, we agreed to pay the holders of the Notes a total of $40.5 million, excluding fees. We paid $20.0 million and $20.5 million in January and June 2022, respectively. 2023 Notes In March 2015, we issued $300 million of the 2023 Notes at par. In both April and June 2021, we redeemed $100 million in outstanding principal amount of the 2023 Notes using cash on hand and capacity under our revolving credit facility. Pursuant to the terms of the 2023 Notes, these optional redemptions were made at a price of par. In March 2022, we redeemed the remaining $100 million in outstanding principal amount of the 2023 Notes using capacity under our revolving credit facility. Pursuant to the terms of the 2023 Notes, this optional redemption was made at a price of par. The 2023 Notes would have matured on March 15, 2023. Inclusive of financing costs, the effective interest rate on the 2023 Notes was 5.4%. Interest on the 2023 Notes was payable semiannually in arrears on March 15 and September 15. 2025 Notes In September 2015, we issued $350 million of 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, 2022, at the redemption prices set forth below:
Period |  | Redemption Price*
2022 |  | 100.958 | %
September 15, 2023 and thereafter |  | 100.000 | %
* Expressed in percentage of principal amount 2028 and 2030 Notes In September 2019, we issued $500 million of the 2028 Notes at par and $500 million of the 2030 Notes at par. Certain of the proceeds from this offering were used to fund the purchase of equity rights from management investors of our former home health and hospice business discussed in Note 12, Redeemable Noncontrolling Interests. In May 2020, we issued an additional $300 million of the 2028 Notes at a price of 99.0% of the principal amount and an additional $300 million of the 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 of 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 5.0%. 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 Former 2024 Notes In November 2020, we redeemed the remaining $700 million of outstanding principal amount of the 5.75% Senior Notes due 2024 (“the Former 2024 Notes”). Pursuant to the terms of the Former 2024 Notes, this full redemption was made at a price of par. We used the net proceeds from the 2031 Notes offering, discussed above, together with approximately $300 million of cash on hand to fund the redemption. The Former 2024 Notes would have matured on November 1, 2024. Inclusive of premiums and financing costs, the effective interest rate on the Former 2024 Notes was 5.8%. Interest was payable semiannually in arrears on May 1 and November 1 of each year. Other Notes Payable— Our notes payable consist of the following (in millions):
| As of December 31, |  |
| 2022 |  | 2021 |  | Interest Rates
Sale/leaseback transactions involving real estate accounted for as financings | $ | 28.0 |  |  | $ | 28.0 |  |  | 6.1% to 11.2%
Construction of a new hospital | 20.7 |  |  | 11.0 |  |  | 5.0% to 5.5%
Software contracts | 4.4 |  |  | 8.7 |  |  | 2.8%
Other notes payable | $ | 53.1 |  |  | $ | 47.7 |  |  |

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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 https://asc.fasb.org/topic&trid=2208564 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1B -Subparagraph (h) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1C -Subparagraph (c) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1I -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1I -Subparagraph (d) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08(c)) -URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1B -Subparagraph (g) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1C -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1C -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1E -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495348-112611 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1B -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1I -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611 Reference 13: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -SubTopic 20 -Section 50 -Paragraph 1B -Subparagraph (i) -URI https://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611 + Details
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