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Debt | 3 Months Ended
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Mar. 31, 2021
Debt Disclosure [Abstract] |
Debt | 7. Debt Overview Our debt obligations consisted of the following as of the periods presented:
|  | March 31, |  |  | December 31, |
|  | 2021 |  |  | 2020 |
|  | (Dollars in millions) |
Term Debt, interest rate of 2.6% |  | $ | 663.0 |  |  | $ | 664.7 |
Revolving Credit Facility ($300.0 million available capacity less amounts reserved for letters of credit, which were $0.8 million and $0.4 million, respectively) |  |  | — |  |  |  | — |
Convertible Senior Notes |  |  | 575.0 |  |  |  | — |
Canada Line of Credit (CDN $7.0 million letter of credit capacity, which was fully utilized; USD $5.6 million and USD $5.4 million, respectively) |  |  | — |  |  |  | — |
Financing lease liabilities (Please refer to Note 13) |  |  | 10.3 |  |  |  | 8.8 |
Total debt |  |  | 1,248.3 |  |  |  | 673.5 |
Less unamortized discount on Term Debt and Convertible Senior Notes |  |  | 109.0 |  |  |  | 1.2 |
Less unamortized debt issuance costs on Term Debt and Convertible Senior Notes |  |  | 15.7 |  |  |  | 4.5 |
Less current portion of long-term debt |  |  | 8.2 |  |  |  | 7.2 |
Long-term debt, less current portion |  | $ | 1,115.4 |  |  | $ | 660.6 |
Senior Secured Credit Facility On April 30, 2018, we completed the refinancing of our debt by entering into a new credit agreement. Pursuant to the terms of the new credit agreement, we became borrower of (i) a $680.0 million term loan debt facility (the “Term Debt”) and (ii) a $300.0 million revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Senior Secured Credit Facility”). The obligations of Ceridian under the Senior Secured Credit Facility is secured by first priority security interests in substantially all of the assets of Ceridian and the domestic subsidiary guarantors, subject to permitted liens and certain exceptions. The Term Debt has a maturity date of April 30, 2025, and the Revolving Credit Facility has a maturity date of April 30, 2023. On February 19, 2020, we completed the first amendment to the Senior Secured Credit Facility in which the Term Debt interest rate was reduced from LIBOR plus 3.00% to LIBOR plus 2.50%. Further, the interest rate trigger under the applicable rating by Moody’s Investor Service was removed by the first amendment. Accrued interest related to the Senior Secured Credit Facility was $0.3 million and $0.1 million as of March 31, 2021, and December 31, 2020, respectively, and is included within Other accrued expenses in our condensed consolidated balance sheets. Convertible Senior Notes In March 2021, we issued $575.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2026 in a private offering to qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act of 1933, as amended, and pursuant to exemptions from the prospectus requirements of applicable Canadian securities laws, including the exercise in full by the initial purchasers their option to purchase an additional $75.0 million in aggregate principal amount of 0.25% Convertible Senior Notes due 2026 (collectively, the “Notes”). The Notes bear interest at a rate of 0.25% per year and interest is payable semiannually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021. The Notes mature on March 15, 2026, unless earlier converted, redeemed or repurchased. The total net proceeds from the offering, after deducting initial purchase discounts and other debt issuance costs, were $561.8 million. The Notes are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by us or any of our subsidiaries. The following table presents details of the Notes:
|  | Initial Conversion Rate per $1,000 Principal |  | Initial Conversion Price per Share |
Notes |  | 7.5641 shares |  |  | $132.20 |
The Notes will be convertible at the option of the holders at any time only under the following circumstances:
| • | During any calendar quarter commencing after the calendar quarter ending on June 30, 2021, if the last reported sale price per share of our common stock exceeds 130% of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;
| • | During the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;
| • | Upon the occurrence of certain corporate events or distributions on our common stock, as described in the indenture under which the Notes were issued;
•If we call such Notes for redemption; or
| • | At any time from, and including, September 15, 2025 until the close of business on the second scheduled trading day immediately before the maturity date.
Upon conversion, we may satisfy the conversion obligation by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, in the manner and subject to the terms and conditions provided in the indenture under which the Notes were issued. During the quarter ended March 31, 2021, the conditions allowing holders of the Notes to convert have not been met. The Notes were therefore not convertible during the first quarter of 2021 and are classified as a noncurrent liability in our condensed consolidated balance sheet as of March 31, 2021. We may not redeem the Notes prior to March 20, 2024. On or after March 20, 2024, and on or before the 30th scheduled trading day immediately preceding the maturity date, we may redeem the Notes at a cash purchase price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of our common stock exceeds 130% of the conversion price on (1) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date we send the related redemption notice; and (2) the trading day immediately before the date we send such notice. In addition, calling any Note for redemption will constitute a make-whole fundamental change with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption. If a “fundamental change” (as defined in the indenture under which the Notes were issued) occurs, then noteholders may require us to repurchase their notes at a cash repurchase price equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In accounting for the issuance of the Notes and the related transaction costs, we separated the Notes into liability and equity components. The carrying amount of the liability component was initially calculated by measuring the fair value of similar liabilities that do not have associated convertible features utilizing the interest rate of 4.5%. The carrying amount of the equity component representing the conversion option was $108.6 million and was determined by deducting the fair value of the liability component from the par value of the Notes. This difference represents a debt discount that is amortized to interest expense over the term of the Notes using the effective interest rate method. The equity component was recorded in additional paid-in capital and is not remeasured as long as it continues to meet the conditions for equity classification. Total issuance costs of $14.4 million related to the Notes was allocated between liability, totaling $11.7 million, and equity, totaling $2.7 million, in the same proportion as the allocation of the total proceeds to the liability and equity components. Issuance costs attributable to the liability component are being amortized to interest expense over the term of the Notes. The excess of the principal amount of the liability component over its carrying amount is amortized to interest expense over the contractual term of the Notes at an effective interest rate of 5.1%. The issuance costs attributable to the equity component were netted against additional paid- in capital. The amount recorded for the equity component of the Notes was $77.7 million, net of allocated issuance costs of $2.7 million and deferred tax impact of $28.2 million. The carrying amount of the liability component of the Notes was as follows:
|  | March 31, 2021 |
|  | (Dollars in millions) |
Principal amount |  | $ | 575.0 |
Less: |  |  |  |
Unamortized debt discount |  |  | 107.9 |
Unamortized debt issuance costs |  |  | 11.5 |
Net carrying amount |  | $ | 455.6 |
The following table sets forth total interest expense recognized related to the Notes for the period:
|  | Three Months Ended March 31, 2021 |
|  | (Dollars in millions) |
Contractual interest expense |  | $ | 0.1 |
Amortization of debt discount |  |  | 0.7 |
Amortization of debt issuance costs |  |  | 0.1 |
Total |  | $ | 0.9 |
Capped Calls In March 2021, in connection with the pricing of the Notes, we entered into capped call transactions with the option counterparties (the “Capped Calls”). The Capped Calls each have an initial strike price of $132.20 per share, and an initial cap price of $179.26 per share, both subject to certain adjustments. The capped call transactions are generally expected to reduce potential dilution to our common stock upon any conversion of the Notes and/or offset any potential cash payments we would be required to make in excess of the principal amount of converted Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. For accounting purposes, the Capped Calls are separate transactions, and not part of the terms of the Notes. As the Capped Calls qualify for a scope exception from derivative accounting for instruments that are both indexed to the issuer's own stock and classified in stockholder’s equity in our condensed consolidated balance sheet, we have recorded an amount of $33.0 million as a reduction to additional paid-in capital which will not be remeasured. This represents the premium of $45.0 million paid for the purchase of the Capped Calls, net of the deferred tax impact of $12.0 million. Future Payments and Maturities of Debt The future principal payments and maturities of our indebtedness, excluding financing lease obligations, are as follows:
Years Ending December 31, |  | Amount |
|  | (Dollars in millions) |
2021 |  | $ | 5.1 |
2022 |  |  | 6.8 |
2023 |  |  | 6.8 |
2024 |  |  | 6.8 |
2025 |  |  | 637.5 |
Thereafter |  |  | 575.0 |
|  | $ | 1,238.0 |
Fair Value of Debt Our debt does not trade in active markets. Based on the borrowing rates currently available to us for bank loans with similar terms and average maturities, the trading price of our common stock and the limited trades of our debt, the fair value of our debt was estimated to be $1,203.5 million and $657.6 million as of March 31, 2021, and December 31, 2020, respectively. The fair value of the Notes was determined based on the closing trading price per $1,000 of the Notes as of the last day of trading for the period. We consider the fair value of the Notes at March 31, 2021 to be a Level 2 measurement as they are not actively traded. The fair value of the Notes is primarily affected by the trading price of our common stock and market interest rates.

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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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